Cleveland-based KeyCorp (KEY) agreed to buy First Niagara Financial Group Inc (FNFG) for $4.1 billion.

What Does It Mean?
Large bank deals appear to be back. Though they had slowed in the aftermath of the financial crisis, acquisition of banks over $1 billion in assets is picking up again. Key reports that the combined company will have over 1,300 branches in 15 states and deposits of almost $100 billion. The deal is the 2nd biggest this year and, when completed, Key’s purchase of First Niagara will make it the 13th largest bank in the U.S at $135 billion in assets.

First Niagara, a well-known brand in Western New York had fallen on hard times over the past several years. After a decade of rapid growth through acquisition, the company was just not able to adapt to the extended low-interest environment. Expenses were too high compared to its revenue. Other factors, including the announcement of a “process issue” and a $1.1 billion writedown of company goodwill spooked market watchers and eroded company credibility. For the past two years, rumors persisted that the bank was being prepared for a sale.

What Can We Expect Now?
In the protracted low-interest-rate environment of the past seven years, banks have had to focus on expense control to protect profitability. Because Key and First Niagara both have a presence in many of the same markets, tough decisions will have to be made about which offices to keep and which ones to shut down. Customers will be impacted by any such changes so bank decision makers will need to exercise care.

Rival banks like Buffalo-based M&T Bank will be doing their best to take advantage of the customer disruption that will come as Key blends First Niagara into its operations. In fact, it is expected that competitor banks will target affected customers with special offers specifically designed to lure them away from the disruption.

While some analysts are saying that Key paid too much for troubled First Niagara, only time will tell. One thing is certain–bank mergers appear to be back.