First Niagara Sells $3.1 Billion of Mortgage Bonds

First Niagara Financial Group Inc. (FNFG), the worst performer for the past 12 months in the KBW Bank Index, said it earned $16 million before taxes after selling $3.1 billion of mortgage-backed securities.

The proceeds will be used to repay short-term debt, the Buffalo, New York-based lender said today in a statement.

Chief Executive Officer John R. Koelmel is expanding through acquisitions. Last month, the company completed a $900 million deal for more than 100 HSBC Holdings Plc branches in Connecticut and Upstate New York, a May 24 filing shows.

“Given the expected duration of this historically low-rate and volatile economic environment, we took decisive actions to better position our balance sheet without impacting the longer- term business fundamentals,” Koelmel said in the statement.

First Niagara listed $10.3 billion of mortgage-backed securities on its balance sheet as of March 31, a 5.8 percent increase from the end of last year, according to the company’s first-quarter regulatory filing.

“We have become more hardened in our view that the recovery is going to be delayed,” Chief Financial Officer Gregory Norwood said in a conference call with analysts and investors. “Keeping the bonds would have added even more tail risk if the global economic environment suffers a severe shock.”

First Niagara climbed 5.7 percent to $7.94 in New York trading, the most since October. The shares have declined 39 percent in the past year, compared with a 4.7 percent drop for the 24-company KBW index.

To contact the reporter on this story: Laura J. Keller in New York at lkeller12@bloomberg.net

To contact the editor responsible for this story: Rick Green at rgreen18@bloomberg.net