Capital One Said to Be in Talks to Acquire Discover
Capital One is in talks to acquire Discover Financial Services, two people with knowledge of the negotiations said Monday, in a deal that would combine two of the largest credit card companies in the United States.
The deal, which is not yet final, could be announced as soon as this week, said the people, who spoke on condition of anonymity because the negotiations were confidential. A price could not be immediately confirmed, but Discover Financial Services was valued at about $28 billion when the market closed on Friday. Capital One was valued at about $52 billion.
Capital One and Discover did not immediately respond to a request for comment. Bloomberg News reported earlier on the potential deal.
“A space that is already dominated by a relatively small number of megaplayers is about to get a little smaller,” said Matt Schulz, chief credit analyst at LendingTree.
With $479 billion in assets, Capital One is one of the nation’s largest banks, and it issues credit cards on networks run by Visa and Mastercard. Acquiring Discover would give it access to a new credit card network of 305 million cardholders, adding to its base of more than 100 million customers. The country’s four major networks are American Express, Mastercard, Visa and Discover, which has far fewer cardholders than its competitors.
In June, Capital One acquired Velocity Black, a digital concierge company that brings together travel, entertainment, shopping and dining offerings for consumers.
Discover is emerging from a period of turbulence. The company’s former chief executive, Roger Hochschild, stepped down in August amid a regulatory review of incorrectly classified credit accounts. In October, the company said it was taking steps to improve its corporate governance, and in December, it announced its new chief executive, Michael G. Rhodes. The company’s profit in the fourth quarter of 2023 fell 62 percent from the same period the year before.
The once-giant retailer Sears introduced the Discover card in 1985. Discover later became a part of Morgan Stanley before the investment bank spun it out through an initial public offering of stock in 2007.
The acquisition by Capital One will be one of the first tests of regulatory scrutiny on bank deals since the Office of the Comptroller of the Currency said last month that it intended to slow down approvals for mergers and acquisitions.
“It’s hard to know which way it would go, but there will certainly be a lot of attention paid to this deal because of the money and magnitude of the companies involved,” said Mr. Schulz, who is the author of the forthcoming book “Ask Questions, Save Money, Make More: How to Take Control of Your Financial Life.”
Given Discover’s recent challenges, the question is whether “regulators view this as a white knight coming in to help fix a troubled player in the market or whether they view this as a limitation of competition — and therefore something to avoid,” said David Schiff, a senior partner at West Monroe, a digital services firm.
Complicating the landscape is the fact that other deals in the financial industry have come under renewed scrutiny, Mr. Schiff said. These include New York Community bank’s acquisition of billions of assets from Signature Bank during the regional banking crisis. Much of New York Community Bank’s trouble stems from the weakening commercial real estate market, but Mr. Schiff said that politicians could point to the deal as an example of one that regulators were too quick to approve.
Consumer advocates pushed back on the possible deal, saying it posed antitrust concerns. “It is very difficult to imagine how federal regulators could allow Capital One to buy Discover given the requirement that mergers benefit the public as well as insiders,” Jesse Van Tol, the chief executive of the National Community Reinvestment Coalition, said in a statement.
Rob Copeland contributed reporting.
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