First Niagara Prices Last Leg of Its Financing Plan for Branch Deal

First Niagara Financial Group Inc. has pulled the final lever on its three-part plan to finance its acquisition of nearly 200 HSBC branches.

By the middle of next week, the $31 billion-asset company will have completed three debt and equity offerings valued at over $1.1 billion.

First Niagara said late Thursday that it had priced a $300 million offering of subordinated notes. They are 7.25% notes due in 2021 and were priced to the public at their principal amount plus accrued interest. The offering is scheduled to close Tuesday. Goldman Sachs & Co., Sandler O'Neill and Partners L.P. and Bank of America Corp.'s Merrill Lynch unit are handling various aspects of the offering.

First Niagara announced plans for the offerings after the stock market closed Tuesday. It needs the capital it needs to complete its acquisition of 195 HSBC Bank USA branches in upstate New York and Connecticut.

Besides the subordinated notes offering, First Niagara began a $450 million common stock offering Tuesday and a $350 million offering of perpetual noncumulative preferred shares on Wednesday. The common stock offering is set to close Monday, and the preferred offering on Wednesday.

First Niagara also said that it would cut its dividend in half, to eight cents, starting in the first quarter of 2012 to preserve capital after completing the roughly $1 billion deal for the HSBC branches. The dividend cut is expected to save the company $110 million in 2012.

It also said the transaction would lower operating earnings-per-share by 1% to 2% in 2012, not boost them by the 10% to 11% the company first assumed. The deal would lower its tangible book value by about 30%.

The moves and chastened outlook were bad news for investors who value their dividends and may have diminished the reputation on Wall Street of First Niagara's chief executive, John Koelmel. Koelmel has put First Niagara on the map with recent acquisitions of NewAlliance Bancshares Inc. of New Haven, Conn., Harleysville National Corp. outside Philadelphia and 57 former National City Corp. branches in western Pennsylvania, but investors are wondering if the HSBC deal has become too costly for the anticipated return.

Koelmel has tried to reassure the skeptics for months. "I say to many who wonder at times if we are going too far, too fast: we worked too hard through the worst times this industry has seen in a long time to get it right and do it right," he said in an interview in August.

First Niagara announced its deal for the HSBC branches in late July. The sale is expected to close in the second quarter.

As a condition of the deal, the Justice Department has ordered First Niagara to divest 26 branches. First Niagara has also said that intends to close a or sell dozens of other HSBC branches that are outside of its desired markets.

First Niagara's shares were down 1.14%, to $8.65 apiece, in late afternoon trading Friday on a strong day for the market.