Scotiabank acquires stake in KeyCorp

This investment is part of Scotiabank's strategy to expand beyond its home market in Canada and capitalise on opportunities in the US banking sector. KeyCorp's stock surged by 14% following the announcement, with Scotiabank offering USD 17.17 per share, which represents an approximately 17.5% premium over KeyCorp's most recent closing price. The deal also includes provisions for Scotiabank to appoint two members to KeyCorp's board. 

According to Reuters, smaller regional banks in the US are currently facing challenges such as high deposit-holding costs and reduced loan demand, driven by increased borrowing expenses. In this context, Scotiabank's move is in line with a broader trend among major Canadian banks to pursue growth opportunities in the US, where domestic growth is stagnating. 

In recent moves by Canadian financial institutions, Bank of Montreal acquired Bank of the West for USD 16.3 billion last year, while TD purchased the New York-based investment bank Cowen for USD 1.3 billion. Additionally, the Royal Bank of Canada owns City National Bank in Hollywood. 

Scotiabank's CEO has previously indicated a strategic shift towards North American markets, particularly focusing on the region's USD 1.6 trillion annual trade, as opposed to less profitable Latin American ventures. He emphasised that reallocating capital from emerging markets to developed markets is a core component of the bank’s strategy, citing this investment as a ‘low risk, low cost optionality’ with promising returns.

Initial plans 

Officials from Cormark Securities remarked that the initial expectation was for Scotiabank to concentrate on expanding its wealth management and capital markets businesses rather than investing in a US regional bank. They also mentioned that substantial consideration had been given to the US market, noting that the investment aligns with the bank's strategic goals. Additionally, the two banks plan to explore future commercial partnerships. 

KeyCorp's CEO stated that the bank will look into various opportunities in investment banking, wealth management, and payments, leveraging Scotiabank’s presence in Canada, Mexico, Central America, and now the US.