First Niagara has become one of the largest regional
banks in the New York region following an aggressive buying spree,
making nearly one acquisition every year for the past decade. It is
now a top 50 US bank, having snapped up half of HSBC’s
underperforming US retail network. Charles Davis
reports.
Go deeper with GlobalData
One of the
fastest-growing retail banks in the United States was a thrift
holding company less than two years ago.
Buffalo, New York-based First Niagara
Financial Group gained approval from the Federal Reserve Board in
2010 to switch its classification from a third charter to a bank
holding company charter, and accelerated an aggressive series of
acquisitions that continues to this day.
Early in 2011, First Niagara finalised the
acquisition of Connecticut-based NewAlliance Bancshares, pushing
into the ranks of the top 50 banks in the country and giving it a
total of 333 branches in New York, Pennsylvania, Connecticut and
Massachusetts and assets of more than $31bn.
First Niagara, which also bought Pennsylvania-based Harleysville
National in April of 2010, has acquired three insurance
subsidiaries in the past two years as well.
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By GlobalDataThe jewel in First Niagara’s crown, however, is its 2011 deal to
buy 195 HSBC Bank USA branches across New York State and in
Connecticut. First Niagara beat off much larger rivals for one of
the region’s premier businesses – the former Marine Midland Bank –
as HSBC shrinks its retail banking footprint. First Niagara
reportedly beat out cross-town rival M&T Bank Corp. and
Cleveland-based KeyCorp to win the bidding war.
The federal government held up the $1bn deal
over antitrust concerns, but First Niagara broke the stalemate in
November by agreeing to sell 26 of the HSBC branches and divest
another 14 of its own branches to satisfy US Department of Justice
issues. All 26 branches are located in Western New York in Erie,
Niagara and Orleans counties.
In January, First Niagara announced the sale
of 37 of the HSBC branches in the Buffalo and Rochester area to
Cleveland, Ohio-based KeyCorp for nearly $110m, based on current
deposit balances. With about 30% of First Niagara’s and
HSBC’s branches within a mile of each other, the bank could save
substantially through closures while consolidating its retail
presence in more remote locations.
To swallow the HSBC deal, First Niagara
Financial Group also plans to raise $1.1bn in new capital by
selling common stock, preferred shares and debt, while also cutting
its dividend in half. The bank said it would offer $450m in common
stock. The bank will also grant the underwriters a 30-day option to
buy up to $33.75m in additional shares to meet extra demand.
Additionally, the bank said its board of
directors will slash the quarterly cash dividend in half in the
first quarter, to 8 cents per share, to save about $110m next year.
The weak stock market has made financing difficult, and the
drawdown for the HSBC has been set at four to five years, raising
analysts’ eyebrows.
It is a tough financial climb, but the kind of
deal that has marked First Niagara’s stunning growth from a
mid-sized, one-state presence to a regional player of import.
The HSBC deal will nearly double First
Niagara’s branch presence across the state of New York, vaulting it
into a leading or top position in every major market north of New
York City and giving it more than 22% of deposits across the
region’s four major metropolitan areas.
It bolsters its presence in markets like
Rochester, Syracuse and Binghamton, while boosting it in Buffalo
and Albany.
It is not without risk, given the volatility
of the economy, but there certainly are benefits to growing for a
bank in First Niagara’s market. It should be able to generate
greater loan earnings by lowering its borrowing costs, and its
larger deposit base will significantly lower its funding costs and
boost its net interest margin.
“This transaction is a strategic home run for
us,” said Gregory Norwood, First Niagara’s CFO, in a call
with analysts upon closing the deal.
“This is our own backyard where we have
extensive experience … The pricing is very attractive, given the
significant value over the long term.”
The deal includes HSBC’s small business
banking, retail brokerage and upstate credit card business, but
HSBC retained its commercial banking, corporate and investment
banking or private banking businesses in upstate New York.
First Niagara said the deal would vault
it to first place from fifth in deposit share in upstate New York,
while collecting some $11bn of cheap deposits, 650,000 new
customers and one million new deposit accounts overall.
It levels the competitive playing field with
its Buffalo rival M&T Bank Corp., another bank that has emerged
as a Northeastern powerhouse during the downturn through a series
of acquisitions.
After the deal closes and the divestitures are
complete, First Niagara expects to have about $38bn in assets,
$30bn in deposits, $9bn in assets under management and an
impressive 450 branches across upstate New York, Pennsylvania,
Connecticut and Massachusetts.
Its upstate branches will each have an average
of $80m in deposits. And it expects to employ 6,500 overall,
including 4,000 in New York, up from 2,600 today.
That’s an amazing growth story for an
institution that a dozen years ago was the tiny Lockport Savings
Bank in rural Niagara County, New York.
It is those small-town banking values that put
First Niagara into position to capitalise on the errors of the
bigger banks. First Niagara sat out the credit crisis and the
subprime mortgage debacle, so it was well positioned when the
dominoes began to fall and players like HSBC had no choice but to
retrench.
Its upstate New York footprint weathered the
recession better than most of the rest of the country, setting the
stage for First Niagara’s emergence.
With the HSBC deal mostly behind it now, the
bank can focus its energies on integrating its two latest
acquisitions and enjoying its sudden trajectory.
