KeyCorp-Scotiabank Deal Closes, to Support KEY's NII Expansion in 2025

Core Viewpoint - KeyCorp has completed a strategic minority investment from Scotiabank, which is expected to enhance its capital ratios and support future growth initiatives [1][2][6]. Investment Details - Scotiabank invested $0.8 billion for a 4.9% stake in KeyCorp, completing a total investment of $2 billion for a nearly 14.9% equity stake [1][9]. - The total expected investment of $2.8 billion will increase KeyCorp's CET1 capital ratio by 195 basis points to 12.4% and tangible book value per share by 10% by June 30, 2024 [2]. Financial Strategy - KeyCorp sold its low-yielding available-for-sale (AFS) investment securities portfolio worth almost $7 billion, incurring an after-tax loss of $737 million in Q3 [3]. - The company plans to reinvest the proceeds from the divestiture into higher-yielding, more liquid securities, which is projected to generate nearly $400 million in additional net interest income (NII) in 2025 and 2026 [10]. Market Performance - Year-to-date, KeyCorp's shares have increased by 19.4%, underperforming the industry growth of 23.7% [5]. - The company's NII declined by 13.6% in 2023, with a net interest margin (NIM) contraction of 46 basis points to 2.17% [12]. Future Outlook - With anticipated interest rate cuts in 2025, KeyCorp's NII and NIM are expected to receive support, despite challenges from sluggish loan demand and rising funding costs [12]. - The strategic partnership with Scotiabank may lead to future collaborations to enhance client services [9].