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First Niagara: Branch Sale Winner

NEW YORK ( TheStreet) -- First Niagara Financial Group (FNFG - Get Report) was the winner on a mixed Thursday for financial names, with shares rising over 3% to close at $9.58.

The company announced an agreement to sell 37 branches to KeyCorp (KEY) for roughly $110 million. To address the Justice Department's concerns over First Niagara's market concentration following its upcoming purchase of 195 branches from HSBC (HBC), the company had previously agreed to divest 40 branches, and is planning to sell a total of 100 branches after the HSBC deal is completed.

The broad indexes were up slightly as investors shrugged off a couple of negative economic indicators. The Commerce Department reported that excluding retail sales in December rose just 0.1% from November, after a revised 0.4% increase the previous month. Economists polled by Thomson Reuters had expected retail sales to rise 0.3% in December. The Labor Department reported that first-time jobless claims for the week ended Jan. 6 totaled 390,000, which was the highest level in six weeks.

The KBW Bank Index (I:BKX) rose 0.5% to close at $43.60, with 19 of the 24 index components showing gains for the session.

First Niagara is scheduled to report its fourth-quarter results on Jan. 26, before the market opens. Analysts polled by Thomson Reuters expect the company to announce earnings of 24 cents a share, compared to operating EPS of 25 cents the previous quarter and 24 cents a year earlier.

FBR analyst Bob Ramsey said on Thursday that with the KeyCorp deal, First Niagara had laid out 2/3 of its planned branch sales, and that he expected "some news on the remaining deposit divestitures within two weeks when the company reports 4Q11 earnings."

Ramsey said the pricing for the branch sales to KEY was "at the higher end of the company's targeted range for an average deposit premium of 4% to 5%." The analyst called First Niagara "a highly profitable franchise which we expect to generate organic loan growth funded with a very low cost deposit base (51 bps). Shares trade at 9.8x our 2012 EPS estimate of $0.95, a discount to peers."
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