US lender KeyCorp is selling nearly $7 billion in low-yielding investments

(Reuters) – U.S. regional lender KeyCorp said on Monday it had sold about $7 billion of low-yielding investments and that the deal would result in an after-tax loss of about $700 million in the third quarter.

The bank said in August it would look to reposition its securities portfolio to improve profitability after announcing a deal with Canada’s Scotiabank.

“While timing is always a wild card, remember that KEY did the Scotiabank deal in part to provide flexibility for such a repositioning,” Piper Sandler analysts wrote.

“As such, apart from the timing, we doubt the move would shock investors.”

Shares of KeyCorp, which unloaded investments that were yielding an average yield of about 2.3 percent, rose 2.4 percent in early trading.

Scotiabank agreed last month to buy a 14.9 percent stake in KeyCorp for $2.8 billion as the Canadian bank looks to grow outside its saturated domestic market.

Meanwhile, US banks have been repositioning their balance sheets as they try to deal with a potential impact from tepid loan demand.

Truist Financial in May sold $27.7 billion of low-yielding investments to focus on better alternatives as part of a balance sheet repositioning that is expected to help drive higher earnings in 2024.

Cleveland, Ohio-based KeyCorp has not disclosed what it plans to do with the proceeds from the sale.

In July, the bank forecast a bigger decline in average loans in 2024 due to tepid demand than previously anticipated.

(Reporting by Arasu Kannagi Basil in Bengaluru; Editing by Sriraj Kalluvila and Shreya Biswas)