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((Automated translation by Reuters, please see disclaimer https://bit.ly/rtrsauto))
(Adds details of KeyCorp and Scotiabank conference calls) by Manya Saini and Nivedita Balu
Scotiabank BNS.TO is buying a 14.9% stake in U.S. regional bank KeyCorp KEY.N for $2.8 billion, as the Canadian bank targets the struggling U.S. regional banking sector to grow outside its crowded home market.
KeyCorp shares jumped 14% after Scotiabank priced the offer at $17.17 per share, a premium of nearly 17.5% to KeyCorp’s last closing price. It will also be able to nominate two directors to KeyCorp’s board. Scotiabank shares were down about 3% in Toronto.
Smaller regional U.S. lenders have faced higher deposit holding costs and weak loan demand due to high borrowing costs.
Separately, the Canadian bank is the last of the Big Five to invest in the United States, as growth slows in the domestic banking sector, where lenders control the majority of the market.
Last year, Scotiabank rival Bank of Montreal BMO.TO bought Bank of the West for $16.3 billion, while TD TD.TO acquired New York-based investment bank Cowen for $1.3 billion. Royal Bank of Canada RY.TO owns Hollywood bank City National.
Last year, Scotiabank CEO Scott Thomson outlined a growth plan to focus on North American markets, emphasizing the region’s $1.6 trillion in annual trade rather than its less profitable Latin American operations.
“We expected the bank to focus first on growing its wealth management and/or capital markets businesses in the region, rather than announcing interest in a U.S. regional bank,” said Lemar Persaud, an analyst at Cormark Securities.
Mr Thomson said moving capital from developing to developed markets was an important part of the strategy and the latest investment was “a low-risk, low-cost option in North America” with high returns.
“We’ve thought a lot about the United States,” he told analysts.
The banks also plan to explore business partnership opportunities in the future.
Chris Gorman, KeyCorp’s chief executive, said the bank would explore opportunities in investment banking, wealth management and payments, building on Scotiabank’s presence in Canada, Mexico, Central America and now the United States.
The transaction will be conducted in two stages, with an initial investment of 4.9%, followed by an additional 10% investment. Following the closing of the transaction in fiscal 2025, Scotiabank will become KeyCorp’s largest investor, according to LSEG data.
KeyCorp said it would also seek to reposition its available-for-sale securities portfolio to accelerate its profitability, liquidity and capital improvement efforts.
The U.S. banking industry faces the risk of tougher capital standards as regulators finalize the rollout of the so-called “Basel III Endgame” proposal.
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