KeyCorp received the Federal Reserve’s approval to acquire First Niagara Financial Group, a deal valued at nearly $4 billion that will transform the Western New York banking landscape. It was the final regulatory hurdle the deal had to pass.
The purchase will move Key into the No. 2 spot in the region, as measured by deposit market share, behind market leader M&T Bank Corp. Key is aiming to complete the deal by Aug. 1.
The acquisition will also spell the end of First Niagara as an independent bank that had grown through a series of acquisitions, but couldn’t capitalize enough on those purchases to satisfy investors. Key has designated Larkinville as its Northeast regional headquarters and says the Buffalo Niagara region will figure prominently into its growth plans.
“We are pleased to reach another important milestone as we bring Key and First Niagara together,” said Beth Mooney, Key’s CEO and chairman, in a statement. “I’m also proud that our two companies have worked so well together to meet our commitment for clients, communities, employees and shareholders. We remain confident in and committed to meeting the growth and financial objectives of the First Niagara acquisition.”
Gary Crosby, First Niagara’s CEO, said: “This is a major milestone that puts us firmly on track to close the merger in the very near future and to complete customer conversion as we planned in the fourth quarter.”
The Federal Reserve’s blessing, announced Tuesday, was several months in the making, after Key announced its planned purchase last October. First Niagara’s board had determined remaining independent was no longer a feasible strategy, and the bank had evaluated potential business partners. Key emerged as First Niagara’s suitor of choice.
The new combination will vault Cleveland-based Key into the No. 13 spot among U.S.-based commercial banks and builds on a presence it has already established in Western New York. And while the Buffalo area is First Niagara’s home base, Key will absorb First Niagara operations spread across other parts of New York State as well as in Massachusetts, Pennsylvania and Connecticut.
The Federal Reserve’s approval came just after Key and First Niagara submitted a plan for the Office of the Comptroller of the Currency that calls for 70 First Niagara branches and 36 Key branches to be closed. But under a deal with Sen. Charles E. Schumer and Rep. Brian Higgins, Key has pledged to not lay off branch employees and to keep statewide job cuts to no more than 250. The bank also agreed to add at least 500 to 600 jobs in New York State in the next three years, and likely add 300 to 400 jobs in the two years after that. The agreement averted fears that the acquisition by Key would trigger devastating job cuts in the Buffalo Niagara region.
“Given the potential for employment growth in Buffalo, I think it could be a good thing,” Higgins said after the approval was announced. “We will continue to monitor very closely, both Sen. Schumer and I, the commitments that KeyBank made. But we have every reason to believe they are prepared to honor those commitments. This was potentially a disastrous situation that was turned into something very positive.”
Buffalo will lose a prominent corporate headquarters as a result of the deal. But Higgins said having Key’s Northeast regional headquarters here will be a benefit, and Key’s commitment to build on three of First Niagara’s business lines “provide the corporate infrastructure, being located in Buffalo, from which we can experience good job growth.”
Higgins said he’s hopeful that depending on how Key’s businesses perform, “we can achieve (job) numbers that are beyond what the agreement says.”
Key said systems and client conversion is expected to take place in the fourth quarter, pending the Office of the Comptroller of the Currency’s approval.
For consumers, the deal unites the region’s No. 2 (First Niagara) and No. 3 (Key) banks, as measured by deposit market share. Combined they still trail market leader M&T Bank Corp., which has about 51 percent.
The Federal Reserve’s order approving the deal delved into a central issue the acquisition had faced: the impact on banking competition in the Buffalo area. To alleviate those concerns, 18 branches are being sold to Northwest Bancshares, a deal that will strengthen its position in the market. In its order approving the deal, the Federal Reserve said it was satisfied that the purchase would not significantly harm competition in 12 markets where Key and First Niagara directly compete with each other.
Key had about $98 billion in assets as of March 31, $30 billion in deposits and about 5,300 employees. First Niagara had about $40 billion in assets and $30 billion in deposits as of March 31, and about 390 branches in four states.
The deal also raises the profile of Key’s Mooney, who was already rated by American Banker as the most powerful woman in banking. This is Key’s first large-scale acquisition on her watch.
First Niagara had grown substantially from its days as Lockport Savings Bank, undergoing a name change and a headquarters move into Buffalo. Under its previous CEO, John Koelmel, the bank carried out a series of acquisitions, most notably HSBC Bank USA’s upstate branch network, to fuel its growth. First Niagara’s rise also spurred redevelopment of the Larkinville neighborhood.