Capital One-Discover deal faces federal scrutiny

McLean-based Capital One Financial announced plans in February to buy Discover Financial Services for $35.3 billion in an all-stock deal that would mark Capital One’s largest ever acquisition and make it the nation’s biggest credit card lender.

The transaction is expected to close in late 2024 or early 2025, according to the banks. At close, Capital One shareholders would own about 60% of the combined company, and Discover shareholders would hold approximately 40%.

However, the deal must receive federal regulatory approval to move forward, and the Biden White House has fought consolidation of large corporations, including the proposed $3.8 billion merger of JetBlue Airways and Spirit Airlines, which was called off in March after the airlines lost an antitrust lawsuit. Although it’s the first bank merger of this size proposed during President Joe Biden’s term, he enacted an executive order in 2021 encouraging federal agencies with authority over banks, including the Federal Reserve and the Federal Deposit Insurance Corp., to update their guidelines on banking mergers “to provide more robust scrutiny.”

U.S. Sen. Sherrod Brown, chairman of the Senate Banking Committee, said in a statement following the Capital One-Discover announcement that “a rubber-stamped merger that makes powerful financial companies even bigger and more powerful will do nothing for families.” From both sides of the aisle, U.S. Sen. Elizabeth Warren, D-Massachusetts, and U.S. Sen. Josh Hawley, R-Missouri, urged the Biden administration to block the deal, with Hawley charging it would grant Capital One “unprecedented powers to extort American consumers.”

If the merger goes through, Capital One would use Discover’s credit card payment network to process transactions, instead of relying on Visa and Mastercard platforms. Also, with Discover’s banking business included, Capital One would have more than $450 billion in deposits.

“From Capital One’s founding days, we set out to build a payments and banking company powered by modern technology. Our acquisition of Discover is a singular opportunity to bring together two very successful companies with complementary capabilities and franchises, and to build a payments network that can compete with the largest payments networks and payments companies,” Capital One Chairman, CEO and founder Richard Fairbank said in a statement.

Illinois-based Discover has a market value of about $27.6 billion. Capital One has a market capitalization of about $52.2 billion and reported $34.25 billion in 2022 revenue.  

Deputy Editor Kate Andrews contributed to this story.