KeyCorp (NYSE:KEY) shares are trading higher after the company disclosed a strategic minority investment agreement with The Bank of Nova Scotia (NYSE:BNS).
As per the deal, Scotiabank will invest approximately $2.8 billion in KeyCorp, acquiring about 14.9% of common stock at $17.17 per share.
The investment is expected to boost KeyCorp's CET1 capital ratio by 195 basis points to 12.4% and increase tangible book value per share by over 10% as of June 30, 2024.
KeyCorp plans to reposition its available-for-sale securities portfolio to enhance profitability and capital strength after the capital raise. This is expected to increase the CET1 capital ratio to 11.3%-11.6%, be accretive to 2025 EPS, and slightly accretive to 2026 EPS.
The pro forma CET1 ratio, including AOCI, should reach 9.1%-9.4%, a 185 to 210 basis point improvement from June 30, 2024, providing a solid buffer for Basel III regulations.
Scotiabank will buy about 163 million shares of KeyCorp in two stages: an initial $0.8 billion investment, giving Scotiabank a 4.9% stake after the Hart-Scott-Rodino (HSR) Act waiting period, followed by an additional $2.0 billion investment, increasing its stake to approximately 14.9% upon Federal Reserve approval.
The initial purchase is expected to close by the end of August, with the additional purchase, contingent on customary closing conditions and Federal Reserve approval, anticipated in the first quarter of 2025.
"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.
In July, KeyCorp reported second quarter EPS of $0.25, in line with the consensus, and sales of $1.526 billion, surpassing the consensus of $1.525 billion.
Price Action: KEY shares are up 17.9% at $17.24 premarket at the last check Monday.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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