First Niagara: Branch Sale Winner

NEW YORK ( TheStreet) -- First Niagara Financial Group ( FNFG) 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."

Interested in more on First Niagara Financial Group? See TheStreet Ratings' report card for this stock.

Thursday's loser among large-cap U.S. banks was Regions Financial ( RF), with shares declining over 2% to close at $4.69.

The Birmingham, Ala., lender announced late Wednesday that it had agreed to sell Morgan Keegan to Raymond James Financial ( RJF) for $930 million. Regions had been peddling its mortgage subsidiary since June, initially seeking a price of about $1 billion. Before the sale is completed, Raymond James will upstream a $250 million dividend to Regions.

Regions also announced it would take a fourth-quarter goodwill impairment charge ranging between $575 million and $745 million, and said it expected to report a fourth-quarter net loss to common shareholders "in a range of $432 million to $633 million or $(0.34) per common share to $(0.50) per common share," but that "net income from Continuing Operations without the goodwill impairment charge (non-GAAP) is expected to be in a range of $88 million to $119 million or $0.07 to $0.09 per common share."

Regions owes $3.5 billion in federal bailout funds received through the Troubled Assets Relief Program, or TARP.

FBR analyst Scott Valentin on Thursday reiterated his "Market Perform" rating for Regions, and said that "while the $1.18 billion valuation is slightly above our expectations, the net benefit to capital ratios was less than expected," and that through the Morgan Keegan sale, Regions Financial's "Pro forma 3Q11 Tier-1 common equity ratio increases 9 bps, to 8.25%, and Tier-1 capital risked-based ratio increases 13 bps, to 12.97%."

Deutsche Bank analyst Matt O'Connor said that the sale of Morgan Keegan "continues to build the credibility of Regions Financial's management and we view it as another meaningful step in the right direction." O'Connor added that Regions can now focus on "fundamentals - with the key being improvement in credit quality."

O'Connor reiterated his "Buy" rating for Regions, with a price target of $5.00, saying that "While RF shares have rallied sharply (up 26% in the last 3 weeks or so)," the shares still had upside "given an attractive valuation, good underlying earnings power and a lot of franchise value."

The analyst estimates that Regions Financial's tangible book value per share will be roughly $6.50 at the end of 2012, including "the impact of $1b common issuance to repay TARP."

O'Connor added that "while some uncertainty remains surrounding the repayment of TARP, we expect Tier 1 common to reach 9% by year end 2012 on an organic basis," suggesting that "an outsized capital raise to repay TARP is unlikely."

Regions Financial is scheduled to announce its fourth-quarter results on January 24, before the market opens. The consensus among analysts polled by Thomson Reuters is for the company to report fourth-quarter earnings of five cents a share, declining from eight cents in the third quarter, but improving from a three-cent profit in the fourth quarter of 2010.

Interested in more on Regions Financial? See TheStreet Ratings' report card for this stock.

Shares of Raymond James pulled back nearly 4% to close at 32.96.

The St. Louis brokerage firm indicated that it would raise $300 million in common equity to partially fund its acquisition of Morgan Keegan.

FBR analyst Steve Stelmach called the Morgan Keegan deal an "inside-the-park home run" for Raymond James and said the company's stock remained a "top pick" for his firm, with a $45 price target.

Stelmach said that the brokerage industry's "lull in industrywide retail activity has as much to do with the transitory state of the capital markets and interest rates in the wake of the financial crisis as it does with U.S. demographics," and that "moving forward, a capital-light business, such as retail brokerage, is only more attractive in the context of Dodd-Frank legislation and Basel III capital requirements that punish the balance sheet-intensive wirehouses and money-center banks."

The analyst added that the Morgan Keegan acquisition was "extremely attractive, done at a very reasonable price from what was arguably a forced seller."

Raymond James is scheduled to announce its fourth-quarter financial results on Jan. 25 after the market closes, with analysts polled by Thomson Reuters expecting the company to post EPS of 54 cents.

Interested in more on Raymond James Financial? See TheStreet Ratings' report card for this stock.
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.

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