Scotiabank Buys Stake in KeyCorp

Scotiabank has decided to invest in U.S. bank KeyCorp, buying a 14.9% stake for about $2.8 billion. This move marks a shift in Scotiabank’s focus towards the North American market as it aims to enhance its presence in the region.

The deal, which involves buying KeyCorp shares at $17.17 each, comes with an 11% premium over the average share price in the last 20 days. Scotiabank’s CEO, Scott Thomson, expressed confidence that this investment will give the bank a stronger foothold in the U.S. market.

KeyCorp, based in Cleveland, operates approximately 1,000 branches across the U.S. and manages around $187 billion in assets. Scotiabank sees a good fit between their operations, especially given KeyCorp’s emphasis on serving commercial clients.

This investment follows Scotiabank’s strategy to pull back from some Latin American markets, where it has faced lackluster returns, and instead concentrate on growth opportunities closer to home. Thomson mentioned that this investment will help drive capital and earnings improvement for KeyCorp.

Analysts are interested to see how this play unfolds, given that similar Canadian banks, like Royal Bank of Canada and Toronto-Dominion Bank, have previously acquired U.S. banks. Some experts noted that while this approach is different, it could yield valuable synergies for Scotiabank.

The investment will happen in two stages: an initial amount of $800 million and a subsequent $2 billion investment, subject to regulatory approval. This deal comes at a time when KeyCorp looks to restructure its balance sheet after facing challenges due to rising interest rates.

Chris Gorman, CEO of KeyCorp, conveyed optimism about the deal, highlighting the confidence it instills in the bank’s prospects and its aim to encourage growth.