KeyCorp Soars on Scotiabank Investment

Shares of KeyCorp surged 8.5% in pre-market trading on Monday after The Bank of Nova Scotia announced a minority investment in the company.

The transaction, valued at approximately $2.8 billion, will result in a 14.9% pro forma ownership of KeyCorp’s common stock, priced at $17.17 per share. KeyCorp’s chairman and CEO, Chris Gorman, expressed optimism about the deal, stating that it enhances the company’s growth potential and strategic flexibility during uncertain times.

The investment will be executed in two phases. The first phase involves an investment of $0.8 billion, which will allow Scotiabank to acquire 4.9% of KeyCorp’s common stock. This initial investment is anticipated to close by the end of August 2024, pending the expiration of the antitrust waiting period under the Hart-Scott-Rodino Act.

The second phase, valued at $2.0 billion, is subject to approval from the Federal Reserve and is expected to be completed by the first quarter of 2025.

This capital infusion is projected to increase KeyCorp’s Common Equity Tier 1 (CET1) capital ratio by 195 basis points to 12.4% as of June 30, 2024. Additionally, it is likely to boost KeyCorp’s tangible book value per share by over 10%.

Alongside the capital increase, KeyCorp plans to revisit its available-for-sale securities portfolio to enhance profitability, liquidity, and overall capital strength while bolstering the bank’s resilience.

Following the completion of the transaction and portfolio adjustments, the CET1 capital ratio is expected to range from 11.3% to 11.6%, providing a solid buffer ahead of the implementation of Basel III regulations.

Furthermore, the capital raise is anticipated to positively impact KeyCorp’s earnings, contributing to a modest single-digit rise in earnings per share (EPS) in 2025 and a slight improvement in 2026.