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NEW YORK (
TheStreet) -- Jefferies analyst Casey Haire sees 20% upside potential for shares of
First Niagara Financial Group (FNFG - Get Report), following the company's announcement late Wednesday of a major balance sheet restructuring.
The Buffalo, N.Y., lender after the market close announced that it had "taken steps to reposition its securities portfolio through the sale of $3.1 billion of mortgage-backed securities (MBS), the proceeds of which were used to repay a comparable amount of short-term debt." First Niagara also said that there were no prepayment penalties on the debt repayments, and that the company would "recognize a $16 million pre-tax gain from the sale of securities in the second quarter of 2012."
First Niagara CEO John Koelmel said that "given the expected duration of this historically low rate and volatile economic environment, we took decisive actions to better position our balance sheet without impacting the longer-term business fundamentals and to shine a brighter light on the strength of our core operations."
First Niagara Financial Group CEO John R. Koelmel
First Niagara CFO Gregory Norwood said "the selection and sale of securities with the greatest levels of prepayment risk coupled with the deleveraging have better positioned us to benefit when interest rates ultimately rise. At the same time, we have also significantly reduced the near-term earnings volatility created by the current sustained low interest rate environment."
The company in May completed its purchase of nearly 200 branches from HSBC (HBC_) during May, while also selling roughly 100 branches to other banks. The company had $35.5 billion in total assets and $19 billion in deposits as of March 31, and acquired $9.8 billion in deposits and $1.6 billion in loans through the HSBC deal.
During a conference call following the announcement, Koelmel explained that following the company's major expansion through its purchase of 57 National City branches in Western Pennsylvania in 2009, its acquisition of Harleysville National Corp. -- with 83 branches in Eastern Pennsylvania -- in 2010 and NewAlliance Bancshares and its 88 branch locations in Connecticut and Western Massachusetts in 2011, the company's "design of attack" was "to bridge our ongoing excess liquidity challenge, support the cost of carrying increasing infrastructure until we were able to deepen our end market penetration and build out our commercial and consumer loan portfolios."