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KeyCorp, Justice Department discussing branch plans

KeyCorp is having “ongoing discussions” with the Department of Justice about selling some area branches to enable its deal for First Niagara Financial Group to go through, a Key official said Tuesday.

“We’ve said from the very beginning that there would be divestitures in Buffalo, and there will be,” said Christopher Gorman, president of Key’s Corporate Bank. “The current discussions we’re having are consistent with kind of what we have modeled and anticipated when we did our due diligence. That’s an ongoing process and we obviously hope to get that resolved shortly.”

Gorman and Donald Kimble, Key’s chief financial officer, spoke at an RBC Capital Markets Financial Institutions Conference in New York City, which was broadcast online.

Cleveland-based Key hopes to complete its $3.5 billion deal for Buffalo-based First Niagara in the third quarter. But Key needs to satisfy the Justice Department’s anti-competitive concerns about the deal: First Niagara is No. 2 in deposit market share in the Buffalo Niagara region, and Key is No. 3. Shareholders and the Federal Reserve must also approve the deal.

Gorman said some other banks inquired about buying branches after Key announced the deal last October.

“Obviously we’re in discussions with who we think are the most credible buyers – credible meaning their chances of getting the transaction done, not having to finance the transaction, for example,” Gorman said.

“We have a list of people that we think are very viable buyers,” he said, without identifying them. “As we deal with the Department of Justice, we’re also in discussions with those folks.”

Kimble fielded a question about the political opposition the deal has generated, including from Gov. Andrew Cuomo, amid fears of devastating job cuts in the region.

“We’re having a number of active and very positive conversations with a lot of stakeholders, including customers, shareholders, regulators, community leaders, and also elected officials,” Kimible said. “I would say each one of those are making progress.”

Gorman oversees “integration teams” with representatives of each of the two banks, which are working on how to bring the two institutions together. He said the teams’ work is “right on schedule.”

“We’re now in detailed integration planning, a lot of work,” he said. “Frankly, I feel better today than when we announced it about the economics of the transaction, our ability to hit our numbers of taking out $400 million in costs. There’s a lot of work ahead of us. The real test will be, how do our clients feel about it?”

As Key looks for ways to achieve cost savings, Gorman said one target is First Niagara’s technology systems, which he said are essentially “outsourced” to third-party vendors.

Gorman said the integrating First Niagara’s technology will involve more of a data conversion than a systems conversion, which should help Key achieve some cost savings right away.

“The other thing we really like about it is, obviously when you’re looking for $400 million of expense cuts, that’s an area where you can cut expenses without having to make significant personnel cuts, or as significant, I should say.”