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Should You Wait for First Niagara to Get Its Act Together?

NEW YORK ( TheStreet) -- Investors sent  First Niagara Financial Group's (FNFG - Get Report) stock-price tumbling nearly 12% on Friday to $9.08, after CEO Gary Crosby announced a massive four-year investment program to improve the bank's technology and operating performance.

It was a strong reaction, but understandable. Shareholders in December had sent a pretty clear signal that they were unhappy with First Niagara's management. On Dec. 19, the shares sank nearly 5% after Crosby was named permanent CEO. He had been serving as interim CEO since March, following the abrupt resignation of John Koelmel, who led the bank's massive M&A-driven expansion over the previous four years.  

Koelmel's deals included the purchases of 57 National City branches in Western Pennsylvania in 2009; the 2010 acquisition of Harleysville National Corp, which included 83 branches in Eastern Pennsylvania; the acquisition of NewAlliance Bancshares in April 2011, which included 88 branches in Connecticut and Western Massachusetts; and a complicated deal in 2012, through which the company ultimately acquired 137 HSBC (HSBC) branches, mainly in upstate New York. 

The bank's expansion resulted in a dilutive common-equity raise and the cutting-in-half of its quarterly dividend on common shares to 8 cents in December 2011.

The negative reaction to Crosby's appointment as permanent CEO in December may have resulted from "the general expectation from investors that First Niagara would bring in an outside person to run the bank," KBW analyst Damon DelMonte said on Dec. 19.

During the bank's fourth-quarter earnings conference call on Friday, Crosby said, "Starting now and over the next three to four years, we will be changing course by accelerating the investments needed to enhance revenues, fee income in particular, improve operating leverage, and stay on top of growing regulatory requirements. To insure that we make these investments as effectively and as efficiently as possible, we must leverage the significant innovations that are occurring in the technologies for infrastructure, product integration, and product application development.

"We refer to the new underlying architecture that will enable us to take full advantage of these innovations as 'the common rails,'" Crosby added, according to a transcript provided by Thomson Reuters.

A Very Long Wait

The "common rails" investments will total between $200 million and $300 million over a period of three or four years and are meant to improve the company's operating performance as well as its risk management and regulatory compliance. Specifically, First Niagara's goals include improving its return on average assets (ROA)  to a range of 1.15% to 1.20%, while lowering (improving) its efficiency ratio to the mid-50s range.

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