KeyCorp has received the Federal Reserve Board's approval to buy First Niagara Financial Group.

The $4.1 billion deal is expected to be completed on or about Aug. 1, and the conversion of First Niagara's technological systems and client relationships should occur in the fourth quarter, the $98 billion-asset KeyCorp said in a press release Tuesday. The Office of the Comptroller of the Currency, which regulates First Niagara's bank, has yet to sign off on the acquisition.

First Niagara, based in Buffalo, N.Y., had $40 billion of assets and $30 billion of deposits as of March 31; it has about 390 branches in New York, Pennsylvania, Connecticut and Massachusetts.

Cleveland-based KeyCorp faced a number of skeptical questions and other hurdles after the merger agreement was announced on Oct. 30.

Almost immediately, KeyCorp shareholders raised concerns that the offer was too generous and the resulting 12% tangible-book-value dilution would take too long to recoup.

Questions were also raised about how big an appetite regulators would have for additional large deals considering that other M&A agreements were in the works last fall, too, including deals announced by BB&T and New York Community Bancorp.

In March, KeyCorp said it would direct $16.5 billion in lending toward low- and moderate-income communities over five years after Sen. Charles Schumer, D-N.Y., and a number of community groups criticized the deal. Key has also pledged to open a regional headquarters in western New York, including the acquisition of most of First Niagara's existing commercial real estate space in upstate New York

KeyCorp said in April that it had agreed to sell 18 branches in the Buffalo market, along with $1.7 billion of deposits and $500 million of loans, to Northwest Bancshares in Warren, Pa., to secure Justice Department and Fed approvals.

In the end, the Fed said that 388 of the 439 public comments it received were positive, with support coming from charitable and community organizations. The 51 opponents expressed concern about the potential loss of competition, jobs and community investment in the upstate New York markets, including Buffalo, and complained about the quality of Key's products, its fair-lending record and payments to certain First Niagara executives.

But the Fed approval pointed out that 35% of KeyCorp's $16.5 billion commitment would be targeted for the areas where it and First Niagara overlap in New York, while also noting that KeyCorp had offered a detailed reinvestment plan.

"KeyCorp contends that it has taken substantial steps to ensure that consummation of the proposal would not result in any disruption of banking services, including the closing of accounts, for customers of First Niagara," the Fed approval said.

Paul Davis contributed to this article.

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.