02:59 PM EDT, 08/14/2024 (MT Newswires) -- Scotiabank's (BNS.TO, BNS) plan to acquire a 14.9% equity interest in KeyCorp ( KEY ) is inline with the bank's strategy to deploy incremental capital in a low-risk manner and strengthen its position in North America, said S&P Global Ratings on Wednesday.

However, the ratings agency added, the size of the deal is relatively small (less than 5% additional earnings expected by 2026) and it remains uncertain, at this point, of potential synergies that Scotiabank can achieve. It noted Scotiabank pointed to KeyCorp's ( KEY ) strong middle market wholesale business and solid deposit franchise as key aspects of the investment. "We view the deal as neutral to the credit rating, but we continue to monitor the bank's expansion into the U.S."

S&P noted Scotiabank expects to invest near US$2.8 billion in two tranches. The first tranche will be an investment of US$800 million for a 4.9% interest in KeyCorp ( KEY ) and is expected to close in fiscal fourth-quarter 2024. The second tranche will be a US$2 billion investment for an additional equity interest of 10% and is expected to close in fiscal 2025, but will require approval from the Federal Reserve.

The impact, upon close of the two tranches, to Scotiabank's Common Equity Tier 1 (CET1) ratio will be 50-55 basis points, which S&P sees as "manageable". At second-quarter 2024, the bank's CET1 ratio was 13.2%, above the peer average of 13.1%, and above the regulatory minimum of 11.5%. Scotia noted the bank's risk-adjusted capital ratio was 8.7% at the second-quarter and although it could fall upon the acquisition's close, the ratings agency expects that it will remain well within the "adequate" range of 7%-10%.

Scotia was at last look up $0.50 at $62.89.

Price: 62.88, Change: +0.49, Percent Change: +0.79