Fed Approves Scotiabank Bid for KeyCorp Stake

The Federal Reserve has given the green light to Scotiabank's bid to acquire a 14.9% voting stake in KeyCorp, a significant move that aligns with Scotiabank's long-term growth strategy and presents potential synergies between the two institutions.

Scotiabank's investment in KeyCorp, a premier U.S. bank with $187 billion in assets, provides attractive near-term returns and creates future optionality for Scotiabank in the North American corridor. The transaction, valued at approximately US$2.8 billion, is expected to be accretive to earnings per share in the first full year following the closing of the additional investment.

The acquisition is expected to significantly boost KeyCorp's capital adequacy ratios, with the initial investment of $0.8 billion estimated to increase KeyCorp's CET1 capital ratio by 195 basis points to 12.4%. Upon completion of the additional investment of $2.0 billion, the CET1 ratio is projected to increase further, reaching a range of 11.3% to 11.6%. This strengthened capital position will enhance KeyCorp's resilience and capacity for growth, enabling it to invest more aggressively in areas such as investment banking, payments, and wealth management.

The Fed's approval of Scotiabank's bid is expected to have a positive impact on KeyCorp's earnings per share (EPS) in the short and long term. The $2.8 billion investment represents a 14.9% pro-forma ownership stake, with an initial investment of $0.8 billion expected to close in Q4 2024, followed by an additional investment of $2.0 billion in 2025. This capital raise is estimated to increase KeyCorp's tangible book value per share by more than 10% and result in a strong net CET1 capital ratio in the range of 11.3% to 11.6%, being low single-digit accretive to 2025 EPS and slightly accretive to 2026 EPS.



In addition to the capital boost, the acquisition presents potential synergies between Scotiabank and KeyCorp's business operations. KeyCorp's extensive U.S. presence and commercial banking focus complement Scotiabank's global banking and markets (GBM) business. By leveraging KeyCorp's U.S. footprint, Scotiabank can expand its GBM services, particularly in investment banking, payments, and wealth management. Furthermore, Scotiabank's unique position as the only Canadian bank with a presence across Canada, the U.S., and Mexico could facilitate cross-border collaboration and growth opportunities.



In conclusion, the Fed's approval of Scotiabank's bid to acquire a 14.9% voting stake in KeyCorp is a strategic move that aligns with Scotiabank's long-term growth strategy and presents potential synergies between the two institutions. The investment is expected to significantly boost KeyCorp's capital adequacy ratios and have a positive impact on KeyCorp's EPS in the short and long term. As the transaction progresses, both Scotiabank and KeyCorp will likely explore commercial opportunities to partner together and best serve their respective client bases.