KeyCorp's First Niagara Deal Gets Fed's Nod: What's Next?

KeyCorp (NYSE:KEY) announced the receipt of regulatory approval from the Federal Reserve for its proposed acquisition of First Niagara Financial Group Inc. (NASDAQ:FNFG) . The deal, likely to transform the banking landscape in New York, is expected to be completed by Aug 1, 2016, subject to customary closing conditions.

Systems and client conversions are projected to be completed by the fourth quarter of 2016, subject to the approval of the U.S. Comptroller of the Currency. The acquisition was originally announced on Oct 30, 2015.

Hurdles Faced Along the Path

KeyCorp’s plan to acquire First Niagara was severely criticized by the Senator Charles Schumer and Congressman Brian Higgins given its potential threat to competition and the likelihood of job cuts throughout the upstate.

Brian Higgins said, "We just kept hammering away, both the Senator and I, and it got progressively better. We used every leverage point available to us to fight for every single job."

Thus, in order to receive the assistance of Charles Schumer and Brian Higgins in successfully processing the deal, KeyCorp agreed to limit acquisition-related job cuts and reach the pre-merger employment level by 2021. Also, the company confirmed that all First Niagara and KeyBank branch employees have been offered roles with the new KeyBank.

Details About the New KeyBank

The new KeyBank branch network will include 488 branches, of which 304 will be of First Niagara. It will also include an expanded ATM network of 683 branch-based and remote ATMs. These will be located in upstate New York, Connecticut, Massachusetts and Pennsylvania.

Additionally, KeyCorp intends to consolidate 70 First Niagara and 36 KeyBank branches into its existing branches. Hence, post merger, KeyBank will have a network of more than 1,200 branches and 1,500 ATMs, located in 15 states.

Beth Mooney, Chairman and CEO of KeyCorp said, "I am confirming that Buffalo, NY, is our Northeast regional headquarters and that Key will invest and grow in New York, including our plans to expand our mortgage, auto lending and insurance businesses."

Impact on the Stock

Post the announcement of KeyCorp’s plans for the new KeyBank and receipt of regulatory approval, the share price of the company rose 3.43%, indicating investors’ optimism about this deal.

Further, the acquisition of First Niagara is expected to help the company focus on enhancing convenience and capabilities for its clients, along with creating a more efficient branch network.

KeyCorp currently holds a Zacks Rank #4 (Sell).

A couple of better ranked stocks in the foreign banks industry include Canadian Imperial bank of Commerce (TO:CM) and Royal Bank of Canada (NYSE:RY) , both sporting a Zacks Rank #1 (Strong Buy).