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KeyCorp Receives First Phase of Investment From Scotiabank
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The Bank of Nova Scotia (also known as Scotiabank) (BNS - Free Report) has completed the first tranche of strategic minority investment in KeyCorp (KEY - Free Report) . With an investment of 0.8 billion, BNS now holds approximately 4.9% stake in KeyCorp.
This is part of the agreement announced on Aug. 12. Under it, Scotiabank will acquire roughly a 14.9% stake (in two tranches) in KeyCorp for a fixed price of $17.17 per share.
The second part of the deal involves BNS making an additional $2 billion of investment, expected to close in the first quarter of 2025, pending the Federal Reserve’s consent and satisfaction of customary closing conditions.
For Scotiabank, the step marks a massive advancement as it tries to expand operations in North America. It will be able to appoint two directors to KEY's board. As part of the agreement, both companies intend to explore potential future partnerships to better serve their respective clients.
Financial Gains for KeyCorp
The total $2.8 billion investment is expected to boost KeyCorp’s CET1 capital ratio by 195 basis points to 12.4% and tangible book value per share by 10% as of June 30, 2024.
Following the completion of the capital raise, KEY plans to evaluate repositioning its available-for-sale (AFS) securities portfolio by divesting low-yielding, longer-duration AFS securities and investing the proceeds in higher-yielding, more liquid securities.
Though the divestiture of lower-yielding AFS securities will result in a one-time after-tax loss of almost half of the capital raised, it will lead to nearly $400 million in additional net interest income (NII) in 2025 and 2026.
This will also be low single-digit accretive to KeyCorp’s 2025 earnings and slightly accretive to its 2026 earnings.
For 2024, KeyCorp estimates NII to decline 2-5% because of higher funding costs and weak loan demand.
This is almost similar to the steps taken by Truist Financial (TFC - Free Report) earlier this year. The company completed the sale of its remaining stake in its insurance subsidiary – Truist Insurance Holdings – and used the proceeds to reposition its balance sheet and invest in shorter-duration investment securities. These initiatives will add almost $710 million to TFC’s 2024 NII.
Our Take on KEY’s Strategic Initiative
A year after the regional banking crisis engulfed the lenders amid rising interest rates, several banks are still struggling to maintain profitability.
Hence, KeyCorp aims to accelerate expected profitability, liquidity and capital improvements while enhancing overall financial resilience through the stake sale.
Image: Bigstock
KeyCorp Receives First Phase of Investment From Scotiabank
The Bank of Nova Scotia (also known as Scotiabank) (BNS - Free Report) has completed the first tranche of strategic minority investment in KeyCorp (KEY - Free Report) . With an investment of 0.8 billion, BNS now holds approximately 4.9% stake in KeyCorp.
This is part of the agreement announced on Aug. 12. Under it, Scotiabank will acquire roughly a 14.9% stake (in two tranches) in KeyCorp for a fixed price of $17.17 per share.
The second part of the deal involves BNS making an additional $2 billion of investment, expected to close in the first quarter of 2025, pending the Federal Reserve’s consent and satisfaction of customary closing conditions.
For Scotiabank, the step marks a massive advancement as it tries to expand operations in North America. It will be able to appoint two directors to KEY's board. As part of the agreement, both companies intend to explore potential future partnerships to better serve their respective clients.
Financial Gains for KeyCorp
The total $2.8 billion investment is expected to boost KeyCorp’s CET1 capital ratio by 195 basis points to 12.4% and tangible book value per share by 10% as of June 30, 2024.
Following the completion of the capital raise, KEY plans to evaluate repositioning its available-for-sale (AFS) securities portfolio by divesting low-yielding, longer-duration AFS securities and investing the proceeds in higher-yielding, more liquid securities.
Though the divestiture of lower-yielding AFS securities will result in a one-time after-tax loss of almost half of the capital raised, it will lead to nearly $400 million in additional net interest income (NII) in 2025 and 2026.
This will also be low single-digit accretive to KeyCorp’s 2025 earnings and slightly accretive to its 2026 earnings.
For 2024, KeyCorp estimates NII to decline 2-5% because of higher funding costs and weak loan demand.
This is almost similar to the steps taken by Truist Financial (TFC - Free Report) earlier this year. The company completed the sale of its remaining stake in its insurance subsidiary – Truist Insurance Holdings – and used the proceeds to reposition its balance sheet and invest in shorter-duration investment securities. These initiatives will add almost $710 million to TFC’s 2024 NII.
Our Take on KEY’s Strategic Initiative
A year after the regional banking crisis engulfed the lenders amid rising interest rates, several banks are still struggling to maintain profitability.
Hence, KeyCorp aims to accelerate expected profitability, liquidity and capital improvements while enhancing overall financial resilience through the stake sale.
So far this year, shares of this Zacks Rank #3 (Hold) company have rallied 18.5%, underperforming the industry’s growth of 24.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Image Source: Zacks Investment Research