One deal, two different agendas.

KeyCorp's agreement to buy three dozen branches in upstate New York gets the Cleveland company back in the acquisitions game for the first time since the financial crisis.

The seller, First Niagara Financial Group Inc., would resolve some vexing questions hanging over the Buffalo, N.Y., bank's broader transaction with HSBC Bank — though not all of them.

In the deal announced Thursday, KeyCorp agreed to buy 37 HSBC offices in western New York for $110 million. The branches are being sold by First Niagara, as part of its larger $1 billion deal for 195 branches in upstate New York and Connecticut. The U.S. Justice Department, after an antitrust review, had ordered First Niagara to dispose of 26 branches in Erie, Niagara and Orleans counties. In addition to the DOJ-mandated branch sales, First Niagara will sell an additional 11 branches in the Rochester, N.Y., area. The deal is expected to close late in the second quarter.

KeyCorp, with $89 billion of assets, re-enters the M&A game after a four-year layoff. Its last deal was in January 2008, when it bought $2.8 billion-asset U.S.B. Holding Co., the Orangeburg, N.Y.-based holding company for Union State Bank.

Beth Mooney, the chief executive of KeyCorp, has hinted of late that her company was on the prowl. On Thursday she suggested that it won't wait another 48 months for its next deal.

"I've talked about this notion that, within our diverse geographic footprint, there would be acquisition opportunities that would add to our markets and strengthen our franchise," Mooney said in an interview with American Banker. "This deal fits nicely with our franchise. We feel like we paid a disciplined price."

KeyCorp will pay a 4.6% premium on the deposits from First Niagara. The deal includes $2.4 billion of deposits and roughly $400 million of performing, mostly residential real estate loans.

Speculation has swirled for awhile whether KeyCorp would do a deal, and what kind. Because it operates primarily in the Midwest, where manufacturing has started to rebound, KeyCorp as well as other Ohio banking companies like Fifth Third Bancorp of Cincinnati and Huntington Bancshares Inc. of Columbus have been considered possible buyers.

The strategy behind KeyCorp's deal for the HSBC branches seems to mirror its southern Ohio rival Fifth Third. Kevin Kabat, chief executive of Fifth Third, told American Banker earlier this month that he would be most interested in "smaller institutions that fit specifically within the geographies that can help fill our density."

By adding the branches in western New York, KeyCorp would be adding branches where it is already a visible player.

"It's similar" to Fifth Third's strategy, Mooney said. "As acquisition opportunities come along, we'll look at what makes the most sense."

In addition to Ohio and New York, KeyCorp also has big operations in Washington state, Oregon, Indiana and Colorado.

The acquisition would give KeyCorp a serious boost in the Buffalo and Rochester, N.Y. markets. Key would increase its share of the market in Monroe County, where Rochester is located, to 20 branches and $1.2 of deposits, from nine branches and $412 million in deposits. Its presence in Erie County, where Buffalo sits, would rise to 51 branches and $3.4 billion in deposits, from 33 branches and $2.2 billion of deposits.

Upon HSBC's exit from Erie County, the three largest banks in the Buffalo area will be First Niagara, KeyCorp and $78 billion-asset M&T Bank Corp., according to Federal Deposit Insurance Corp. figures.

As for $31 billion-asset First Niagara, the branch divestiture was expected, per the government's demands, and does not change some of the financial concerns of analysts.

"We knew that they would be selling the deposits for less than what they paid for them," said Collyn Bement Gilbert, an analyst with Stifel Financial Corp.'s Stifel, Nicolaus & Co. "I don't know that this really changes much."

After First Niagara acquired the HSBC deposits for a 6.67% premium, it is now selling them to KeyCorp at a 4.6% premium.

However, First Niagara Chief Executive John Koelmel said in a separate interview Thursday that the KeyCorp deal would remove the black clouds that had been hanging over his bank since the HSBC deal was announced.

"Have we been kicked around a little more by the Street? Yes, we're off more than other banks because we opted to pursue this transaction rather than sit on our hands," Koelmel said. "There was never any doubt this was right thing for our organization."

After the HSBC deal was announced, the European debt crisis caused problems for the financing that First Niagara was to rely on. Then the U.S. markets tanked, pushing First Niagara's shares down. From July, when the deal was unveiled, to November, First Niagara's shares fell about 28%.

Its shares closed Thursday at $9.58 apiece, up 3.23% from a day earlier yet still down nearly 22% from the last trading day before the deal was announced.

First Niagara in December was forced to backpedal on some of its projections. Instead of boosting operating earnings-per-share by 10% to 11% in 2012, the company said the deal would lower them by 1% to 2%.

First Niagara had initially expected to fund the deal by issuing $800 million of stock. Instead, it closed in December on a $1.1 billion capital raise in a series of debt and equity issuances. After the change in its capital-raise, First Niagara cut its dividend to 8 cents per quarter, its first-ever cut to its quarterly payout.

"The timing wasn't ideal and (First Niagara) having not locked up the funding on the overall transaction at the time of the announcement was not ideal," Gilbert said.

While the ability to leverage the HSBC deposits in the short-term is low, "longer term, you hope that it will become a very valuable asset for them," she said.

First Niagara wants to divest even more HSBC branches. It would be 60% done with divestitures after closing the deal with KeyCorp, Koelmel said. He declined to provide a timetable for when further sales would occur.

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