New York Community Bancorp's agreement to buy Astoria Financial certainly turned heads this morning.

A number of industry observers had speculated that the pairing could happen, particularly after reports surfaced earlier this month that Astoria, which has been facing pressure from a big investor to improve shareholder returns, had hired an investment bank to explore strategic alternatives.

Still, the $2 billion acquisition raises a lot of questions for both companies.

It is well known that New York Community was in search of big deal to surpass $50 billion in assets and become a systemically important financial institution. It chose Astoria, which has a similar focus on multifamily lending.

What will regulators think about this deal?

The regulatory environment for large-scale M&A seems to be improving, evidenced by recent approvals of acquisitions by BB&T, M&T Bank and Royal Bank of Canada. That should give New York Community some comfort, though the company did give itself 14 months, telling investors it expects to close the Astoria deal in December 2016.

Joseph Ficalora, New York Community's chief executive, made it clear that his team has been in proactive dealing with regulators. "New York Community has been in extensive dialogue with its regulators for several years to be prepared to cross the $50 billion threshold," he said during a conference call Thursday to discuss the Astoria deal.

Ficalora also noted that his company would have crossed the $50 billion mark in mid-2016 with expectations of participating in the Federal Reserve's comprehensive capital analysis and review in 2018. Astoria will push the company to $64 billion in assets.

Of course, there could be unforeseen hiccups. The Fed made it clear in approving M&T's purchase of Hudson City that acquirers must have their regulatory house in order before applying for a merger. Presumably, Ficalora and his team have thoroughly reviewed their compliance operations and capabilities.

Why didn't Ficalora pass up on a chance for a truly transformative deal to become more diversified?

That question was posed to Ficalora during a conference call set up to disclose the deal. His answer was simple; he chose to buy a company with a familiar business model.

"We have a very high level of confidence with regard to the kind of product that we are in fact inheriting in this transaction," he said. "You have a really good asset that is not likely to lose money or is less likely to lose money than the alternative assets."

Certainly, this question will resurface over time, particularly when the multifamily market hits another rough patch in the economic cycle.

Will there be divestitures? If so, will that run afoul of New York's community groups?

Ficalora discussed plans to reduce costs by halving Astoria's noninterest expenses, though there were no specifics on where cuts will be made. The pro-forma bank would have nearly 300 branches, along with $31.7 billion in deposits, concentrated in New York. While a sizable amount, those numbers are still smaller than what Capital One Financial has in the city, so a regulator-mandated divestiture may not happen.

Closing overlapping branches is certainly a way to quickly cut costs. The best guess is that those details will emerge over time and that executives at New York Community are likely planning how to reach out to advocacy groups to minimize opposition to the deal.

What about First Niagara, which is rumored to be in play and might have been a potential partner for New York Community?

This also goes back to the question about Ficalora's decision to buy Astoria. First Niagara would have been a truly transformative deal, taking New York Community to $88 billion in assets, expanding its geography and broadening its product set. Maybe Ficalora was unwilling to take that leap.

Perhaps First Niagara wasn't available, at least not at a price New York Community was willing to pay? For instance, reports have already surfaced with speculation that KeyCorp is in talks to buy First Niagara for up to $4.6 billion.

As for First Niagara, Joseph Fenech, an analyst at Hovde Group had this to say:

"There is likely to be a perception that there is now one less potential party that could be interested in acquiring First Niagara, narrowing a list of potential acquirers that we believe was limited to begin with. … We think [this] furthers the notion generally that we're not likely to see a sale price for First Niagara meaningfully above the top end of our proposed sale price range."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.