Regional Banks Remain Positive on Large-Scale M&A

Beth Mooney's enthusiasm for KeyCorp's purchase of First Niagara Financial Group hasn't waned one bit.

Mooney, the Cleveland company's chairman and chief executive, said during a conference call Thursday that she is more optimistic about the deal now than when it was announced in October. Initial work by integration teams at both banks has shown that cost savings should be easier – and possibly higher – than expected.

KeyCorp "will generate attractive financial returns and create value for our shareholders," she said, adding that the deal "accelerates our progress towards becoming a high-performing regional bank."

Big banks, with a few exceptions, have mostly avoided M&A in recent years, and investor reaction to large deals has varied.

When Key said it would buy First Niagara in Buffalo, N.Y., executives were met with complaints about the deal's pricing and dilution. The $95.1 billion-asset Key's stock price tumbled in the days after the announcement.

In contrast, BB&T in Winston-Salem, N.C., as been credited by some industry observers for helping to break down concerns about larger institutions completing deals. The $210 billion-asset company, which successfully bought Susquehanna Bancshares last year, seemingly coasted through the approval process to buy National Penn Bancshares in Allentown, Pa.

BB&T's chairman and chief executive, Kelly King, was asked during a quarterly earnings call on Thursday if economic headwinds and depressed stock prices could spur more consolidation. BB&T has more than 100 branches in Texas, where other banks have significantly boosted reserves to cover troubled energy loans.

Challenges in sectors such as energy are "putting a disproportionate amount of pressure on certain" banks, King said during the call. "To the extent that it lasts a while, it certainly could cause them to re-evaluate their strategic thinking."

BB&T still plans to increase total assets by 5% to 10% this year via acquisitions, King said. The company, meanwhile, is on pace to close its purchase of National Penn on April 1.

An acquisition "always comes down to three things," Kelly said. "It comes down to cultural fit. Then it comes down to their willingness to combine, and then it's just mathematics."

Mooney, who gave analysts an update on Key's progress with the $39.4 billion-asset First Niagara, also addressed lingering concerns. She said that her team was making "good progress" and that she expected to complete the deal in the third quarter. Integration teams are working to map out cost savings, especially with technology, operations and vendor contracts.

Key initially projected that it could cut 40%, or $400 million, of First Niagara's costs, but on Thursda Mooney said the final totals could surpass that forecast. Much of First Niagara's technology and operations were outsourced, which "gives us a fair amount of certainty around the costs, as well as the ability to realize savings in early days of the integration," she said.

"Our planning would suggest that we believe there are more opportunities over and above the $400 million," Mooney added.

An analyst asked Mooney if criticism from politicians and others could make the deal more costly. Sen. Charles Schumer, D-N.Y., has publicly discussed concerns about potential job losses while calling for more time for public comments. The Federal Reserve Board extended the comment period by a month, to Jan. 31.

"Every time I read my hometown newspaper in western New York, it seems like a politician or a business leader is saying something against" the deal, Terry McEvoy, an analyst at Stephens, said during the conference call. "Was this expected?"

Mooney noted that Key has received eight straight "outstanding" ratings tied to the Community Reinvestment Act and that the company had "made a lot of commitments, not only about achieving our financial targets, but also doing the right things for clients and employees, communities and shareholders."

Given a general lull in in large-scale acquisitions, bigger deals have "garnered a fair amount of attention," she added. "We have been very diligent and consistent in our outreach to community leaders and public officials and I believe we're having very constructive dialogues."

Stephen Steinour, chairman and chief executive of Huntington Bancshares in Columbus, Ohio, also weighed in on M&A during an interview with American Banker, stating that his $70 billion-asset company's stance on acquisitions hasn't changed. He said Huntington prefers to "acquire in our footprint, but we're willing to consider adjacent states."

Huntington was rumored to be one of the banks in the running to buy First Niagara.

Huntington is looking at core banking franchises, such as its deal last year to buy MacQuarie Equipment Finance.

"We're obviously always looking for acquisitions," Steinour said during Huntington's quarterly earnings call on Thursday.

Paul Davis and Andy Peters contributed to this story.