A report that First Niagara Financial Group is exploring a sale of itself settled over Western New York like a dark cloud Wednesday, chilling observers with fears of losing one of the region’s premier corporate headquarters.
Jodi Johnston, a First Niagara spokeswoman, declined to comment on a report the bank had hired JPMorgan Chase and Co. to advise on possible options, including a sale. “As a matter of policy, we do not comment on rumors,” she said. Tasha Pelio, a spokeswoman for JPMorgan Chase, also declined to comment. DealReporter, an equities news and data service, first reported the news, citing unidentified sources.
The bank employs about 5,400 employees across its four-state territory, including about 2,300 in Western New York. As it has grown from its roots as Lockport Savings Bank into the region’s second-largest locally based bank behind M&T Bank Corp., its Buffalo headquarters has spurred the revival of the Larkinville District.
A sale would threaten First Niagara’s headquarters, since banks routinely cut jobs and operations at the home base of financial institutions they buy.
Members of the local business community are watching developments closely, though many declined to comment on the possible impact.
“A company is its people, and the First Niagara people are an invaluable asset to this community,” Howard A. Zemsky, whose Larkin Development Group owns the Larkin at Exchange building where the bank is based, said in an email. “They have a great brand, and leading market share, be it No. 1 or No. 2 in many of the markets they compete in. So of course there would be other banks or investors interested in aligning with them, as has been demonstrated during their acquisitions.”
First Niagara has a long-term lease for about 20 percent of the roughly 600,000-square-foot headquarters building visible from the Niagara Thruway, where it has about 750 employees.
Erie County Executive Mark Poloncarz said he plans to reach out to First Niagara CEO Gary M. Crosby.
“We have two major banking institutions based in Buffalo. If any one of them were to be sold to an out-of-area concern, it could have a negative impact on our economy and it’s something that we would certainly not want to see,” Poloncarz said.
Investors reacted to the report differently: First Niagara’s stock price surged Wednesday. Its share price on Nasdaq closed at $10.26 per share, up 14.5 percent. It has been trading below $10 for the past year.
Collyn Gilbert, an analyst with Keefe, Bruyette and Woods, said in a research note that First Niagara has been subject to “various headline challenges” in the last year, including an accounting writedown, dividend approvals, internal control issues, reserve restatement and a delayed quarterly report. “Any one of the problems, or a combination of all the issues, could be a viable reason for” First Niagara “to search for strategic alternatives, in our view.”
Analysts have periodically speculated whether First Niagara might be an acquisition target, in light of its struggles to improve its financial performance.
Some of that chatter arose late last year when BB&T agreed to buy Pennsylvania-based Susquehanna Bancshares. Analysts wondered if that meant the industry was warming up to large-scale deals after a long period of dormancy, and whether First Niagara would be among the acquisition candidates.
First Niagara went on a buying spree from 2009 to 2012 – including acquiring HSBC’s upstate branch network – during John R. Koelmel’s tenure as CEO. The deals extended First Niagara into four states, but analysts say the bank has struggled to capitalize on that expansion.
Koelmel departed in March 2013, and was replaced by Crosby. The centerpiece of Crosby’s tenure has been a strategic investment plan announced in early 2014. The bank said it would spend $200 million to $250 million over three to four years on a plan focused on technology upgrades.
Jeff K. Davis, managing director of the Financial Institutions Group at Mercer Capital, called the prospect of a sale “not unexpected,” given the bank’s struggles to improve its performance. But he said the operating environment for all banks – highlighted by the Federal Reserve’s decision to again not raise interest rates – continues to be difficult. “I cannot emphasize enough to you what the zero interest rates are doing to bank net interest margins,” he said.
While First Niagara’s CEO is a Buffalonian, decisions about the bank’s future – such as whether to remain independent or to sell – rest with the 10 members of its board of directors. Crosby is one of those 10, but he is the only one who is a Buffalo native. Some of the directors have joined the board as First Niagara has made acquisitions.
“Any time you have a corporation that’s based in our community but its board of directors has individuals from outside our community, it is a concern,” Poloncarz said. “All you have to do is look at the companies that were based here that unfortunately are no longer here but still succeeding elsewhere, often because they had boards of directors, leaders who were not from this area.”
Davis said the board’s task is to take a hard look at how the bank has performed and the prospects for turning things around.
“The board’s fiduciary responsibility is to the shareholders,” he said. “That doesn’t mean you have to maximize the shareholder value today, it doesn’t mean you have to maximize the shareholder value tomorrow. … They have to make what is known as an informed business decision. … Oftentimes, if you just can’t get it done, you just come back and say, ‘All right, we’ve got to look at selling.’ ”
May not sell
Even so, Davis said, the board might evaluate the offers and decide the bank is better off remaining independent for now and revisiting the idea later.
Joe Fenech, an analyst with the Hovde Group, wondered why First Niagara is reportedly exploring a sale at this moment, instead of taking that step before a couple of recent turning points. He noted the bank went through a long search process before naming Crosby its permanent CEO, and then launched a major investment plan. “You make that massive infrastructure investment and now you decide you want to sell the company?” he said. “It leads me to question what the reason is for the sale.” The Fed’s decision to not raise interest rates may have been a factor, Fenech said.
Jay Antenen, a senior editor at DealReporter who wrote the initial story, said he believes First Niagara just recently retained JPMorgan, and that First Niagara has also reached out to some potential buyers. “It remains to be seen if this stuff will turn into an actual sale process and then eventually lead to a sale,” he said.
Beyond the bank’s obvious local impact – employing people and filling office space – First Niagara donates millions of dollars in the region to various causes, and its name is splashed across the home arena of the Buffalo Sabres. The bank’s deposit market share in the region was 26.4 percent, second only to M&T Bank, according to the most recent FDIC figures.
News Business Reporter Stephen T. Watson contributed to this report. email: firstname.lastname@example.org