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KeyCorp announces $4.1 billion deal to purchase First Niagara

WBFO News file photo

KeyCorp announced Friday it has reached a deal with First Niagara Financial Group to purchase the bank for $4.1 billion. 

First Niagara has been languishing in the stock market as of late. Niagara University Financial Markets Laboratory Director Ed Hutton says it's tough out there and larger banks fare better.

"What drives banking profitability is scale," notes Hutton. "That is, you have to be big enough in a particular market to be able to spread all of the costs that you have over the deposit base. What happens is that smaller banks have a difficult time doing that. It's getting more and more expensive because of regulatory concerns and insurance concerns and all of the different things that has come about because of the financial crisis."

The combination of KeyCorp and First Niagara translates into the 13th largest commercial bank headquartered in the U.S. with approximately $135 billion in assets.

The deal is subject to customary closing conditions, including regulatory approvals and approval by KeyCorp and First Niagara shareholders.  The agreement is expected to be close in the third quarter of 2016.