First Niagara Must Sell 26 Branches in Buffalo, DOJ Says

The Justice Department on Thursday ordered First Niagara Financial Group Inc. to sell 26 of the branches it has agreed to buy from HSBC Holdings Plc.

The 26 branches are in the Buffalo area and have $1.6 billion of deposits.

First Niagara agreed this summer to buy 195 branches in New York and Connecticut from HSBC for $1 billion. The Buffalo-based company had said it was in negotiations with Justice about which branches to sell to address any antitrust concerns the deal raised.

"With the divestiture, consumers and small businesses in the Buffalo area will continue to enjoy the benefits of competition in banking services," Sharis A. Pozen, acting assistant attorney general in charge of the department's antitrust division, said in a release.

Banking regulators still have to approve the deal. Justice said it will not challenge the merger as long as First Niagara divests the 26 branches per an agreement among the department and the banks.

The 26 branches are in Erie, Niagara and Orleans counties, N.Y. Commercial loans associated with those branches must be included in the sale.

In a news release Thursday the $31 billion-asset First Niagara said that with the Justice Department approval now in place, it is moving ahead with plans to sell off more of the HSBC branches "that are outside of the company's long-term strategic footprint." At the time the deal was announced the $31 billion-asset First Niagara said it expected to close or divest as many as 100 of the 195 branches.

"We are pleased to have reached this agreement with the Department of Justice, which is a key first step to our divestiture plan in connection with this transaction," John R. Koelmel, First Niagara's chief executive, said in the release. "Our team is now actively marketing the Western New York branches to be divested, which represent a high-quality, well-dispersed franchise that provides a unique opportunity for acquiring companies to enter or expand their presence in this market."

First Niagara said that it expects agreements to sell more branches will be in place by the end of the year.

First Niagara, of Buffalo, is known as successful consolidator, but several forces that affected all banks this year — volatile stock markets and regulatory uncertainties — were prompting tough questions about its deal. First Niagara agreed to pay a 6.67% premium for $15 billion of deposits and is planning a hefty capital raise to fund the acquisition.

"Are we where we expected to be when we announced the transaction? A simple no," John Koelmel, the CEO of First Niagara, said on a conference call in October about third-quarter earnings. "Do we still believe we have a strategic home run? Definitely. Does the current environment make the execution a lot trickier? Certainly. Are the traditional conversion and integration readiness and preparation processes going well? Absolutely."

Stock markets plunged soon after the deal was announced on fears about the European crisis, and they remained volatile into early November. Some said First Niagara did not get the same level of buyer protections as HSBC gave Capital One, which has agreed to buy a large credit card portfolio from HSBC.

First Niagara reported third-quarter earnings that were weighed down by more than $16 million in costs from closing Pennsylvania branches of the former Harleysville National Corp., which it acquired in 2010. Earnings were affected the previous quarter by expenses related to the purchase of New Alliance Bancshares Inc. of New Haven. Conn. That deal closed in April.