Capital One in Advanced Talks to Acquire Discover Financial

Key Points

• Potential Merger: Capital One, backed by Warren Buffett, reportedly in advanced discussions to acquire credit card issuer Discover Financial Services.
• Deal Significance: Proposed merger between two major U.S. credit card companies could mark the largest bank deal since 2009, subject to regulatory scrutiny.
• Regulatory Challenges: Anticipated deal likely to face heightened regulatory scrutiny amid Biden administration's focus on promoting competition in the banking sector.

Reports indicate that Capital One, a prominent U.S. consumer lender with backing from Warren Buffett, is currently engaged in advanced negotiations to acquire Discover Financial Services, a leading credit card issuer. Sources familiar with the matter suggest that an official announcement regarding the potential merger could be imminent, possibly as early as Tuesday.

While specific details regarding the size of the acquisition are not yet available, industry analysts speculate that the proposed merger has the potential to become the most significant U.S. bank deal since Bank of America's acquisition of Merrill Lynch for $50 billion in 2009.

As of 2022, Capital One boasts a market valuation of $52.2 billion and ranks as the fourth-largest player in the U.S. credit card market by volume, according to data from Nilson. On the other hand, Discover Financial Services holds a market capitalization of $27.6 billion and is positioned as the sixth-largest credit card issuer in the United States.

Neither Capital One nor Discover Financial Services has issued official statements regarding the reported discussions. However, Bloomberg News was the first to report on the ongoing negotiations.

Given the scale and significance of the potential merger, industry experts anticipate that the deal will undergo rigorous regulatory scrutiny. The Biden administration's commitment to fostering competition across various sectors, as outlined in a 2021 executive order, suggests that the proposed acquisition will face heightened regulatory oversight.

Jeremy Kress, a business law professor at the University of Michigan and former Federal Reserve employee specializing in bank merger oversight, expressed his expectation of significant pushback and intensified regulatory scrutiny should the deal materialize. This potential merger represents a pivotal test for bank merger regulation under the Biden administration's competition-focused agenda.

Historically, Democratic progressives have been vocal opponents of bank consolidation, citing concerns about systemic risk and adverse effects on consumer lending. The anticipated merger between Capital One and Discover Financial Services is likely to reignite debates surrounding bank consolidation and regulatory oversight, especially in light of recent industry developments.