The Bank of Nova Scotia (Scotiabank) has agreed to purchase a 14.9% stake in KeyCorp, a U.S. regional bank that faced significant challenges during last year’s financial turmoil, for approximately $2.8 billion. This strategic investment is part of Scotiabank’s ongoing focus on expanding its presence in North America.
Scotiabank will acquire the shares of Cleveland-based KeyCorp at $17.17 each, a price that represents an 11% premium over the bank’s volume-weighted average price for the past 20 trading days, according to a statement released by the Toronto-based bank on Monday.
This investment significantly increases the capital deployed to our identified priority markets, said Scott Thomson, Scotiabank’s Chief Executive Officer. Scotiabank, which operates across Canada, the U.S., and Mexico, views this move as a strategic enhancement of its North American operations. KeyCorp, with approximately 1,000 U.S. branches, provides commercial and retail banking services as well as investment advice, managing about $187 billion in assets.
KeyCorp is currently considering restructuring its balance sheet to reduce the duration of certain assets in its investment portfolio. This strategy is reminiscent of the situation a year ago when investor confidence in KeyCorp and similar regional banks waned following the U.S. Federal Reserve’s rapid interest rate hikes, which resulted in substantial paper losses as bond values declined.
Since the beginning of 2023, KeyCorp’s stock has dropped by 16%, in stark contrast to the 24% rise in the S&P 500 Financials Index.
While we remain confident in our current capital position, this investment allows KeyCorp to accelerate our capital and earnings improvement efforts while strengthening our strategic position, said KeyCorp CEO Chris Gorman in a separate statement.
Scotiabank’s acquisition will occur in two stages: an initial $800 million investment followed by an additional $2 billion, contingent on regulatory approval.
