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Earlier this week Payments Cards & Mobile reported on the first mega deal of 2024 with Capital One announcing an acquisition of Discover for $35 billion.
Capital One acquisition already in DOJ focus
It was always clear that this was going to draw regulatory scrutiny to close, but now U.S. Senator Josh Hawley (R-Mo.) has sent a letter to Department of Justice (DOJ) Assistant Attorney General for the Antitrust Division Jonathan Kanter, urging him to block the merger between Capital One and Discover Financial Services.
“This is destructive corporate consolidation at its starkest,” wrote Senator Hawley. “If consummated, this merger will create a new juggernaut in the credit card market, with unprecedented powers to extort American consumers. That cannot be allowed to happen.”
Some of us may have been thinking it, but he went and said it.
Senator Hawley further condemned the Capital One-Discover merger and also renewed his push to cap credit card interest rates at 18% to provide relief for working Americans.
Getting the deal approved
Capital One’s chances of getting the deal for Discover past regulators hinges on the bank showing it can disrupt the close-knit US credit card industry.
Investors are assigning only a 50% chance to the deal being completed amid concerns the proposed acquisition could become a lightning rod for US regulators and lawmakers fretting over high credit card interest rates and fees – as per Senator Hawley.
To boost its chances of getting the deal approved, Capital One will have to show it will share some of the deal’s $2.7 billion in projected pre-tax cost-savings with consumers.
“At the end of the day, the current regime of regulators wants to know if, and how, this merger will benefit consumers,” said Abiel Garcia, a former deputy attorney general for the California Department of Justice who is now an antitrust lawyer with Kesselman, Brantly & Stockinger.
Combining Capital One and Discover, the top four and five players in the US credit card market by loans, would create the biggest issuer with around $250 billion in card balances and a market share of 22%.
Capital One would have to convince regulators this heft would make its offerings cheaper rather than more expensive, legal experts says.
In theory, Capital One could do this because by owning the Discovery payment network it would not have to pay access fees as it does to Mastercard and Visa.
The deal also comes amid congressional scrutiny of card fees which has been stoked in part by merchants, a powerful force in Washington that could advocate on Capital One’s behalf.
Lawmakers such as Senator Dick Durbin, a Democrat who represents Illinois where Discover is based, have criticized, Visa and Mastercard for their hold on the market.
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