Scotiabank to invest $2.8bn in US regional lender KeyCorp

KeyCorp rallied on Monday after Canada’s Scotiabank agreed to invest $2.8bn in the US regional lender.

The investment represents around 14.9% pro forma common stock ownership for $17.17 per share.

The minority investment is expected to increase KeyCorp's June 30, 2024, CET1 capital ratio by 195 basis points to 12.4% and increase tangible book value per share by more than 10%.

KeyCorp said it also intends to evaluate a potential repositioning of the available-for-sale securities portfolio "with the objective of accelerating the timing of expected profitability, liquidity and capital improvements, and generally increasing resiliency".

The capital raise, along with the contemplated repositioning, are estimated to result in a "strong" net CET1 capital ratio in the range of 11.3% to 11.6%, it said, while being low single-digit accretive to 2025 earnings per share and slightly accretive to 2026 earnings per share.

KeyCorp chairman and chief executive Chris Gorman said: "Scotiabank approached us with a unique opportunity to raise capital on attractive terms. 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. We have a proven track record of driving growth in areas such as investment banking, payments, and wealth management, and we expect to leverage our strengthened financial position to lean into these areas more aggressively."

At 1345 BST, KeyCorp shares were up 18% in pre-market trade at $17.26.