Scotiabank has signed a deal to buy a minority stake in U.S. bank KeyCorp as it works to focus on the North American market.
The Canadian bank said Monday it will pay a total of about US$2.8 billion for a 14.9% stake in the company in two stages.
The deal significantly increases Scotia’s spending on its priority markets, said chief executive Scott Thomson in a statement.
“We believe that this transaction provides attractive near-term returns to our shareholders and creates future optionality for Scotiabank in the North American corridor.”
The bank announced a ‘refreshed’ company strategy last December that included pulling back new spending on some Latin American countries as it focused resources closer to home.
The deal with KeyCorp gives it a greater foothold in the U.S., where other Canadian banks have also been expanding their presence.
Under the agreement, Scotiabank will acquire its stake through the issuance of a total of 163 million KeyCorp common shares in two tranches at a price of US$17.17 per share.
National Bank analyst Gabriel Dechaine said the surprise deal is expected to add value and increase its North American exposure. But he thinks investors were expecting Scotiabank to pull back from acquisitions, and that any plans for the bank to increase its stake in KeyCorp could sap capacity to spend capital elsewhere, like buybacks.
The banks say Scotiabank will make an initial investment of US$800 million for a 4.9% stake that is expected to close in its fourth quarter, subject to clearances and regulatory approvals.
The deal will be followed by an additional investment of US$2 billion for a 10% stake that is expected to close in fiscal 2025.
KeyCorp operates in 15 states, with about 1,000 branches offering commercial and retail banking and investment advice and services.
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