U.S. Rep. Brian Higgins worries about the local job losses that a KeyCorp acquisition of First Niagara Financial Group might unleash, but he knows federal authorities can’t block a deal on those grounds.
But Higgins does believe the $4.1 billion proposed deal fails the competition test in upstate New York, and is calling for federal officials to halt the deal as currently constructed.
Higgins made his points in a letter Monday to the U.S. Department of Justice and the Federal Trade Commission. He contends that combining KeyCorp and First Niagara would “reduce banking competition across upstate New York,” citing a mathematical formula federal authorities use.
“As such, I argue that the authorities must compel these banks to either cancel this merger altogether, spin off the upstate (First Niagara Financial Group) branch network as an independent organization, or sell the upstate (First Niagara) branches as a block to an organization without significant operations in upstate New York.”
“Though it has no bearing on your decision making, any of these three options is likely to reduce the negative local jobs impact associated with this proposed merger,” Higgins wrote.
KeyCorp expects to complete its acquisition of First Niagara in the third quarter of 2016. Regulators and shareholders of both banks still need to decide whether to approve it.
The prospect of potentially deep job cuts locally has loomed since KeyCorp and First Niagara announced their agreement on Oct. 30. First Niagara is based in Larkinville, and while KeyCorp is based in Cleveland, Key already has a significant presence in the Buffalo Niagara region, through its regional office, customer contact center and branches. First Niagara has about 2,300 employees in Western New York, while KeyCorp has about 1,000 in the Buffalo and Rochester areas.
Observers expect KeyCorp to reduce expenses and job overlap, raising the question of how many jobs would be eliminated here. KeyCorp has said it is too early to say what the impact would be.
Two of the alternatives Higgins suggested for First Niagara’s upstate branch network – spinning it off as an independent organization, or selling it as a block to an organization without much of an upstate presence – would presumably safeguard more local jobs, since there would be no or less duplication under those scenarios.
But spinning off or selling the upstate branch network also would eliminate one of the big selling points for Key making the deal to begin with: Turning it into an upstate banking powerhouse with a leading market share in most of the major markets.
The deal would make Key the second-biggest banking company in the Buffalo Niagara market, behind M&T, while it would be No. 2 in Rochester, Syracuse and Binghamton, based on its share of deposits, according to data from the Federal Deposit Insurance Corp. Key would be No. 1 in Albany.
First Niagara referred questions to KeyCorp about Higgins’ letter, and KeyCorp did not provide a comment on the letter.
While Higgins claims the KeyCorp-First Niagara deal as designed would violate antitrust standards, banks seeking to merge often sell some branches to satisfy regulators’ concerns about competition before a deal goes through.
KeyCorp in a recent regulatory filing expressed confidence about obtaining regulatory approvals in a timely fashion. And the bank noted that if the Justice Department determines a merger is likely to result in “anti-competitive effects,” the department “often attempts to remedy its concerns by requiring the parties to divest branches of the target institution to a competitively suitable purchaser.”
When First Niagara acquired HSBC Bank USA’s upstate branch network, it closed some of HSBC branches that overlapped, and sold others to KeyCorp, Community Bank System and Financial Institutions, which is the parent company of Five Star Bank.
While Higgins does not serve on the House Financial Services Committee, Sen. Charles E. Schumer, D-N.Y., serves on the Senate Banking Committee, and has also raised concerns about KeyCorp’s deal for First Niagara. Schumer is also in line to become the next leader of the Senate Democrats. While Congress does not have a say in approving or rejecting bank mergers, Schumer called Beth Mooney, KeyCorp’s chairman and CEO, to ask her and the bank “to protect these good-paying jobs and to play a positive role in Buffalo’s revitalization.”