KeyCorp has reached an agreement under which The Bank of Nova Scotia (Scotiabank) will make a strategic minority investment in KeyCorp of approximately $2.8 billion, representing approximately 14.9 percent pro forma common stock ownership, for a fixed price of $17.17 per share.
"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," said KeyCorp Chairman and Chief Executive Officer Chris Gorman. "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."
Transaction Details
The approximately $2.8 billion minority investment is estimated to increase KeyCorp's June 30, 2024, CET1 capital ratio by 195 basis points to 12.4 percent and increase tangible book value per share by more than 10%.
In conjunction with completion of the capital raise, KeyCorp 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 percent to 11.6 percent,1 while being low single-digit accretive to 2025 earnings per share and slightly accretive to 2026 earnings per share. The estimated CET1 capital ratio, pro forma for the capital raise and balance sheet repositioning, inclusive of AOCI is expected to be in the range of 9.1 percent to 9.4 percent,1 a 185 to 210 basis point improvement from June 30, 2024, providing a substantial cushion as Basel III rules are eventually finalized. Such future actions would be subject to market conditions and other factors.
As part of the transaction, KeyCorp and Scotiabank plan to explore commercial opportunities to partner together in the future to best serve their respective client bases.
Timing and Approvals
Scotiabank will purchase approximately 163 million shares of KeyCorp's common stock in two tranches: an initial investment of $0.8 billion, after which Scotiabank will own 4.9 percent of KeyCorp's common stock, will occur upon expiration of the antitrust waiting period under the Hart-Scott-Rodino (HSR) Act, followed by an additional investment of $2.0 billion, after which Scotiabank will own approximately 14.9 percent of KeyCorp's common stock, upon approval by the Federal Reserve.
The parties expect to complete the initial purchase at the end of August and the additional purchase upon the satisfaction of customary closing conditions and the receipt of Federal Reserve approval, which is expected to occur in the first quarter of 2025.
J.P. Morgan Securities LLC and KeyBanc Capital Markets are serving as financial advisors, and Sullivan & Cromwell LLP is serving as legal counsel to KeyCorp.