Investing.com -- Shares of KeyCorp (NYSE:KEY) jumped 8.5% in pre-open trading on Monday following a minority investment by The Bank of Nova Scotia (TSX:BNS) (" Scotiabank ").
The deal, valued at about $2.8 billion, represents a 14.9% pro forma ownership in KeyCorp's common stock at a fixed price of $17.17 per share.
“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,” said KeyCorp chairman and chief executive, Chris Gorman.
Scotiabank's $2.8 billion minority stake in KeyCorp will be executed in two tranches, with the first $0.8 billion investment granting Scotiabank 4.9% of KeyCorp's common stock.
This initial investment is expected to close by the end of August 2024, following the expiration of the Hart-Scott-Rodino (HSR) Act antitrust waiting period, KeyCorp said in a statement.
The second tranche, worth $2.0 billion, is contingent on receiving approval from the Federal Reserve, which is expected to be finalized by the first quarter of 2025.
This capital infusion is projected to raise KeyCorp's Common Equity Tier 1 (CET1) capital ratio by 195 basis points to 12.4% as of June 30, 2024.
The transaction is also expected to increase KeyCorp’s tangible book value per share by more than 10%.
In tandem with the capital raise, KeyCorp is considering a repositioning of its available-for-sale securities portfolio. This move is aimed at accelerating profitability, liquidity, and capital improvements while enhancing the bank's overall resilience.
The expected CET1 capital ratio post-transaction and portfolio repositioning is estimated to be in the range of 11.3% to 11.6%, providing a substantial buffer ahead of the finalization of Basel III rules.
Additionally, the capital raise is expected to be accretive to KeyCorp's earnings, contributing to a low single-digit increase in earnings per share (EPS) in 2025 and slight accretion in 2026.