Q: Thoughts on BNS's minority stake acquisition of KeyCorp? Initial market reaction is not positive, but wondering if this is a good time to add to a position?
5i Research Answer:
We are of mixed views here. KEY has had some unrealized losses on its books and needed a capital injection. BNS's money makes it stronger and it also gets first right of refusal on further deals. It is not a huge purchase ($2.8B US vs C$75B market cap) and may provide growth opportunities down the line for BNS. That being said, BNS has had some of its own execution and other issues in the past, and we might have preferred it fix these and improve its own valuation first, before investing elsewhere. We do not think it is a bad deal for BNS, but just perhaps the wrong time, unless it is confident it has its own issues under control.