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Report says Justice Department probing First Niagara’s minority lending

KeyCorp’s bid to acquire First Niagara Financial Group is facing scrutiny over a federal investigation into First Niagara’s minority-lending practices, according to a published report.

Two unnamed sources told Bloomberg News that the Justice Department more than two years ago began looking into whether First Niagara violated a federal law prohibiting discrimination in issuing loans.

It couldn’t be determined whether the scrutiny was holding up the deal, which was announced last October, the report said. Key has said it is aiming to complete the acquisition in the third quarter.

First Niagara spokesman David Lanzillo told Bloomberg that First Niagara “will continue to engage in safe, sound and fair banking practices that focus on the underserved.” He declined to comment on the investigation.

Key spokesman Jack Sparks and spokesmen for the Justice Department and bank regulators also declined to comment.

First Niagara’s most recent filings under the Home Mortgage Disclosure Act showed that about 9 percent of the home loans it originated in the Buffalo area in 2014 went to minority borrowers, the report said, which was less than the 12 percent at M&T Bank Corp. or the 18 percent at Bank of America in the same geographical area.

Until this point, no obvious issues have surfaced in the Key-First Niagara deal that could prevent it from going through.

Cleveland-based Key and Buffalo-based First Niagara have moved close to completing their deal, after shareholders from both banks approved it. And the Justice Department approved a plan to sell 18 First Niagara branches to Northwest Bancshares to resolve anti-competitive concerns.

But the deal still needs approval from the Federal Reserve, which does not publicly comment on its timetable for making those kinds of decisions.

Meanwhile, Key has pressed forward on its plans for the Buffalo market, by announcing its intention to rename the First Niagara Center as KeyBank Center by this fall, and to make Larkinville Key’s Northeast regional headquarters. The bank has also pledged to open a new branch on the East Side.