Capital One Financial set to buy Discover Financial Services for whopping $35 billion
The deal will bring two of the biggest lenders and credit card issuers together
Capital One Financial is buying Discover Financial Services for a whopping $35 billion. This will bring two of the biggest lenders and credit card issuers together.
A news release issued by the companies said that Discover Financial shareholders are set to receive Capital One shares at about $140. The former reportedly closed Friday trading at $110.49.
Virginia-based Capital One was the 12th largest bank in the US, while Illinois-based Discover was the 33rd. Americans' increased use of credit cards has been a blessing for both the companies.
Notably, aggregate household debt balances increased by $212 billion in the fourth quarter of 2023. Data from the New York Federal Reserve said that this was up 12 percent. Further, in the same period, Americans are said to have held $1.13 trillion on their credit cards.
The acquisition will significantly boost bank deposits and loan accounts. Capital One will also get access to the Discover payment processing network. It will get revenue from fees charged for all merchant transactions running on the network, thanks to the Discover network.
Capital One, in recent years, has tried to attract more premium customers. For a long time, Discover has preferred to focus on prime customers with better credit ratings.
Last summer, Discover revealed that it incorrectly classified some card accounts starting around mid-2007. The company got an unrelated consent order from the Federal Deposit Insurance Corporation over its customer compliance management.
According to analysts at Citigroup, the sale may have been prompted by the regulatory issues. In a note to clients, analysts Arren Cyganovich and Kaili Wang reportedly wrote, “We are surprised that DFS would sell, but suppose that its regulatory challenges such as its recent October FDIC consent order and the card product misclassification issue may have opened the door for the board to consider strategic alternatives that it may not have in the past.”
