First Niagara's Connecticut Entry Also Opens Doors for Rivals

US Banker | August, 2010

If the best defense is a good offense, expect local community banks to take the fight to their newest Connecticut competitor, First Niagara Financial Group of Buffalo.

After it completes its deal for NewAlliance Bancshares in New Haven, the upstate New York company will bring more than $29 billion of assets to bear in its bid for market share in New England.

But First Niagara's expansion strategy could yet backfire, and allow other sizable Connecticut banks to pick up former NewAlliance customers.

"As with all new entrances, there's opportunity to try to take market share and market yourself as the local lender, as the homegrown bank," said Damon DelMonte, an analyst with KBW Inc.'s Keefe, Bruyette & Woods Inc. "I think that's going to be a challenge for First Niagara, and it's also going to be a positive for some of the in-market guys."

They include the $17.9 billion-asset Webster Financial in Waterbury and the $21.3 billion-asset People's United Financial in Bridgeport. Each is smaller by assets than First Niagara will be after buying NewAlliance, but they're no pushovers.

"They go up against the big guys every day," DelMonte said.

As of June 30, 2009, Webster and People's ranked second and third in deposit share in Connecticut, with 12.53 percent and 10.35 percent. They trailed only Bank of America in deposit share in the state, and bested Wells Fargo's Wachovia Bank and Toronto-Dominion's TD Bank. NewAlliance was fifth, with 5.12% percent of the state's deposits.

James Smith, Webster's chief executive, said in an interview last week that he hoped to benefit from the natural fallout that occurs when one company buys another.

"Any kind of merger creates disruption in the market," Smith said, and "customers sometimes will look around and say, 'Am I happy where I am?' "

Analysts said New England customers may have a tough time getting past the First Niagara name, and its association with New York. New Englanders have especially strong brand identification, said Collyn Bement Gilbert at Stifel, Nicolaus & Co.

"I would think it would be harder to build the First Niagara brand in Connecticut than it would in Pennsylvania or New York," Gilbert said.

Meanwhile, the New England press has been negative on the deal, which is to close in the second quarter of 2011, and some NewAlliance shareholders filed a class action against it in late August.

The outcry over the transaction is reminiscent of the controversy that ensued when the target company — then New Haven Savings Bank — announced in 2003 that it was converting to a fully public concern.

Critics predicted the bank would eventually sell to an out-of-state company, but at the time it insisted it was committed to New Haven.

So when the First Niagara deal was announced Aug. 19, community leaders called it a betrayal.

New Haven Mayor John DeStefano, perhaps the most vocal opponent of the conversion, maintained that the First Niagara deal would make it tougher for local residents to obtain loans because decisions would be made by managers in Buffalo, not New Haven. (First Niagara has said much of the decision-making would remain at the local level.)

An editorial Aug. 24 in the New Haven Register — which supported the conversion in 2004 — blasted the bank's leaders, especially NewAlliance Chief Executive Peyton Patterson and her compensation package. (Under the agreement, Patterson would receive up to $22.4 million — even if she stays on in a new role at First Niagara — because her CEO position is being terminated.)