KeyCorp (KEY, Financial) has successfully completed a strategic minority investment agreement with The Bank of Nova Scotia (Scotiabank), culminating in a total investment of approximately $2.8 billion. This transaction, finalized on December 27, 2024, allows Scotiabank to acquire a 14.9% stake in KeyCorp's outstanding common shares, following the receipt of all necessary regulatory approvals.
The investment agreement, initially announced on August 12, 2024, involved Scotiabank purchasing KeyCorp's common shares at a fixed price of $17.17 per share. The initial purchase, completed on August 30, 2024, saw Scotiabank investing approximately $0.8 billion, securing a 4.9% ownership. The recent completion of the second phase of the investment, amounting to $2.0 billion, has increased Scotiabank's stake to 14.9%.
In conjunction with the finalization of this investment, KeyCorp's Board of Directors has expanded to include two new members, Jacqueline Allard and Somesh Khanna. These appointments are part of Scotiabank's director designation rights under the investment agreement. Ms. Allard, who will serve on the Technology Committee, brings extensive experience from her role as Group Head of the Global Wealth Management Division at Scotiabank. Mr. Khanna, appointed to the Risk Committee, has a robust background in digital transformation and financial services from his tenure at Apexon, Inc. and McKinsey & Company.
Additionally, KeyCorp has undertaken a strategic repositioning of its investment securities portfolio, selling $3.0 billion of low-yielding securities and terminating $3.0 billion in cash flow hedges. This move, completed prior to the second closing, resulted in an expected after-tax loss of approximately $700 million for the fourth quarter of 2024. The proceeds have been reinvested into higher-yielding securities, enhancing the portfolio's average book yield from 1.5% to 5.5%.
KeyCorp's executive leadership team has also been granted performance-based equity awards to align with long-term shareholder value creation goals. These awards are contingent upon meeting specific regulatory capital and earnings targets by the end of 2026.
This strategic investment and board expansion are pivotal steps for KeyCorp as it seeks to leverage Scotiabank's expertise and resources to drive growth and enhance shareholder value.
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