Bank Executive Sees Prospects in Scotia Merger Agreement
Scotiabank and KeyBank Explore Strategic Partnership
In a significant move, Canadian banking giant Scotiabank has purchased a 14.9% ownership stake in KeyCorp, the parent company of KeyBank, for a total value of $2.8 billion. This investment grants Scotiabank two seats on KeyBank's board of directors.
According to Scotiabank's CEO, Omar Khayat, the bank wouldn't have taken such steps unless executives felt "highly confident" about the potential benefits of this partnership. KeyBank's CEO, Beth Mooney, shares this sentiment, stating that the bank wouldn't have accepted the investment unless it was in the best interest of KeyBank's shareholders.
The partnership positions the two banks to explore several strategic partnership opportunities. These include capital and financial strengthening, digital innovation and technology integration, cross-border and cross-market expansion, commercial and corporate banking collaboration, enhanced wealth and investment management, and leveraging data and analytics for customer insights.
Scotiabank's investment bolsters KeyBank's capital, enabling growth initiatives and enhancing financial stability. Both banks have invested significantly in digital banking platforms and AI-driven solutions, and could collaborate to co-develop or share advanced digital and AI-powered financial products and treasury management services.
Scotiabank’s strong presence in Canada and international markets complements KeyBank’s US regional footprint, offering opportunities for cross-border commercial and wealth management services especially for clients with North American operations. The banks might jointly develop tailored lending products or leverage combined client networks to deepen market penetration, possibly expanding specialized services for sectors like healthcare professionals or upper middle-market companies.
KeyBank’s wealth management and KeyBanc Capital Markets platform could integrate with Scotiabank’s services to provide a broader range of investment solutions for high-net-worth and institutional clients. Both institutions emphasize customer-focused growth strategies using advanced data analytics and CRM tools, and could partner to refine client segmentation, risk management, and marketing strategies leveraging combined data assets.
KeyBank has kept expense growth flat for the past few years and cut a number of full-time employees last year to keep expenses in line. However, KeyBank expects expenses to increase in 2025 due to inflation, but the increase will be "supportable" given the revenue increase the bank expects. An additional investment of $2 billion is expected from Scotiabank in the first quarter of 2025.
KeyBank went from 18,891 full- and part-time employees at the end of 2022 to 17,333 at the end of 2023. Despite the reduction in workforce, KeyBank is in a "clean spot," as far as its ability to make decisions that benefit all shareholders, not just the 14.9% owned by Scotiabank.
KeyBank envisions using additional capital to support clients as loan growth returns. The bank is more likely to consider tuck-in type deals, such as M&A boutiques, payments platforms, or wealth-related shops, over whole-bank acquisitions. If the right transaction were to come along for KeyBank, the bank's board would consider it, according to Khayat.
The investment offers Scotiabank a U.S. footing, while KeyBank sees the opportunity to return to peer-level earnings and returns sooner. KeyBank will record a $700 million third-quarter loss on the sale of about $7 billion in low-yielding investment securities. Despite this, the partnership seems like the right balance, as it is considered a "threading of the needle" from a regulatory standpoint.
KeyBank wasn't actively seeking capital, but was approached by Scotiabank. KeyBank's hurdles will be "pretty high" until the bank feels it has fully completed its self-help journey and is ready to integrate something else. However, with the strategic partnership with Scotiabank, both banks are optimistic about the opportunities that lie ahead.
- The strategic partnership between Scotiabank and KeyBank offers opportunities for investing in capital and financial strengthening, digital innovation, cross-border and cross-market expansion, and leveraging data and analytics for customer insights in the business sector.
- Scotiabank's investment in KeyBank bolsters KeyBank's capital, potentially enabling growth initiatives and enhancing financial stability, while also providing a U.S. footing for Scotiabank.
