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The rise and fall of John Koelmel

Just three years ago, John R. Koelmel was a rock star. The former accountant with the linebacker presence was transforming the onetime Lockport Savings Bank into one of the nation’s fastest-growing banks – First Niagara Financial Group of Buffalo.

The First Niagara chief executive gobbled up other banks, growing its local workforce to more than 2,000 and planting yellow-and-blue First Niagara signs from Buffalo to Pittsburgh to New Haven. Wall Street paid attention. CNBC sought his insights. The American Banker newspaper crowned him “Banker of the Year” in 2009.

Koelmel became a civic and even state leader, serving as chairman of the New York Power Authority and Kaleida Health. His voice boomed on First Niagara’s radio ads: “We’re rock solid.”

It all came crashing down March 19, when the First Niagara board unceremoniously ousted Koelmel.

Some say the thrill of the deal got the best of Koelmel. Some say his community commitments undermined the bank and overfed his ego. As Koelmel orchestrated the purchase of HSBC Bank USA’s huge upstate branch network, First Niagara’s already-struggling stock plunged. The market value of the company fell by more than $1 billion.

“It’s like a snake swallowing an elephant,” said a local lawyer with knowledge of banking. “You choke on the thing.”

Koelmel declined to be interviewed for this story; the terms of his reported $5 million severance package forbid comment. But The Buffalo News spoke to more than 40 current and former bank employees, colleagues, industry and community leaders to paint a picture of what happened at First Niagara. Many wished to remain anonymous because of their continuing relationships with Koelmel or the bank.

His fans still praise him as inspiring, big-hearted and devoted to the community, but even some of them concede that he could also be tough and insistent, traits that didn’t always win him friends.

“It wasn’t an easy time working with John. He’s very demanding,” one employee said. “But he did a lot of good work.”

Larger than life

With his towering height and hulking build, Koelmel makes a grand entrance. His confident voice – brimming with determination – draws a crowd.

“John, by nature of his personality and his approach to things, commands a group’s attention,” said James Kaskie, CEO of Kaleida Health, where Koelmel has been chairman for three years. “He’s passionate, he’s very insightful, he has his opinions, so he’s very engaging. His willingness to address issues and take on challenges engenders a lot of respect from the board.”

Koelmel enjoys a Cherry Coke and a chocolate chip cookie. He loves sports analogies. And his sense of humor often leads to self-deprecating pot-shots. In an interview, he once referred to the expanding “girth of the bank’s franchise, not the CEO.”

Said First Niagara Interim Chief Executive Gary Crosby: “He’s a force of nature. He was really loved by the 6,000 people” at the bank. “You just have to see him go into a room. The whole room lights up. People really look to his leadership.”

A branch teller in Albany felt comfortable emailing him “all the time” after Koelmel conducted a town hall meeting with staff.

“He’d love it,” another employee said. “He’d email people right back.”

Koelmel is a local boy; he graduated from Orchard Park High School before earning a degree in economics and accounting from College of the Holy Cross in 1974. His father was a General Electric salesman and World War II veteran; his mother was a kindergarten teacher.

For 26 years, Koelmel worked for accounting and consulting giant KPMG LLP in Buffalo, ending as managing partner who oversaw four upstate offices. But even then, acquaintances say, Koelmel’s passion was deal-making and strategic planning.

In 2000, he left KPMG for a former client, Financial Institutions, parent of Five Star Bank in Warsaw, where he became chief administrative officer. During his two years there, the company bought a pair of banks and an employee benefits firm. Former colleagues say Koelmel wanted more, but the acquisition game didn’t play well with longtime CEO Peter G. Humphrey, the fourth generation of his family to lead the bank. (Humphrey didn’t return phone calls.) When it became clear Koelmel would never get his chance there, he left.

“Pete’s conservative nature was not inclined that way,” said one source familiar with Five Star. “They just agreed to part ways.”

