KeyCorp (KEY) has announced that its wholly owned subsidiary, KeyBank National Association (KeyBank NA) is planning to buy 37 retail banking branches from First Niagara Financial Group (FNFG). The company will be paying 4.6% or $110 million premium on deposits of nearly $2.4 billion. Additionally, the company will also assume loans of about $400 million.
The branches, which KeyCorp is purchasing, are among those 195 branches that First Niagara is buying from HSBC Holdings Plc.’s (HBC) banking unit, HSBC Bank NA. Of these 37 branches, 26 are located in Erie, Niagara, and Orleans counties, while the remaining 11 are in Monroe County. The main reason behind First Niagara’s divestiture is to satisfy antitrust concerns raised by the Department of Justice and also for non-alignment of these branches to its growth plan.
KeyCorp’s deal will be executed in the second quarter of 2012, following the closure of First Niagara-HSBC deal. Moreover, the agreement is still subject to customary closing conditions and regulatory approvals.
According to Federal Deposit Insurance Corporation data, at present KeyCorp is the fourth-largest bank in Western New York, with $2.8 billion in deposits. Following the inclusion of these branches in its network, the company is expected to grab the third position based on its deposits. Also, KeyCorp will make its debut in Orleans County along with doubling its existing branches in Niagara County.
Over the last few years, the company has been opening new branches and renovating some of its existing branches, thereby expanding its 14-state branch network to 1,063 branches as of September 30, 2011. The company has been opening new branches as part of its long-term strategy to modernize and strengthen its presence in selected markets.
Hence, the abovementioned transaction will provide impetus to KeyCorp’s initiative to continue growing its market share through branch expansion. The transaction will also strengthen the company’s franchise in high growth markets.
Currently, KeyCorp retains a Zacks #3 Rank, which translates in to a short-term ‘Hold’ rating.
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