KeyCorp (KEY) Barclays 23rd Annual Global Financial Services Conference summary

Strategic partnership and transaction structure

• Scotiabank is acquiring a 14.9% stake, providing capital at a premium to recent share prices and aligning with strategic and cultural fit.

• The $2.8 billion investment includes two board seats for Scotiabank, equity method accounting, and governance protections such as preemptive rights.

• Scotiabank can increase its stake to 19.9% with regulatory approval, and the agreement preserves strategic flexibility for future transactions.

• Early-stage partnership opportunities are being explored, including cross-border client referrals and potential product white-labeling.

• Enhanced capital position enables continued investment in organic growth and flexibility to pursue new opportunities.

Capital deployment, portfolio restructuring, and liquidity

• Approximately half of the new capital was used to restructure $7 billion in securities, improving liquidity and near-term earnings.

• Securities repositioning involved selling low-yield, long-duration AFS securities and reinvesting in higher-yield, more-liquid assets, expected to add $400 million NII and improve liquidity and capital.

• The restructuring was executed in tranches to minimize market and operational risk, with reinvestment ongoing.

• Liquid asset portfolio covers at least 30 days of outflows under stress scenarios, with $45.5 billion in high-quality liquid assets as of 6/30/2024.

• Wholesale funding and brokered deposits have been materially reduced, improving funding quality and reducing market funds ratio.

Growth initiatives and expense outlook

• Investments will target renewables, affordable housing, wealth offerings, payments, and banker hiring to drive growth.

• Inorganic growth will focus on niche acquisitions in M&A, payments, and wealth management to enhance fee income.

• Expense growth is expected in 2025, primarily inflation-driven, but manageable given anticipated revenue increases.

• Share repurchases may resume once earnings and payout ratios normalize, with capital return targets of 70%-80%.

• Enhanced capital and liquidity enable continued investment in organic growth areas.