KeyCorp (NYSE: KEY) has announced a strategic minority investment from the Bank of Nova Scotia (Scotiabank), a move that is poised to significantly enhance KeyCorp's capital position and provide potential commercial partnership opportunities between the two banks.
The investment, valued at approximately $2.8 billion, will see Scotiabank acquire a 14.9% pro forma ownership stake in KeyCorp's common stock at a fixed price of $17.17 per share.
This investment is expected to bolster KeyCorp's CET1 (Common Equity Tier 1) capital ratio by 195 basis points, raising it to 12.4% as of June 30, 2024. The transaction is also anticipated to increase KeyCorp's tangible book value per share by more than 10%.
In conjunction with this capital infusion, KeyCorp is considering a strategic repositioning of its available-for-sale securities portfolio. The objective is to expedite the timeline for profitability and capital improvements, as well as to enhance overall liquidity and resilience.
If these initiatives are implemented, KeyCorp projects a strong CET1 capital ratio in the range of 11.3% to 11.6%, with an expected improvement in its capital ratio, including Accumulated Other Comprehensive Income (AOCI), to a range of 9.1% to 9.4%.
Scotiabank's investment will be made in two tranches: an initial $800 million investment, granting Scotiabank a 4.9% stake in KeyCorp, is expected to occur by the end of August 2024 following the expiration of the antitrust waiting period under the Hart-Scott-Rodino (HSR) Act.
The subsequent $2 billion investment, which will bring Scotiabank's ownership to approximately 14.9%, is expected to be completed in the first quarter of 2025, subject to Federal Reserve approval and other customary closing conditions.
This strategic investment not only strengthens KeyCorp’s financial position but also opens the door for future commercial collaborations between KeyCorp and Scotiabank, potentially benefiting both institutions and their respective client bases.
As the deal progresses, market observers will be closely watching for further developments and the impact on KeyCorp's financial performance and stock valuation.