'Strong cultural fit' — Scotiabank to invest in U.S.-based KeyCorp as it refocuses direction
Bank of Nova Scotia has agreed to buy 14.9 per cent of Cleveland-based KeyCorp for about $3.9 billion as it looks to boost its focus on developed economies and strengthen its North American footprint.
The investment will be completed in two stages, subject to regulatory approvals, the bank said in a statement on Monday. The initial investment of 4.9 per cent is expected to close by year-end, while the remaining 10 per cent will close next year. The deal will also allow two Scotiabank officials to serve on KeyCorp’s board.
“Moving capital from developing markets to developed markets is a huge part of building out this North American corridor,” Scotiabank chief executive Scott Thomson said on a conference call. “We went through a very intensive process … and saw which (banks) were attractive and which ones were a good fit. Key went to the top of that list.”
Scotiabank announced a new strategy in December that would increasingly allocate more capital towards “stable, high-return markets” in North America. The bank’s “immediate focus” would be to allocate a greater share of capital to Canada as well as “recycling capital” from its Latin American businesses to its corporate business in the United States.
Scotiabank has the largest international footprint among its Canadian peers, but its businesses in Latin America have too many clients using only one banking product, Thomson said in December.
He also said that although the bank has done plenty of work to reposition itself, the returns on the capital deployed haven’t “measured up” in the past decade, so Scotiabank’s total shareholder return has underperformed.
If the new deal goes through, the U.S. will become Scotiabank’s second-largest market from an earnings perspective,
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