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Federal Reserve found Key deal wouldn’t have “adverse effect” on competition

The Federal Reserve found KeyCorp’s deal for First Niagara Financial Group would not have a “significantly adverse effect” on competition in markets where Key and First Niagara go head-to-head, including the Buffalo area.

Its 37-page order approving the deal offers insight into a process that unfolds out of public view, and lays out the rationale for its decision.

With the Federal Reserve’s green light, Key hopes to complete the acquisition, now valued at about $3.6 billion, on Aug. 1.

In conducting its review, the Federal Reserve looked closely at how the deal would impact competition in 12 New York State markets where the two banks directly compete – especially in the Buffalo area, where Key ranks No. 3 in deposit market share, and First Niagara ranks No. 2.

Some of the public comments the Federal Reserve received about the deal claimed “the upstate New York region is already highly concentrated and that the (acquisition) would reduce consumer access to banking competition in the region to an unacceptably low level.”

But the Federal Reserve pointed to factors that would lessen those anti-competitive concerns. Key has agreed to sell off 18 branches in Erie and Niagara counties to Northwest Bancshares. There would still be 19 depository institutions competing in the market. And nine credit unions also “exert a competitive influence” locally, the order noted.

The U.S. Department of Justice did not find the Key-First Niagara deal would have an adverse effect on competition, the Federal Reserve said. “In addition, the appropriate banking agencies have been afforded an opportunity to comment and have not objected to the proposal.”

Key is on track to have about 29 percent deposit market share in the Buffalo area once the deal is wrapped up, including after the branch divestitures. M&T, which has 51 percent share, would remain in the top spot.

Other points of interest in the Federal Reserve’s order:

• There were 388 comments supporting the acquisition, most of them charitable and community groups that had favorable experiences with Key. Meanwhile, 51 comments either opposed or expressed concerns about the deal, citing potential job losses or service reductions.

• Some comments expressed concerns that “the transaction would mostly benefit First Niagara executives and criticized payments that certain First Niagara executives may receive” when the deal is complete. But the Federal Reserve noted Key and First Niagara filed information about the deal with the Securities and Exchange Commission – including about the executive payouts – “and shareholders of both organizations approved the proposal.”

• Key has received eight consecutive “outstanding” Community Reinvestment Act ratings; First Niagara was scheduled for a Community Reinvestment Act evaluation in 2012. “Although that evaluation is largely complete, the results have not been released,” the order said.