01—Abstract
Summary
Summary of the 8-K filed December 31, 2024. Cited figures are marked; the original filing is the authoritative source.
On December 27, 2024, KeyCorp (NYSE: KEY) completed the Second Closing of Scotiabank's strategic minority investment, in which The Bank of Nova Scotia purchased KeyCorp common stock for approximately $2.0 billiona.
The filing states that Scotiabank now owns approximately 14.9%b of KeyCorp's common stock, and that Federal Reserve approval for the transaction was received on December 12, 2024. In connection with the closing, the Board increased its size to fifteen directors and appointed Jacqueline Allard and Somesh Khanna, both designated under Scotiabank's director rights in the Investment Agreement. Ms. Allard will serve on the Technology Committee and Mr. Khanna on the Risk Committee.
The filing also discloses a securities repositioning completed before the Second Closing: KeyCorp sold an additional $3.0 billionc of low-yielding available-for-sale investment securities and terminated approximately $3.0 billion of cash flow hedges. This is expected to produce an after-tax loss of approximately $700 million in the fourth quarter of 2024. The sold securities had a weighted average book yield of approximately 1.5% and an average duration of approximately 8 years, and the proceeds were reinvested in December in securities with an average book yield of 5.5% and an average duration of approximately 4 years.
On December 30, 2024, the Compensation Committee granted performance-based "Capital and Earnings Improvement Awards" to the executive leadership team, including the named executive officers. Vesting in January 2027 depends on regulatory capital requirements, cumulative earnings per share goals, and CET-1 capital goals over 2025 and 2026. Maximum payout is 150%d of target, with total realizable value capped at 250% of target grant value.
Target grant values include $7,570,295 for Chairman and CEO Christopher M. Gorman.
02—Key points
Key Highlights
- Scotiabank completed its approximately $2.0 billion purchase of KeyCorp common stock on December 27, 2024, giving it roughly 14.9% ownership; Federal Reserve approval was received December 12, 2024.
- The Board expanded from its prior size to fifteen directors, with Jacqueline Allard and Somesh Khanna appointed under Scotiabank's director designation rights, effective upon the Second Closing.
- KeyCorp sold an additional $3.0 billion of low-yielding investment securities and terminated about $3.0 billion of cash flow hedges as a strategic repositioning.
- The repositioning is expected to result in an after-tax loss of approximately $700 million in the fourth quarter of 2024.
- Reinvested securities carry an average book yield of 5.5% and average duration of about 4 years, versus 1.5% and about 8 years for the securities sold.
- Executives received performance-based Capital and Earnings Improvement Awards vesting in January 2027, tied to regulatory capital, cumulative EPS, and CET-1 capital goals for 2025–2026, with a maximum payout of 150% of target.
- The filing reports KeyCorp assets of approximately $190 billion at September 30, 2024.
03—Questions
Frequently Asked Questions
How much did Scotiabank invest in KeyCorp, and what stake does it now hold?
Scotiabank completed a purchase of KeyCorp common stock for approximately $2.0 billion, as expected, and now owns approximately 14.9% of KeyCorp's common stock according to the press release filed as Exhibit 99.1.
What regulatory approval was required for the Scotiabank investment?
The parties received Federal Reserve approval for the transaction on December 12, 2024, before the Second Closing on December 27, 2024.
Why is KeyCorp reporting a loss from the securities repositioning?
KeyCorp sold $3.0 billion of low-yielding available-for-sale securities, with a weighted average book yield of about 1.5% and average duration of about 8 years, and terminated about $3.0 billion of cash flow hedges. The company expects an after-tax loss of approximately $700 million in the fourth quarter of 2024, and reinvested the proceeds in December at an average book yield of 5.5% and average duration of about 4 years.
Who are the new directors, and how were they selected?
Jacqueline Allard, Group Head of Global Wealth Management at Scotiabank, and Somesh Khanna, Co-Executive Chairman of Apexon, Inc., were appointed to the Board pursuant to Scotiabank's director designation rights under the Investment Agreement. Each will serve until the 2025 annual meeting of shareholders.
How are executives being incentivized under the new awards?
The Capital and Earnings Improvement Awards vest in January 2027 based on regulatory capital requirements and cumulative EPS and CET-1 capital goals for January 1, 2025 through December 31, 2026. Maximum payout is 150% of target, total realizable value per executive is capped at 250% of target grant value, and vested shares are subject to a one-year holding period.
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