KeyCorp has successfully secured a substantial $2.8 billion investment from Bank of Nova Scotia, which will allow the Canadian bank to acquire a minority stake in the US banking institution. In a significant move, the agreement involves Scotiabank purchasing a 14.9% pro-forma stake in KeyCorp at a price of $17.17 per share, as confirmed through separate statements issued by both firms on Monday.
Following the announcement, KeyCorp's stock surged by 13% during Monday's trading session, contrasting with a decline of 4.2% in Scotiabank's US-listed shares. The investment from Scotiabank will be executed in two distinct phases. Initially, an infusion of $800 million will secure a 4.9% stake in KeyCorp, contingent upon obtaining antitrust clearance.
Subsequently, a further investment of $2 billion will be made to acquire an approximate 10% stake, which is anticipated to follow after receiving approval from the Federal Reserve. KeyCorp has indicated that it expects to complete the first tranche of the investment by the end of August, while the closing of the second phase is projected for the first quarter of 2025.
Chris Gorman, the Chief Executive Officer of KeyCorp, shared insights on the strategic benefits of this investment, stating, "While we continue to be comfortable with our current capital position, we determined that the investment enables Key to accelerate our well-communicated capital and earnings improvement while bolstering our strategic position.
Further, this transaction creates greater capacity for growth by enabling additional investments in targeted scale across our franchise and increases Key's strategic agility as we navigate an uncertain environment from a position of strength." Furthermore, KeyCorp anticipates that the new investment will enhance its common equity tier 1 ratio by 195 basis points to 12.4% as of June 30 and boost its tangible book value per share by over 10%.
It is projected that this deal will contribute to a low single-digit increase in earnings per share (EPS) for 2025, with a "slightly" accretive impact on EPS expected in 2026. Looking ahead, KeyCorp and Scotiabank plan to explore additional commercial opportunities together. According to projections, Scotiabank expects the investment to be accretive to EPS in the first full year following the completion.
Additionally, following the finalization of the deal, Scotiabank will have the right to nominate two members to KeyCorp's board of directors, enhancing their influence within the organization. CEO Scott Thomson of Scotiabank emphasized the significance of the deal by stating that it "significantly increases" the capital allocated to Scotiabank's priority markets.
He further stated, "We believe that this transaction provides attractive near-term returns to our shareholders and creates future optionality for Scotiabank in the North American corridor." As KeyCorp continues to position itself for growth amidst fluctuating market conditions, this partnership marks a pivotal moment in its strategic trajectory. KeyCorp's latest stock price reflects a value of $16.54, showing a gain of +1.93, which corresponds to a remarkable percentage change of +13.18..