Seizing the moment

In 2004, Koelmel moved to another former client, First Niagara, this time as chief financial officer. Paul Kolkmeyer had just assumed the top job at First Niagara. He and new First Niagara Chairman Robert G. Weber hired Koelmel. Weber had preceded Koelmel as head of KPMG in Buffalo.

First Niagara had started buying banks several years earlier. When Koelmel arrived, the bank had 56 branches from Buffalo to Ithaca and Utica. Kolkmeyer made two deals in Eastern New York that made First Niagara a force at both ends of the Thruway. But price-conscious Kolkmeyer passed up an opportunity to buy 21 Citibank branches in Buffalo and Rochester, which M&T Bank Corp., then and now the top bank in Buffalo, bought instead.

Weber had grander plans for the bank, a former colleague says, and felt Kolkmeyer was unsuited for the task. (Weber didn’t return phone calls.) He engineered a buyout of five Kolkmeyer supporters on the bank’s board, then ousted Kolkmeyer in December 2006.

Koelmel was installed as chief executive.

Raising a billion in capital

Assuming the helm, Koelmel saw opportunity and went on a buying spree. As the economy turned south in 2008, he beefed up staff and operations to support a bigger bank. From 2007 to the spring of 2011, he raised nearly $1 billion in capital from Wall Street with three stock sales, using the proceeds to buy all or parts of four banks – Greater Buffalo Savings Bank, PNC Financial Services Group of Pittsburgh, Harleysville National Corp. of suburban Philadelphia and NewAlliance Bancshares of New Haven, Conn.

Greater Buffalo proved a cinch, right in First Niagara’s home turf and brimming with opportunities to gain more customers without increasing costs.

PNC was a virtual steal, as the federal government forced the bigger bank to unload 57 branches in Western Pennsylvania so it wouldn’t have too much power there after buying a struggling Cleveland institution.

Even Harleysville National, while slightly more costly and risky, made both financial and strategic sense.

First Niagara’s stock, which peaked in 2003 after a steady four-fold rise, gained little traction in those years. But it still outperformed the rest of the industry during the recession, and industry watchers and national media lauded Koelmel as an astute deal-maker getting good prices.

Investors bought into the bank’s story.

“The early deals were absolute home-runs,” said Joseph Fenech, a Wall Street bank analyst at Sandler O’Neill & Partners who followed First Niagara.

On top of the world

The bank’s growth made Koelmel a big man in town. His total compensation rose from $549,506 in 2005 to $3.78 million in 2012. He led a $500,000 community campaign to bail out the Empire State Games. He became chairman of the Buffalo Arts and Technology Center. He moved the bank’s headquarters to Larkinville, providing important support to a local redevelopment.

Howard Zemsky, the driving force behind the Larkin at Exchange Building and nearby revival, said Koelmel frequently asked, “What’s next?” as they discussed the district’s progress.

“It was a simple way to remind us not to rest on past success,” Zemsky said. “If I hesitated too long or tried to change the topic, he’d follow up with, ‘No, really, what’s next?’ He lives for the next challenge; the more aspirational, the better.”

But his new public role consumed more and more time. Gov. Andrew M. Cuomo asked him to lead the Power Authority, the nation’s biggest state public power agency – a job demanding enough that, unlike other state authority appointments, it came with a salary of $90,800. Koelmel turned down the salary. Kaleida, the largest health care provider in Western New York, also named him chairman.

As the bank’s stock languished, some grumbled that Koelmel was stretching himself too thin.

“When you have a less-than-successful institution, you should not be taking on other responsibilities like the Power Authority and Kaleida,” said an observer familiar with Koelmel and his role at First Niagara.

A new personality

Increasingly, Koelmel’s world revolved around mayors, governors and captains of industry. In Buffalo, local leaders praise his commitment.

“The guy is 100 percent behind Western New York,” said Dr. Joseph DeVincentis, a friend of Koelmel’s for 35 years. “He gives of his time freely because he wants Buffalo to be better.”

