The deal is set to make the Canadian bank the regional lender's largest investor
Scotiabank has announced a strategic move to expand its presence in the United States by acquiring a 14.9% stake in US regional lender KeyCorp for $2.8 billion. The investment comes as the Canadian banking sector faces saturation, resulting in banks seeking growth opportunities abroad.
Scotiabank’s acquisition will be conducted in two phases, with an initial purchase of a 4.9% stake followed by an additional 10% stake. Upon completion in fiscal 2025, Scotiabank will become the largest investor in KeyCorp. The deal, priced at $17.17 per share, represents a 17.5% premium over KeyCorp’s last closing stock price, causing KeyCorp’s shares to soar by 14%. However, Scotiabank’s stock saw a slight decline of about 3% on the Toronto Stock Exchange.
According to Reuters, this move is the latest update in a trend among Canada’s big banks to expand into the US market as growth slows domestically. Last year, Bank of Montreal (BMO) acquired Bank of the West for $16.3 billion, and TD Bank purchased boutique investment bank Cowen for $1.3 billion.
Scotiabank CEO Scott Thomson highlighted that the acquisition aligns with the bank’s strategy of focusing on North American markets, particularly those with strong trade links. He explained that the bank saw this investment as “a low-risk, low-cost optionality in North America” with strong returns.
KeyCorp, headquartered in Cleveland, Ohio, is one of the largest regional banks in the US, with assets of over $188 billion as of June 30, 2024. The investment is expected to bolster KeyCorp’s capital and liquidity position, particularly as US regional banks face challenges, such as higher deposit costs and weak loan demand, due to rising borrowing rates.
In addition to financial benefits, Scotiabank and KeyCorp plan to explore future partnerships in areas like investment banking, wealth management, and payments, leveraging Scotiabank’s significant presence across Canada, Mexico, and Central America.
KeyCorp’s CEO Chris Gorman expressed optimism about the partnership, noting that it would provide new opportunities for growth and expansion across North America.
This acquisition comes as the US banking industry prepares for the implementation of stricter capital requirements under the upcoming Basel III Endgame regulations, adding another layer of complexity to the sector.
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