Capping a historic and meteoric rise over the last 10 years, First Niagara Financial Group agreed Sunday to buy 195 branches of HSBC Bank USA across upstate New York and Connecticut, possibly becoming the No. 1 bank in Western New York and adding thousands of employees and customers.
Buffalo-based First Niagara, currently the No. 3 bank in the region, said Sunday afternoon that it would pay $1 billion in cash to acquire almost all of HSBC's retail banking presence in the Empire State north of New York City, plus six branches in the Nutmeg State. That includes 71 offices in the Western New York area.
That will nearly double First Niagara's branch presence across the state, vaulting it into a leading or top position in every major upstate market and giving it more than 22 percent of deposits across the region's four major metropolitan areas.
And it strengthens its presence in markets like Rochester, Syracuse and Binghamton, where it was weak, while boosting it in Buffalo and Albany.
"We've been playing much bigger than we are in all geographies," First Niagara CEO John R. Koelmel said in an interview. "This puts more girth on our upstate New York frame and will better enable and support the team that's in those markets to further establish First Niagara as a leading player not only in the banking sector but also in the corporate community."
The deal also comes in the wake of First Niagara's expansion into Connecticut and Massachusetts by acquiring a New Haven bank, which itself followed two purchases in Pennsylvania.
"We are very pleased to acquire such a high-quality franchise that gives us an optimal footprint in upstate New York and additional depth in Connecticut," Koelmel said.
The whopping deal -- First Niagara's biggest -- effectively eliminates one competitor from the upstate marketplace, since both banks already operate here. First Niagara reportedly beat out cross-town rival M&T Bank Corp. and Cleveland-based KeyCorp to win the bidding.
But it provides more certainty for HSBC customers and employees, while offering reassurance to a worried community by putting the business in friendly hands.
"This is a big deal for the community and upstate New York. It helps create some stability," Koelmel said. "We're pleased that we're able to double-down in our home market and make an impactful investment here. We're excited to be part of calming the choppy waters around HSBC."
First Niagara doesn't expect to keep everything, however. Since HSBC was already the No. 1 bank in Buffalo with 38 percent of the market, the combination means that First Niagara would likely have too much of the market share -- nearly half -- after the deal closes.
So First Niagara expects it will be required by federal antitrust regulators to divest, or sell, certain branches and deposits to other banks to maintain competition. It also expects to sell branches in some markets that aren't important for its strategy, such as rural markets or the North Country. Specific decisions about which branches and deposits haven't been made.
Still, the bank will retain most of what it's buying. And most significantly for HSBC employees, First Niagara said most of the 1,900 people who work in the branches are expected to be retained by it and banks that buy divested branches.
The branches will remain open throughout the transition and will continue offering all products and services. There will be no change to customer accounts or branches until the deal closes, and customers don't need to take any action to ensure their money or loans are transferred. First Niagara said the two banks are working to ensure "a smooth transition for the businesses and individuals they serve."
"Our plan is to work the franchise that we're acquiring," Koelmel said. "It nicely complements and completes the franchise that we're trying to build out. This is a really optimal opportunity for us."
The deal includes HSBC's small business banking, retail brokerage and upstate credit card business, but does not include its commercial banking, corporate and investment banking or private banking businesses in upstate New York.
News of the colossal transaction, which had been kept quiet until the announcement, brings to a close significant uncertainty about what would happen to HSBC's upstate branches, customers and employees since the bank announced in May that it was putting them up for sale.
That's when London-based HSBC Holdings Plc unveiled a major global restructuring and strategy overhaul, saying it would cut up to $3.5 billion in costs globally, refocus on commercial banking and other profitable businesses, and get out of countries and business lines that weren't core to its strategy or where it lacked scale.
But it still leaves some questions unanswered about HSBC's future intentions in the region, especially in Buffalo, where it currently employs nearly 6,000. That includes more than 4,000 in Buffalo itself, with 2,200 in the One HSBC Center tower and 1,200 in the HSBC Atrium.
Still, it drew praise -- and relief -- from around New York.
"Given the possible losses from the HSBC divestment in New York, this is the best possible outcome for HSBC's employees and branches across the state," said Gov. Andrew M. Cuomo.
"In addition, this purchase is good news for New York, because First Niagara is a New York company that has a record of growth and creating jobs in upstate New York and with this deal it is showing that it is poised to continue and expand this important commitment to our state and our work force."
The announcement eased concerns that HSBC's branch employees would lose their jobs.
In fact, Erie County Executive Chris Collins said Koelmel on Sunday put to rest any concerns Collins had about jobs.
"I don't want to put words in his mouth, but what he said to me is we don't need to worry about those jobs in the branches," Collins said. "From my perspective, it's as good as it can be for Western New York with a locally owned bank acquiring those branches."
Under the agreement, First Niagara will buy 183 branches in upstate New York north of Westchester County. That's HSBC's entire retail branch presence in that territory. First Niagara will also buy four branches in Westchester County, two in Putnam County and six in Connecticut.
The deal includes $15 billion in deposits from HSBC, plus $2.8 billion in small business, residential mortgage and consumer loans, and $4.3 billion in investment assets under management for clients. First Niagara will gain more than 1 million accounts, more than 650,000 retail customers and more than 250,000 consumer credit card accounts.
"It's everything that's managed out of the branch through a relationship manager," said HSBC spokesman Neil Brazil.
The purchase is subject to the approval of the Office of the Comptroller of the Currency, the federal banking regulator that oversees both banks, and the U.S. Justice Department, which handles antitrust issues. It's expected to close early next year, by April at the latest, Koelmel said, with integration occurring at the same time.
"We're working with HSBC to choreograph that," he said.
After the deal closes and the divestitures are complete, First Niagara expects to have about $38 billion in assets, $30 billion in deposits, $9 billion in assets under management and 450 branches across upstate New York, Pennsylvania, Connecticut and Massachusetts. Its upstate branches will each have an average of $80 million in deposits. And it expects to employ 6,500 overall, including 4,000 in New York, up from 2,600 today.
First Niagara said the purchase price represents a premium of about 6.67 percent of the deposits. To help pay for the transaction and bolster its capital levels, First Niagara plans to raise about $750 million to $800 million from selling more stock, plus $350 million to $400 million from issuing debt to investors.
The bank said the deal is expected to add to its earnings per share by 10 percent to 11 percent in 2012 and by 11 percent to 12 percent in 2013, not including pretax merger expenses of $150 million to $175 million next year. It did not specify cost-savings down the road.
News Staff Reporter Jay Rey contributed to this story.