US lender KeyCorp sells nearly $7 billion of low-yield investments

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

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

“While the timing is always a wildcard, recall that KEY had done the Scotiabank transaction in part to offer flexibility for such a repositioning,” Piper Sandler analysts wrote.

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

Shares of KeyCorp, which offloaded investments that were offering about 2.3% yield on average, were up 2.4% in early trading.

Scotiabank last month agreed to buy a 14.9% stake in KeyCorp for $2.8 billion, as the Canadian bank looked for growth outside its saturated home market.

Meanwhile, U.S. banks have been repositioning their balance sheets as they seek to address a potential hit from tepid loan demand.

Truist Financial (NYSE:) in May sold $27.7 billion of low-yielding investments to focus on better alternatives as part of a balance sheet repositioning that it expects will help to post higher revenue in 2024.

Cleveland, Ohio-based KeyCorp did not disclose what it planned to do with the proceeds from the sale.

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