Canada’s Scotiabank Stakes Out $2.8 Billion in US Lender KeyCorp

The formerly British are coming!

Canada’s Scotiabank, one of the country’s big six lenders, announced Monday that it bought a 14.9% stake in US regional lender KeyCorp. After years of misadventures in Latin America, big Canadian banks like Scotiabank are pivoting to their neighbor, where they’re beginning to enjoy some success.

Moving North

The fourth-largest Canadian bank by market cap, Scotiabank bet big on Latin America, but with political upheaval and economic volatility in the region, things have not gone so well. Adjusted earnings growth from international banking fell to 3% in fiscal 2023, down from 32% in 2022. CEO Scott Thomson said in December that Scotiabank’s personal and commercial banking operations in Chile and Peru would be more cautiously funded, and that it could exit Colombia and Central America if business doesn’t turn around.

Meanwhile, unlike other foreign adventurers that flamed out in the US retail banking market — ahem HSBC, NatWest BBVA, and BNP Paribas — Canada’s major banks have proven resilient. Most notably, Toronto-Dominion (TD) and Bank of Montreal (BMO) have built out strong stateside retail units through expansion and acquisition. In the US, Scotiabank currently offers wealth management and global banking services to the financial services sector, but the stake in KeyCorp opens up possibilities: 

• Cleveland-based KeyCorp has about 1,000 branches in 15 states as well as $187 billion in assets, and offers retail and commercial banking. Scotiabank priced its offer for a 14.9% stake at $17.17 per share, a roughly 17% premium over KeyCorp’s last closing price.
• KeyCorp CEO Chris Gorman said it plans to explore investment banking, wealth, and payments opportunities through Scotiabank’s presence in Canada, Mexico, and Central America, as well as in the US. Like many US regional lenders, KeyCorp is coping with high interest rates that deter borrowing — the bank said in the second quarter that it predicts a 7% to 8% drop in loans this year — and higher deposit costs, with client deposits up 5% in Q2.

Hometown Advantage: One reason Canada’s big banks have been so aggressive abroad is there’s nowhere to grow at home: Royal Bank of Canada, TD, BMO, Scotiabank, and CIBC together dominate 90% of the domestic financial services market.