Schumer Among The Voices Of Concern On Job Losses, Economic Impact Of KeyCorp Merger

The ink was barely dry on the merger agreement between First Niagara Financial Group and KeyCorp before opposition began mounting to stop the $4.1 billion deal.

Cleveland-based Key agreed Friday to buy Buffalo-based First Niagara, combining the No. 2 and No. 3 banks in Western New York and forming a major competitor to market leader M&T Bank Corp. The deal also creates the 13th-largest U.S. bank, with $135 billion in assets, 3 million customers and 1,366 branches in 15 states from Maine to Alaska.

But the two banks have significant overlap of branches and back-office operations across upstate New York, and especially in Buffalo, where each bank has more than 50 branches and total employment exceeds 3,340. As a result, branch closings and layoffs are widely expected after the deal closes by September 2016, if regulators and shareholders approve.

Citing concerns over that potential loss of employment in Western New York, and the impact on the regional economy, Sen. Charles E. Schumer, D-N.Y., said Tuesday that he called KeyCorp Chairman and CEO Beth E. Mooney, asking her and the bank to “protect these good-paying jobs and to play a positive role in Buffalo’s revitalization.”

“I will watch this situation like a hawk and continue to do whatever I can to protect Western New York jobs,” the state’s senior senator said in a news release.

Schumer said he “made it very clear” to Mooney that keeping those jobs is “my first priority.”

“The significant overlap between these banks makes the prospect of this deal extremely troubling, but I told her that these important jobs in Buffalo and across Upstate New York must be secured for the long-term before I could support any potential deal,” said Schumer, who has no direct oversight or control over the deal’s approval. “These jobs are vital to the local community and regional economy, and the employees at First Niagara have been a key driver in the company’s success over the years – so they should continue to remain a critical part of KeyCorp if this merger goes through.”

Under the merger agreement, KeyCorp agreed to “use commercially reasonable efforts to support a meaningful employee presence in Western New York.” However, no specifics were cited.

Schumer is chairman of the Democratic Senatorial Campaign Committee and ranking member of the Senate Banking Committee. He is also in line to become the new leader of the Senate Democrats when Minority Leader Harry Reid, D-Nev., retires in January 2017.

However, Congress has no say in approving or rejecting bank mergers, which are subject to review by the Federal Reserve Board and other bank regulatory agencies under the Treasury Department, such as the Office of the Comptroller of the Currency. Once the application is filed with regulators, the agencies will accept public comments in writing.

Still, no company desires the kind of public scrutiny that Schumer and other lawmakers can bring to bear. And the influential three-term senator has successfully inserted himself into the debates over previous mergers in banking, as well as industrial plant closings, and has secured at least temporary job guarantees and other commitments.

Meanwhile, criticism of the deal is also mounting among consumers and even some businesses locally, who worry about not only the loss of jobs and damage to the economy, but also the loss of competition. Already, HSBC Bank USA disappeared from the local retail banking landscape with the sale of its upstate New York branch network to First Niagara three years ago, and now First Niagara itself will disappear. That will reduce the top four banks of five years ago to just two – M&T and Key – and limits the options for customers, critics say.

Bankruptcy attorney Jeffrey M. Freedman even contacted both Schumer and Sen. Kirsten E. Gillibrand, D-N.Y., calling for public hearings and asking them to oppose the sale.

Bank regulators are required to consider an array of factors in determining whether to allow a merger to proceed, including the financial condition of the companies, whether a deal would be “safe and sound” for the banks and the federal deposit insurance fund, and whether the companies are complying with all federal laws. Those laws include the Community Reinvestment Act, which requires banks to make loans and investments to low-income and minority borrowers and communities, and the Bank Secrecy Act and rules against money laundering that require banks to take steps to monitor, identify and prevent potential money-laundering or other criminal activity.

Approval of bank mergers is not automatic, although it’s rare for a deal to be rejected unless there are egregious violations. Community activists have routinely but unsuccessfully sought to use the Community Reinvestment Act to block or slow down deals, but have often extracted significant dollar commitments from the banks they’ve targeted.

M&T’s acquisition Sunday of Hudson City Bancorp in New Jersey was held up for three years because of Federal Reserve criticism over M&T’s anti-money laundering systems. The bank ended up investing more than $200 million to upgrade its systems and hire more staff.

According to the terms of the 64-page merger agreement, the First Niagara-KeyBank deal includes a $137.5 million termination fee that First Niagara would have to pay Key, under certain conditions, if the deal falls through. The agreement also calls for three unspecified First Niagara directors to join the Key board, and for Key to contribute $20 million in cash to the First Niagara Foundation to support community and charitable work. Key must also ensure that the foundation has office space locally.

In the meantime, First Niagara’s management must continue to operate the bank as usual and maintain its business relationships. KeyCorp is not permitted to intervene in First Niagara’s business until the deal closes.


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