If anyone doubted that the Buffalo Niagara region’s business landscape is changing, 2015 put an end to that misunderstanding.
From tectonic shifts in banking and the local legal community, to the emergence of a diverse immigrant community, the rate of change appears to be accelerating.
The top 10 business stories of the year selected by The News’ financial staff reflect this dynamic marketplace.
Concerns about the impact of KeyCorp taking over First Niagara Financial Group were balanced against a steadily improving job market and the grass-roots economic development revolution being carried out by the Bangladeshis rebuilding some of the city’s forgotten neighborhoods. 2015 was a dramatic year in local business, and it has set the stage for more to come.
1. KeyCorp agrees to buy First Niagara for $4.1 billion.
The pending sale of First Niagara Group – a major employer and active corporate citizen – to rival KeyCorp easily topped the list of top business stories of 2015 as selected by The Buffalo News business staff.
When the deal closes, Buffalo will be losing a corporate headquarters and much of its bragging rights as a regional banking center. And because Key Bank is already the No. 3 bank in the region, large job cuts are expected because Key already does much of its back office work in Cleveland.
First Niagara grew from its early days as Lockport Savings Bank into the No. 2 bank in the region with operations across four states. Along the way, it moved its headquarters to Larkinville and spurred that neighborhood’s revival.
But for all of its expansion, First Niagara struggled to capitalize on its acquisitions, most notably HSBC’s upstate branch network. A stagnant share price and investor frustration led the First Niagara board to put the bank on the market. The deal was announced in October. The two banks hope to complete their deal – which would make Key the 13th largest U.S.-based bank – in the third quarter. Observers wonder how much Key will keep of what First Niagara built here – specifically, First Niagara’s 2,300 employees in Western New York. The two banks have already pledged to keep mortgage operations in Buffalo, protecting about 300 jobs.
But Cleveland-based Key has many more cost-cutting decisions to make, from overlapping branches to duplicative jobs. Key already has a regional headquarters in Buffalo, plus a customer contact center and numerous branches. Much is left to be worked out. But if the deal goes through, Buffalo will cope with the loss of another corporate headquarters.
2. Buffalo Niagara unemployment rate continues to fall.
It feels just like the good old days for the Buffalo Niagara job market – only better.
The region’s unemployment rate fell below 5 percent for the first time since 2007 as robust job growth and a shrinking labor pool pushed jobless levels back near the historic lows during the years leading up to the Great Recession.
With new jobs being created at their fastest pace in more than 25 years – 1.7 percent – the steady hiring is helping workers who are actively looking for a job find one. The local unemployment rate, which peaked at 9.4 percent in February 2012, has been dropping steadily since then as hiring has accelerated, falling to 4.9 percent in November.
With SolarCity gearing up to hire as many as 1,460 workers in the coming years and other big projects advancing on the Buffalo Niagara Medical Campus, local economists think the solid job growth can continue throughout this year and beyond.
And that could mean even lower unemployment in 2016.
3. M&T Corp. completes its $5.3 billion deal for Hudson City Bancorp.
M&T Bank Chairman and CEO Robert G. Wilmers called it the bank’s “most challenging deal,” with good reason.
M&T announced in August 2012 that it would buy New Jersey-based Hudson City, a deal valued at that time at $3.7 billion. But federal regulators found shortcomings in M&T’s anti-money laundering and Bank Secrecy Act systems, putting the deal on hold. The delay would stretch on far longer than anyone anticipated.
On four occasions, the two banks agreed to extend their deadline to complete the deal. Industry observers wondered whether the drawn-out process had a chilling effect on other bank mergers; only recently has merger activity picked up again.
The Buffalo-based bank embarked on a wave of hiring and spent more than $200 million in the past two years to upgrade its systems. Bank officials said the improvements would equip the bank for the future, not simply satisfy regulators’ requirements to finish the deal.
Federal regulators finally gave their blessing in September. The two banks closed the deal – now valued at $5.3 billion, because M&T’s share price kept rising – in November.
M&T is preparing to convert Hudson City’s 135 branches to its own brand, and is cutting 366 jobs at Hudson City’s headquarters. Even with those cuts, M&T is adding more than 1,100 Hudson City employees to its work force, and gaining $17.9 billion in Hudson City deposits. After years of waiting – and spending – M&T is now aiming to make greater inroads in New Jersey and the metropolitan New York City area.
4. Homeowners hammered by foreclosure also lose out on auction profits.
Rising demand for city homes has transformed Buffalo’s home foreclosure auction into a source of financial hope for the unfortunate people losing their homes.
When a home is auctioned, the city can take the amount of the tax liens and fees due on the property, but any excess money belongs to the foreclosed homeowners, their heirs and any other creditors. But the city never informed people of this, and the money eventually flowed back to the state.
The surplus money from Buffalo’s tax foreclosure auctions now is a whopping $11.6 million.
In 2014, 807 properties sold at the auction for $9.2 million, with excess proceeds totaling $4.4 million on 324 properties. That’s an average of $14,348.
Following a story in The Buffalo News in November about the situation, legislation is being drafted that requires the city to inform foreclosed homeowners of any excess money they may be due.
5. ECMC suddenly forces out its CEO and chief operating officer with little explanation.
The Erie County Medical Center board of directors caused a stir when, with little explanation, it abruptly ousted the hospital’s top two administrators — CEO Richard C. Cleland and Chief Operating Officer Mary Laski Hoffman — on the same day in early November.
The board said it had voted to fire Cleland for cause, but Cleland insisted he resigned for cause. Hoffman, for her part, resigned after Cleland refused the board’s orders to fire her.
The removals happened just five months after Cleland was named permanent CEO of the medical center and 18 months after he took over as interim CEO, replacing Jody L. Lomeo when Lomeo was named the head of Kaleida Health.
