First Niagara: Financial Winner

NEW YORK ( TheStreet) -- First Niagara Financial Group ( FNFG) was the winner among the largest U.S. financial companies on Tuesday, with shares rising 3% to close at $8.20.

The broad indexes followed European markets down, as investors worried over the timing of Spain's expected bailout from the European Union, which would spur bond-buying by the European Central Bank. Reuters reported that Spain was read to request a bailout, but that Germany was pressuring Spain to delay its request, citing anonymous senior European sources.

New York State Attorney General Eric Schneiderman made a splash, filing a civil suit against JPMorgan Chase ( JPM), over mortgage-backed securities sold by Bear Stearns before that company was acquired by JPMorgan in March 2008, alleging fraud that led to investor losses of $22.5 billion.

Investors shrugged, sending JPMorgan' shares down a nickel, to close at $40.92.

The complaint filed in New York State court on Monday doesn't specify specific damages being sought.

Thomas Gorman, a former Senior Counsel in the Securities & Exchange Commission's Division of Enforcement, says that "this suit is significant for two reasons. Initially, it is the first to be brought by the President's new working group. Perhaps more importantly, it is the first regulatory suit that focuses on the MBS market which was central to the market crisis and attempts to hold a major player in that market accountable for its action. This contrasts sharply with prior suits brought by the SEC which center on a transaction."

Considering the likelihood of JPMorgan Chase settling the charges, Gorman says "the case was just filed, so it is difficult to assess if they might settle. The fact of the matter is most of these cases do settle."

"Settling this case is complicated by the fact there are a number of class actions out there that have been pending for a while that make similar allegations, so resolving the case with the New York Attorney General could potentially impact the other cases."

The KBW Bank Index ( I:BKX) rose slightly to close at 49.86, with 14 of the 24 index components showing gains for the session.

First Niagara's shares have now declined 3% year-to-date, following a 35% decline during 2011.

The shares trade for 1.6 times tangible book value, according to Thomson Reuters Bank Insight, and for 10 times the consensus 2013 earnings estimate of 79 cents, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is 72 cents.

Based on a quarterly payout of eight cents, the shares have a dividend yield of 3.90%.

First Niagara is scheduled to announce its third-quarter earnings results on July 27. The consensus among analysts polled by Thomson Reuters is for the Buffalo, N.Y., lender to report third-quarter earnings of 18 cents, increasing from a five-cent loss during the second quarter, but down slightly from 19 cents during the third quarter of 2011.

During the second quarter, First Niagara completed its deal to acquire roughly 200 branches from HSBC ( HBC), while divesting about 100 branches, leading to an $18.5 million net loss, including about $135 million in extraordinary expenses and restructuring charges.

Jefferies analyst Casey Haire rates First Niagara a "Buy," with a price target of $9.00, and said on Tuesday that "after a volatile 1H12, we expect 3Q results to mark FNFG's return to an uncontroversial and predictable Northeast commercial bank story.

"Management largely laid out the earnings picture for 2H12 (~$0.19/qtr)," Haire said, "which we view as reasonable, although fee guidance could prove conservative given strong momentum in mortgage banking."

"We continue to like FNFG as a multiple expansion story (10x 2013 EPS vs. 12x peer avg.) with manageable premium amortization risk and no deal risk," he said.

FNFG Chart FNFG data by YCharts

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


-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

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 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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