NEW YORK. (
) -- Shares of
First Niagara Financial Group
dipped 5% to $11.65 Monday, as investors digested the company's deal with
Investors appear less than thrilled at the prospect of a 17% to 18% dilution of common equity, as First Niagara plans to "raise approximately $750 million to $800 million in common stock and $350 million to $400 million in debt," prior to closing its purchase of 195 branches in Upstate New York and Connecticut from HSBC.
First Niagara Financial Group CEO John R. Koelmel
First Niagara has agreed to pay roughly $1 billion, or a 6.67% premium on deposits, to acquire the branches, growing its balance sheet by roughly $15 billion. As part of the transaction -- expected to be completed early next year -- First Niagara will also acquire "$2.8 billion of small business, residential mortgage and consumer loans, as well as $4.3 billion of assets under management."
First Niagara expects to "earn back" the diluted tangible book value in a "period of 4-8 years."
First Niagara said that roughly 30% of the acquired HSBC branches would be located within 1 mile of a current First Niagara branch.
With First Niagara expected to have roughly a 20% deposit market share in Buffalo and surrounding areas in Upstate New York, CEO John Koelmel said during a Monday morning conference call with analysts thatm, following an anti-trust review by the Department of Justice, he expected his company to close or sell roughly 100 branches with a very rough estimate of 2/3 sales and 1/3 closures.
After the divestitures, First Niagara estimates it will retain $11 billion in deposits and $2 billion in loans, from the HSBC transaction.
One of the great advantages of the acquisition of the former Marine Midland branches, will be a change in First Niagara's funding mix, more toward lower-cost commercial deposits.
The company estimates it will pay-off about $5 billion in wholesale borrowings when the transaction is completed, and that the net interest margin -- the difference between the average yield on loans and investments and the average cost of funding -- for the acquired earning assets from HSBC, will range between 4.50% and 5.00%. This is a healthy figure, compared to First Niagara's second-quarter net interest margin of 3.65%.
First Niagara estimates $150 million to $175 million in pre-tax integration costs from the HSBC deal, which will all be expenses during 2012.
The company also estimates that after the HSBC deal is completed, its Tier 1 common equity ratio will be in a solid range of 9.6% to 10%.
Written by Philip van Doorn in Jupiter, Fla.
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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.