Updated in the second paragraph with First Niagara's announcement after the market close of a major repositioning of the company's balance sheet.
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 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 broad indexes saw gains of nearly 1% after the U.S. Commerce Department reported that new orders for durable manufactured goods increased by $2.3 billion, or 1.1%, to $217.2 billion during May, following two consecutive months of declines. Economists had been expecting a 1% increase during May, according to Briefing.com. Following a plea from Spain's prime minister Mariano Rajoy for European leaders to agree at their summit beginning Thursday to "urgent" measures to help prop up weaker eurozone member nations, since "we can't finance ourselves at the prices we are paying for very long," German Chancellor Angela Merkel called quick remedies for Europe's debt crisis "eyewash," and fake solutions," according to a Financial Times report. Merkel continues to insist upon more centralized European authority over bailed-out member nations' budgeting and borrowing, and that "eurobonds, or [mutualized] debt, are the wrong way to go." The KBW Bank Index (I:BKX) rose over 1% to close at 44.75, with 23 of the 24 index components rising for the session. First Niagara's shares have now declined 11% year-to-date, after dropping 35% during 2011. Based on a quarterly payout of eight cents, the shares have a dividend yield of 4.03%. The shares trade just above their reported March 31 tangible book value of $7.86, and for nearly eight times the consensus 2013 earnings estimate of $1.01 a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is 87 cents. Even before today's announcement after the closing bell, First Niagara was already going through a major transition, after completing 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 through the HSBC deal. Sterne Agee analyst Matthew Kelley rates Frist Niagara a "Buy," with an $11 price target, saying on May 29 that "we see the 2013 [price-to-earnings] valuation gap versus regional bank peers (FNFG 9x vs. peers 13x) closing over the next year as the company executes on the HSBC deal, rebuilds capital and generates double-digit returns on tangible equity." Kelley estimates that First Niagara will earn 85 cents a share this year, followed by EPS of 98 cents during 2013. Interested in more on First Niagara Financial Group? See TheStreet Ratings' report card for this stock.
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