In order for KeyCorp’s planned deal for First Niagara Financial Group to get the green light, some branches in the Buffalo Niagara region will have to be sold. But who will buy them?
It’s one of two big unanswered questions – the other being how many jobs will be eliminated locally – hanging over the proposed deal in the region.
First Niagara and Key – Nos. 2 and 3, respectively, in local deposit market share – must satisfy Justice Department antitrust concerns. That’s because the two banks, when combined, would control about 34 percent deposit market share in the region, according to Federal Deposit Insurance Corp. data from last year.
The Justice Department evaluates whether a merger will hurt consumer choice and competition; selling off some branches to a viable competitor can be a remedy. The Justice Department has not commented on the process, but is believed to be looking for a single buyer for the up to 13 branches that would be divested.
The winning bidder might not be revealed until Key and First Niagara hold their special meetings for shareholders next Wednesday to vote on the acquisition. Shareholder approval is necessary for the deal to go through, along with approval from the Justice Department and the Federal Reserve.
SNL Financial reported that a Massachusetts-based bank, Berkshire Hills Bancorp, received a bid sheet for the branches. Berkshire has 44 branches in New York, as far west as Syracuse.
“We did receive a bid sheet, but we did not bid and do not plan on bidding,” said Heidi Higgins, a Berkshire spokeswoman.
Banks have eased up on expanding their branch networks – in fact, many have scaled back – as customers conduct more transactions online. But a branch sell-off such as this one gives a bank a rare chance to grab a significant slice of market share in one fell swoop. Key benefited from that opportunity in 2011, when First Niagara and HSBC agreed to sell 26 Buffalo-area HSBC branches to Key, to alleviate the Justice Department’s antitrust concerns about the sale of HSBC’s upstate network.
Among banks already serving Buffalo, prospects for buying the branches differ:
• M&T Bank Corp. is No. 1 in deposit market share in the region. It has more than 50 branches in the region, and already has a dominant presence, with about 50 percent of the region’s deposit market share, according to FDIC data. C. Michael Zabel, an M&T spokesman, said it was M&T’s policy “not to comment on speculation about bank mergers and acquisitions.”
• Bank of America ranks No. 4 in deposit market share at 5 percent. It has 29 area branches, down from 34 in 2010. The North Carolina-based bank is a financial services powerhouse, tops in the country in retail deposit market share. Bank of America declined to comment.
• Citizens Bank has undergone a transformation. Late last year, the Rhode Island-based bank became a fully independent, publicly traded company – a year ahead of schedule – after being owned by the Royal Bank of Scotland since 1988. And Citizens this month announced plans to build a new corporate campus in Rhode Island. The bank already has a presence in the Buffalo Niagara region, with 41 branches. A Citizens spokesman declined to comment.
• Evans Bancorp, based in Hamburg, is not bidding for the package of branches, but might be willing to acquire pieces.
David J. Nasca, Evans’ president and CEO, said Evans “continues to be interested in both organic and acquisitive growth resulting from the First Niagara sale.”
• Northwest Bank ranks No. 7 in deposit market share, behind Evans. It has eight branches in the market and is adding a ninth location, in Orchard Park. And while Pennsylvania-based Northwest plans to close 24 branches and convert two branches into drive-up-only service across its network this year, none of its Western New York locations is affected. A Northwest spokeswoman did not respond to requests for comment.
• Five Star Bank, whose parent company, Financial Institutions Inc., is based in Warsaw, has been vocal about wanting to make greater inroads in the Buffalo Niagara market. Whether that would involve buying more branches is not clear. Five Star has also opened two branches recently in the Rochester area.
The bank has only three branches in Erie County but has taken other big steps to build up its presence here. It acquired the Amherst-based Scott Danahy Naylon insurance agency, and Courier Capital Corp., which has offices in Buffalo and Jamestown.
But an activist shareholder has criticized those deals, urging the board to stop making deals and put the bank up for sale. The shareholder has threatened a proxy fight for board seats at this year’s annual meeting.
Charles J. Guarino, senior vice president and retail banking executive for Five Star, did not specify whether the bank was bidding for divested branches.
“Growing Five Star Bank’s presence in Buffalo is important to us and our customers across the region, especially as the market continues to evolve,” Guarino said. “We regularly evaluate opportunities that are in the best long-term interest of our customers and shareholders.”
• Community Bank has four branches in Erie and Niagara counties among about 200 locations in New York and Pennsylvania. And the bank moved into a new loan and mortgage operations center in Cattaraugus County a year ago, reinforcing its Western New York ties. But Community Bank has tended to favor branches in smaller upstate cities and towns rather than urban centers such as Buffalo and Rochester. Scott A. Kingsley, chief financial officer for Community, declined to comment.