Cleland wasn’t embraced by everyone on the ECMC board, and his foes seized on a controversy over his flying to London on a plane chartered by Terry and Kim Pegula for Buffalo Bills suite holders and sponsors to see the Bills play. They criticized the timing of when he alerted hospital officials to the trip and when he agreed to repay the Bills for the cost of the trip.
Thomas J. Quatroche Jr., formerly the hospital’s president, has been serving as acting CEO.
Cleland, who would have been paid nothing if terminated for cause, reached a two-year, $1.2 million settlement with the hospital in late December that followed 1½ months of negotiations.
6. Big mergers in area law firms.
Megamergers reshaped Buffalo’s legal services industry, as the city’s third- and fourth-largest law firms were absorbed into much larger powerhouses, both based in Syracuse.
Damon Morey, the city’s No. 3 firm, agreed to merge with Hiscock & Barclay, creating a new Northeastern juggernaut called Barclay Damon. The new firm has 275 lawyers and 500 staff members in 12 offices from Toronto to Washington, including 105 in Buffalo, its largest office.
A few months later, rival and No. 4 player Jaeckle Fleischmann & Mugel agreed to merge into Bond Schoeneck & King, giving the larger firm a total of about 270 attorneys, including 51 in Buffalo, which will be its second-largest office. It will have 11 offices, including nine across the state.
Both decisions were driven by similar dynamics – the need to grow larger to achieve more scale while meeting more client needs by offering a broader array of practice areas.
Despite long local legacies, both firms came to the same conclusion – to compete, they needed to combine. Ironically, both rival Buffalo firms are based in Uniland Development Co.’s Avant Building in downtown Buffalo, taking up two floors each.
7. Bangladeshis moving from New York City revive downtrodden neighborhoods.
In a largely unnoticed migration, thousands of Bangladeshis – mostly poor taxi drivers and construction laborers – have moved to Buffalo’s most distressed neighborhoods on the East Side in search of affordable homes. They have plunked down their life savings to buy and renovate hundreds of dilapidated clapboards.
The result has been restoration of some of the city’s most distressed neighborhoods and the return of abandoned properties to the city’s tax rolls.
Property values are rising in the inner-city and demolitions waning. Dozens of retail stores are opening, providing goods and services in long-ignored neighborhoods.
And crime is down significantly. In areas where Bangladeshis have settled, crime has tumbled 64 to 70 percent in the past five years.
Unlike like refugees, the Bangladeshis were not placed here. They chose Buffalo and receive no government assistance with relocation.
It’s a haphazard, hardscrabble story of individual families investing their all into poor neighborhoods. And collectively, their efforts are bearing fruit in the most barren areas of the city.
8. PepsiCo pulls the plug on its state-of-the-art Greek yogurt plant in Batavia.
Batavia was center stage in the food world in August 2012, when Indra K. Nooyi, chairwoman and CEO of PepsiCo, dropped by to dedicate the Greek yogurt plant her company would share with German food maker Theo Muller Group. The plant, which opened in June 2013 and employed 170 people, joined numerous others that make New York the No. 1 yogurt producing state in the nation.
So it was a bit of a shock this month when PepsiCo announced suddenly that it was closing the $206 million plant and ending the Quaker Muller Dairy partnership.
The company, which received $3 million in incentives, said the plant was not meeting expectations.
The disappointment was softened by news that the plant is being acquired by Dairy Farmers of America, a national milk and food production cooperative with 15,000 members in 48 states. It is the cooperative’s first yogurt plant, and hopes are it will continue to keep the region’s dairy farmers busy.
9. Evans Bancorp settles lawsuit with state Attorney General’s Office.
In September 2014, state Attorney General Eric T. Schneiderman made headlines when he sued Hamburg-based Evans Bancorp in U.S. District Court, accusing the bank of “redlining.” Schneiderman claimed the bank had denied access to mortgage loans to borrowers in predominantly African-American neighborhoods. Evans Bancorp. vehemently denied the charges, set aside $1 million to deal with the case, and brought in former state Attorney General Dennis C. Vacco to represent the bank.
Schneiderman described a trade area map, created by Evans and submitted to regulators, as “classic redlining.” The map excluded the East Side of Buffalo and the west side of Cheektowaga.
Evans CEO David J. Nasca said the map’s boundaries were drawn not to exclude customers, but to indicate where the bank was most likely to attract deposits, based on where its two city branches were. He claimed Schneiderman made Evans a “target of opportunity.”
The legal battle ended in September, when the two sides settled before a trial. Evans agreed to create an $825,000 settlement fund to promote home ownership and affordable housing in Buffalo. Nasca said he believed Evans would have prevailed in court, but the bank felt the settlement was “in the best interests of the community and our shareholders to end this unfortunate matter.”
Schneiderman vowed to continue battling housing and racial discrimination. Earlier in the year, he reached a settlement in a case with Five Star Bank, in which he accused the Warsaw-based bank of discriminatory mortgage practices in Rochester.
10. Residential real estate market stays hot all year.
After the bitter-cold and snowy winter put a deep freeze on almost all real estate activity, Western New York’s housing market abruptly awoke from its hibernation in a big way, and sizzled for the rest of the year.
Final figures aren’t in yet, but the market overall is poised to set all-time records for closed deals, pending sales, new listings, and both average and median prices.
Brokers attribute the remarkable surge to continued low-interest rates all year, and to the new excitement about Buffalo’s renaissance and a desire to live in certain parts of the city. They said competition for homes was rampant, citing frequent examples of multiple offers on homes and sales prices that far exceeded listing prices. In some instances, homes were sold within a day of being listed.
Heavy sales activity continued into late fall, which is normally a slower time as winter approaches. And agents say they see no signs of it slowing down.