Canadian bank stock Bank of Nova Scotia (TSE:BNS), also known as Scotiabank, just made a major move today to pick up a hefty stake in KeyCorp (KEY), a major U.S. bank. The move gives Scotiabank a much larger presence in Canada’s southern neighbor. Investors, however, weren’t happy and sent shares plunging over 4% in Monday morning’s session.
Under the terms of the deal, Scotiabank will drop $2.8 billion to pick up 14.9% of KeyCorp. The deal won’t happen all at once, reports note, with Scotiabank picking up the first 4.9% by the end of 2024 and the remaining 10% to follow before 2025 ends. Scotiabank is reportedly paying an 11% premium against the weighted average for the last 20 trading days.
KeyCorp has a substantial involvement in the U.S., with 15 different states having a KeyCorp presence. It also has $187 billion in assets and around 1,000 total branches offering a range of services, including retail banking and investment advising.
Gaining a Foothold in the U.S.
As to why Scotiabank decided to buy the stake in KeyCorp, reports suggest there’s a good reason to do so. KeyCorp has a substantial presence in a major world market that Scotiabank wanted to gain a foothold in: the United States.
Oddly, the deal is almost more helpful to KeyCorp itself, as it faces new regulatory requirements. The deal offers extra capital for KeyCorp to better reposition its bond portfolio. It gives KeyCorp a much better position and supplies capital to focus on its strengths, like wealth management. With the Federal Reserve demanding more capital on hand, the Scotiabank deal provides just that: more capital.
Is Scotiabank Stock a Buy?
Turning to Wall Street, analysts have a Hold consensus rating on BNS stock based on eight Holds and one Sell assigned in the past three months, as indicated by the graphic below. After a 1.73% rally in its share price over the past year, the average BNS price target of C$67.67 per share implies 10.85% upside potential.
