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Capital One’s $35 billion purchase of Discover Financial shakes markets.

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TLDR:

  • Capital One is buying Discover Financial for $35 billion.
  • The acquisition will combine two major lenders and credit card issuers.

Capital One Financial has announced its acquisition of Discover Financial Services for $35 billion. Discover Financial shareholders will receive Capital One shares valued at nearly $140, bringing together two of the nation’s biggest lenders and credit card issuers. This deal will see Capital One, the 12th largest U.S. bank, merging with Discover, the 33rd biggest, which has $143.4 billion in assets and $104 billion in deposits. Both companies have seen increased credit card usage by Americans, resulting in a rise in credit card debt and higher interest rates. However, the boost in reserves against potential defaults has impacted their profits. Capital One’s net income available to common shareholders dropped 35% last year, while Discover’s full-year profit sank 33.6%. The acquisition will also provide Capital One access to the Discover payment processing network, allowing them to generate revenue from transaction fees. Discover has been under regulatory scrutiny, which may have influenced the sale. Analysts believe that regulatory challenges faced by Discover could have led to the board considering strategic alternatives that were not previously explored.


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