4. First Niagara Financial Group
The company agreed in July to purchase 195 branches in Upstate New York and Connecticut from HSBC (HBC) for roughly $1 billion, in a deal that is expected to be completed in early 2012.When the deal was announced on July 31, First Niagara CEO John Koelmel said that after an anti-trust review by the Department of Justice, the company had determined it would need to close or sell roughly 100 of the acquired HSBC branches. First Niagara's shares have fallen 23%, since July 29, the session before the HSBC deal was announced, which is pretty much in-line with the overall performance for the sector, however, the drop in the share price magnifies the painful dilution investors will face when the HSBC deal is completed, and before the messy branch divestitures begin. First Niagara said it expected "to raise approximately $750 million to $800 million in common stock and $350 million to $400 million in debt prior to transaction closing," and that the HSBC deal's "tangible book value payback period of four to five years, assuming initial tangible book value dilution of 17% to 18%." Based on the July 29 stock price of $12.25 and, shareholders were facing a 22% dilution of their stake in the company, with the issuance of 61.2 million new shares if it were to raise $750 million in common equity. Based on Thursday's closing price of $9.41, First Niagara would issue $79.7 million new shares to raise $750 million, so shareholders now face a 28% dilution to their ownership stake -- based on the 282.4 million in weighted average diluted shares outstanding for the second quarter, according to First Niagara's second-quarter 10-Q filing with the Securities and Exchange Commission -- to gain $15 billion in deposits and 195 branches from HSBC, followed by the expected sale or closure of over half the branches. Please see TheStreet's 10 Banks on Solid Financial Footing for a discussion of First Niagara's second-quarter performance. The shares trade for 7.5 times the consensus 2012 EPS estimate of $1.20, among analysts polled by FactSet. Out of 10 analysts covering First Niagara, seven rate the shares a buy, while the remaining analysts all have neutral ratings.