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First Niagara suitors become the question

If First Niagara Financial Group goes up for sale, who might buy it?

That’s the question after a report that the Buffalo-based bank has hired JPMorgan Chase to explore the possibility of a sale.

Neither First Niagara nor JPMorgan Chase would comment on the report, and it is not known whether First Niagara will decide to put itself on the block. But analysts who follow the bank see logical potential suitors for First Niagara.

Among the names that come up are New York Community Bancorp, TD Bank, Huntington Bancshares and KeyCorp. Those four banks declined to comment on their possible interest or say whether First Niagara had contacted them.

First Niagara consists of 390 branches across New York State, Pennsylvania, Massachusetts and Connecticut, with $39 billion in assets. It would be a large deal for any bank that might want to acquire it, which somewhat limits the pool of candidates.

New York Community Bank is based in Westbury, Nassau County. The Long Island bank has assets of nearly $49 billion and more than 270 branches in metro New York City and in four other states.

Analysts and observers say NYCB is poised to grow through acquisition. American Banker named its president and CEO, Joseph R. Ficalora, as one of its 10 “bankers to watch” this year. (First Niagara CEO Gary M. Crosby was also on the list.)

American Banker noted that NYCB was on the verge of $50 billion in assets, at which the bank would be subject to greater regulatory oversight. The publication noted Ficalora says the bank would stay under the $50 billion mark “unless it can find a deal that would be sizable enough to justify the added compliance costs. Will this be the year he pursues that big deal?”

Ficalora, in an earnings conference call last July, said the environment for deals “is getting to be more and more attractive.”

Jeff K. Davis, managing director of the Financial Institutions Group at Mercer Capital, called NYCB a “possibility” to buy First Niagara.

“It would certainly add a nice deposit base to what historically’s been a CD-heavy deposit base, given New York Community’s roots as a traditional thrift,” Davis said.

Collyn B. Gilbert, an analyst with Keefe, Bruyette & Woods, said NYCB has shown interest in making a deal with another bank, and is well-established in multifamily housing lending. “(NYCB) does need deposits,” Gilbert said.

TD Bank, a New Jersey-based subsidiary of Toronto-Dominion Bank of Canada, has $252 billion in assets. TD Bank has an extensive presence along the East Coast, in 15 states plus Washington, D.C. However, its New York State locations are concentrated in the east and the New York City area. A First Niagara deal would enhance its New York State footprint, providing a link all the way to the Western New York border with Southern Ontario. Two years ago, analysts speculated that TD might want to buy Citizens Bank, but nothing has come to fruition.

Cleveland-based KeyCorp, which has $92 billion in assets, is a familiar name in Western New York. It has a regional office in Buffalo and ranks third in area deposit market share, behind M&T and First Niagara. An obvious issue would be branch overlap, especially in a market such as the Buffalo Niagara region. KeyBank has already been trimming its area branch network to reduce overlap resulting from acquiring some former HSBC locations.

Huntington is based in Columbus, Ohio. It has $69 billion in assets and more than 700 branches in six states, mostly in the Midwest. With the exception of Pennsylvania, buying First Niagara would add brand-new states to Huntington’s territory.

“I wouldn’t rule out Huntington having an interest,” Davis said.

Gilbert said that it is difficult to size up what might happen with First Niagara. “The one thing that’s hard is, we haven’t seen a lot of large-bank (mergers and acquisitions),” she said.

But she said First Niagara could prove attractive to a buyer. The bank “has a legacy franchise that’s in sort of stable markets.” And with a $28 billion deposit base, she said, “they can supply nice deposit funding for a potential acquirer.”

Banks in general have had a hard time getting regulators to approve large deals; M&T has been waiting three years for a green light on its Hudson City Bancorp acquisition. But some analysts think the deal climate may be warming up.

Would a potential suitor find First Niagara’s upstate New York territory appealing? “I think it depends on the buyer and their ability to operate in low-growth markets,” Gilbert said.

Zacks Investment Research said First Niagara would be an “attractive pick” for large banks such as BB&T, U.S. Bancorp and Regions Financial Corp., “who are seeking to scale their operations.” Davis mentioned Citizens, CIT Bank and BB&T as three potential suitors. Citizens ranks fourth in deposit market share in Buffalo Niagara. And North Carolina-based BB&T just made a deal to expand into Pennsylvania.

While First Niagara has created a solid presence in four states and built its deposit base, it has struggled to capitalize on a series of deals it made a few years ago, and took a $1.1 billion accounting write-down late last year. First Niagara’s stock price has languished below $10 per share since early 2014, before shooting up by 14.5 percent Wednesday. It closed at $10.32 per share Thursday, up by 6 cents, or 0.58 percent.

Any potential acquirer, Davis said, will have to evaluate everything that would come with a bank such as First Niagara.

“The buyer’s got to think about what his institution looks like once a deal’s closed,” he said, “because you don’t want to do anything that detracts from your franchise.”