KeyCorp is strengthening its capital position through a strategic investment expected to boost its common equity tier one (CET1) ratio by 195 basis points, bringing it to 12.4%. This move is also anticipated to increase the bank’s tangible book value per share by over 10%.
CET1 is a crucial measure of a bank’s capital strength and solvency, and this improvement positions KeyCorp more securely in the market. Citi analyst Keith Horowitz has responded positively, reiterating a buy rating on KeyCorp and raising the stock’s price target to $19 per share. Horowitz highlighted that this investment addresses concerns about KeyCorp’s CET1 ratio, which was previously around 7.3% proforma but is now estimated to be closer to 9.2%. He also noted that the bank’s strong credit quality enhances its appeal, potentially leading to a lower cost of equity.
As part of the deal, KeyCorp announced plans to reassess its available-for-sale securities portfolio to enhance profitability, liquidity, and capital, while bolstering resilience. These initiatives are expected to boost the bank’s CET1 capital ratio to between 11.3% and 11.6% and slightly increase 2025 per-share earnings.
KeyCorp’s stock has risen 1.5% year-to-date, while the S&P 500 has seen a 12% gain.
For Scotia Bank, this investment offers a strategic opportunity to gain a foothold in a major U.S. bank without attracting heightened scrutiny from U.S. regulators.
This contrasts with the failed acquisition attempt by Canada’s Toronto-Dominion Bank to buy First Horizon Corp., which was hindered by regulatory challenges earlier this year.
With potential interest rate cuts by the U.S. Federal Reserve and other central banks, it’s becoming easier for dealmakers to evaluate bank portfolios for potential mergers.