By Matthias Rieker
First Niagara Financial Group Inc. (FNFG) is searching for a new
chief executive who will increase growth at the Buffalo bank with
few acquisitions.
The move came after an ill-timed deal-driven strategy weighed on
bank's share prices and, according to analysts, ultimately led to
the departure of Chief Executive John Koelmel.
Analysts and investors applauded the executive change, with
First Niagara's stock rising more than 4% Wednesday in
early-afternoon trade, to $8.79.
The shares, however, are down 42% since Feb. 18, 2011, when they
closed at $15.06, their highest closing price since the 2008
financial crisis. First Niagara also wasn't part of the recent
rally in bank stocks: The benchmark KBW Bank index, of which First
Niagara's stock is a component, has climbed almost 30% during that
same period.
The bank said late Tuesday that its board and Mr. Koelmel, 60
years old and chief executive since 2006, "mutually agreed" that he
would step down. Chief Administrative and Operations Officer Gary
Crosby, 59, was appointed interim chief executive. A search for a
permanent chief executive is under way, the bank said.
Citigroup Global Markets analyst Josh Levin noted, "The company
under Koelmel pursued growth for the sake of growth and this was
not always consistent with shareholder value creation."
On Thursday, First Niagara Chairman Thomas Bowers said in a
statement the board is focused "on enhancing shareholder value
through continuing organic growth and the efficient operation of
the business we have today."
First Niagara "has built a formidable Northeast franchise from
what was a sleepy mutual thrift in Upstate New York, and Mr.
Koelmel was a driving force behind that evolution," Sandler O'Neill
+ Partner LP analyst Joseph Fenech said. "But at the end of the
day, senior management is ultimately judged on stock price
performance, and from that standpoint, we can't say we're all that
surprised by yesterday's announcement."
A spokesman for First Niagara declined to make Mr. Bowers
available for an interview and wouldn't comment on the analysts'
reports.
First Niagara has grown aggressively to become a regional
banking presence in upstate New York, Connecticut and parts of
Pennsylvania, but the expansion hit a snag when it agreed to buy
the upstate New York retail branch network of HSBC Holdings PLC
(HBC, HSBA.LN, 0005.HK). In May 2012, First Niagara closed the
purchase of 195 upstate New York and Connecticut HSBC branches for
$1 billion.
To appease antitrust regulatory concerns, First Niagara last
year sold 37 HSBC branches to KeyCorp (KEY) for about $95 million.
The bank also sold eight branches to Financial Institutions Inc.
(FISI) for $11.8 million, and 19 branches to Community Bank System
Inc. (CBU) for $26.9 million. The latter two transactions included
HSBC and First Niagara branches.
First Niagara reiterated in its annual earnings filing with the
Securities and Exchange Commission last month that the HSBC
acquisition was "a unique opportunity to acquire low cost deposits
and valuable customer relationships," and that the deal "will
result in earnings growth and strengthen our franchise."
Last year, First Niagara's profit fell 3.2%, to $168 million,
from 2011 and the bank's net interest margin--the profit margin
from lending and investing--fell 16 basis points, to 3.42%.
Loans rose 20% last year from 2011, but are virtually flat since
the acquisition of the HSBC branch network, at $19.7 billion. The
bank's Tier 1 common capital as a percentage of risk-weighted
assets, a key measure of a bank's health, fell to 7.45% on Dec. 31,
2012, from 13.25% a year earlier.
Evercore Partners analyst John Pancari said he is concerned
about the bank's weakening loan growth and rising delinquencies,
among other issues, and said the HSBC deal was "poorly executed."
He downgraded the stock in January to "underweight" from
"equal-weight."
Those concerns "are all longer-term in nature, and accordingly
will likely take time to remedy," Mr. Pancari said in a research
note Wednesday. "The CEO change and implied new direction could
drive positive restructuring and improved performance over
time."
Write to Matthias Rieker at matthias.rieker@dowjones.com
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