Said Robert D. Gioia, president of the Oishei Foundation: “If we had more like John, who are willing to step up and step in, we wouldn’t be so dependent on such a few.”

But a longtime Koelmel acquaintance familiar with First Niagara said the bank struggled to meet all the promises Koelmel was making.

Committing the bank’s money – more than $1 million a year – to place its name on the Buffalo Sabres’ home arena was the hallmark of Koelmel’s hubris, a source familiar with bank operations said.

“I think ego gets the better of a lot of people,” he said. “Community giving is for those flush with money, not for a less-than-successful institution.”

One local executive described Koelmel’s methods as “Wilmers envy,” referring to M&T Chairman Robert G. Wilmers, who has a long record of community leadership.

“He wanted the community impact of Bob Wilmers and M&T,” he said. “The difference with Wilmers, though, is that he never strayed beyond the bank’s core competency and never grew too fast.”

Too good to resist

The biggest deal of his career likely led to Koelmel’s downfall. On July 31, 2011, just three months after buying 88 New-Alliance offices in New England, First Niagara agreed to purchase 195 HSBC branches across upstate New York and southwestern Connecticut. The price tag: $1 billion in cash.

The deal catapulted the once-sleepy savings bank into the top tier of U.S. banks. With the HSBC operations, First Niagara had 430 branches across four states – 10 times larger by assets than when Koelmel joined the bank. In Buffalo, it made First Niagara a close second to M&T. But $1 billion was a hefty sum, even for capital-rich First Niagara.

Some investors complained. They didn’t like the price, didn’t like the risk and didn’t like the dilution to shareholders. Mostly, they didn’t like Koelmel’s aggressiveness.

First Niagara’s shares were falling even before the HSBC deal was unveiled, but they plunged from $13 to less than $9 a few weeks after the announcement. The timing of the deal was bad; after the announcement, a debt-ceiling fight in Washington and Fed interest-rate policies sent stock prices down. In three months, First Niagara lost $1.2 billion in market value – a 31 percent drop.

Koelmel vowed he was done buying, but Wall Street had had enough.

“First Niagara is a good company that had made some poor decisions at the top, and people wanted to have a scapegoat to be able to wipe it clean and start over,” said Bob Ramsey, a bank analyst at FBR & Co.

Said Koelmel in a 2012 interview with The News: “Banks have been rewarded for sitting on the sidelines, playing it safe, being conservative. As a company that continued to play offense, we’ve been tossed in the penalty box.”

The end of the road

While Koelmel’s ouster did not surprise many, the timing did. The company had just issued its proxy statement to shareholders, listing Koelmel as chief executive and a candidate for re-election to the board. It also reported his compensation – higher than that of M&T Chief Executive Wilmers.

Crosby, First Niagara’s interim chief executive, acknowledges he was tapped for the interim job a week and a half before Koelmel was ousted. Five days after the proxy was released, Koelmel was out.

Some outsiders blame the board as well as Koelmel.

“Perhaps more of the blame was placed on John than rightfully should be,” said Gerard Mazurkewicz, a partner at Dopkins & Co. and a former Greater Buffalo director. “It wasn’t only his decision to go along with these types of transactions.”

Said First Niagara Chairman G. Thomas Bowers: “I think shareholders do hold us responsible, as they should. We’re not ducking that in any way. One of the board’s primary roles is to engage, monitor, supervise the CEO, and that is our responsibility.”

One longtime friend says Koelmel may have tired of the board as much as the board tired of him.

“I don’t think that John Koelmel could work for people he has zero confidence in, whom he doesn’t think are doing the best thing for Western New York,” said DeVincentis, Koelmel’s friend for 35 years. “He was frustrated with the whole situation. I don’t think he could get things done the way he wanted to.”

Koelmel pledged to remain active in the community.

In fact, the day he left First Niagara, he flew to the Power Authority offices in White Plains – for a board meeting.

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