US commercial bank Capital One surprised the financial industry with its plans to acquire US credit card issuer Discover Financial Services in a $35.3 billion all-stock transaction. The deal, which will be intensely scrutinized by the antitrust authorities and has already seen pushback from some progressive politicians, is set to create a US credit card giant.
It adds scale to Discover, which is currently fourth in size among the US credit card networks after Visa, Mastercard and Amex, and it’s a clear bet that a post-pandemic expansion of the credit card loan level will keep rising in the coming years.
“Through this combination, we’re creating a company that is exceptionally well-positioned to create significant value for consumers, small businesses, merchants and shareholders as technology continues to transform the payments and banking marketplace,” said Richard Fairbank, founder and chief executive of Capital One, during the deal’s announcement.
If the parties conclude the deal and regulators approve it, Capital One shareholders will own 60% of the combined company, while Discover shareholders will own the rest. It will create the sixth-largest US bank group.
According to some, the planned
purchase will also create the largest credit card company by outstanding
volume. By purchase volume, the combined company would be the third-largest
credit card issuer after JPMorgan Chase and American Express.
Some politicians have cried
foul, noting that Capital One will have too much clout, leaving customers with
fewer options. Democratic progressives in Congress have long fought bank
consolidation, saying that larger banks were increasing systemic risks and
providing worse conditions for their clients.
Senator Elizabeth Warren demanded
that the Biden administration block it. Maxine Waters of the House Financial
Services Committee said the deal will significantly affect consumers and small
businesses.
However, Capital One and its
supporters say that the tie-up with Discover will strengthen a competitor of
powerful networks such as Visa and Mastercard—in what could instead be a win
for consumers.
Capital One expects the deal to
be approved by regulators in late 2024 or early 2025.
https://gfmag.com/banking/capital-one-acquires-discover/