Screens display the logos and trading information for Capital One Financial and Discover Financial as traders work on the floor at the New York Stock Exchange on Tuesday.
Screens display the logos and trading information for Capital One Financial and Discover Financial as traders work on the floor at the New York Stock Exchange on Tuesday.
Capital One Financial's $35.3 billion deal for Discover Financial would create new competition for payments behemoths Visa and Mastercard , potentially helping smoothen the path for regulatory approval, analysts said.
The all-stock deal announced on Monday would create the biggest U.S. credit card issuer, but it would also give Capital One access to Discover's payment network, allowing it to rely less on payments giants Visa and Mastercard.
With some lawmakers having accused Visa and Mastercard of a "duopoly," Capital One's promise to boost payment competition will be key as it begins to navigate political and regulatory hurdles in coming months, including from bank agencies and potentially the Justice Department, analysts said.
"This potential deal could ultimately secure regulatory approval, but it would face galeforce headwinds from a Washington that is deeply skeptical of consolidation," Isaac Boltansky, director of policy research for brokerage BTIG, wrote in a note. However, he added: "There are some in Washington who are wary of Visa and Mastercard’s duopoly, which suggests that bolstering a competitor ... could be viewed positively."
Capital One CEO Richard Fairbank said on Tuesday the deal -- the biggest in the global credit card industry, according to Dealogic -- was "well-positioned for approval" and the lenders had kept regulators informed, although he did not elaborate on the details of the discussions. They will file formal paperwork with regulators in the next couple of months, he said.
Still, influential Democratic Senator Elizabeth Warren, a longtime critic of big banks, quickly criticized the deal, saying in a social media post that it would harm financial stability and reduce competition. "This Wall street deal is dangerous and will harm working people. Regulators must block it immediately," she wrote on X, formerly known as Twitter.
Some leading community groups, who have the power to slow bank deals by lodging formal objections, also took aim at the merger.
"The deal ... poses massive anti-trust concerns, given the vertical integration of Capital One’s credit card lending with Discover’s credit card network," Jesse Van Tol, CEO of the Washington-based National Community Reinvestment Coalition, said in a statement.
The Federal Reserve and Office of the Comptroller of the Currency must sign off on the deal, the banks said. The Fed declined to comment, while the OCC did not immediately respond to a request for comment. The Consumer Financial Protection Bureau, which just last week flagged concerns over competition in the credit card market, also declined to comment.
No. 1 player
The combination of Capital One and Discover would create the biggest U.S. credit card issuer with around $250 billion in card balance and a market share of 22%, according to TD Cowen analysts.
Capital One, the third-largest issuer of Visa and MasterCard credit cards in the United States, said shifting its card portfolio from those two payment giants to Discover's network would help it generate $1.2 billion in 2027.
"This is a rare and extremely valuable asset," said Ian Lapey, portfolio manager at Gabelli Funds, which holds shares of Capital One, referring to Discovery's payments processor network.
Any transition, however, would likely be slow since both Visa and Mastercard renewed their partnerships with the company recently, said J.P. Morgan analyst Tien-tsin Huang.
A Mastercard spokesperson said the company had spoken with Capital One about the news and that the bank's partnership with Mastercard "will continue for the long-term."
Visa did not immediately respond to requests for comment.
"Regulators are likely to pick carefully through this deal," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
"However, given the vast savings in operational costs expected ... Capital One believes complex regulatory hurdles are worth being navigated to deliver significant returns."
