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The merger of the two companies, which are among the largest credit card issuers in the U.S., would expand Capital One’s credit card offerings and its deposit base. The company bought digital concierge service Velocity Black, a premium credit card and luxury market platform, in June of last year.
The Wall Street Journal reported that Capital One, which already uses Visa and Mastercard networks, plans to keep the Discover brand.
“Discover has done a better job of bringing in a lot of deposits and [has] access to a lot of institutions to run the debit card network and provide service. So it gives them a lot of deposit gathering ability, which particularly in the current market is enormously important,” said David Schiff, West Monroe’s head of consumer retail and banking.
CNBC has reached out for comment from both Capital One and Discover.
There aren’t many parallels for similar acquisitions in the financial industry, meaning that the Capital One-Discover deal will likely have broad implications for merger activity within the sector, said Schiff.
“It’s a good example of the risk we’re seeing in the market, where the competing interests from regulators for increased control and rigor balance against the competitive demands that are being made quite clearly, in terms of the overall market,” Schiff said.
The deal comes amid a period of increasing pressure for Discover, including regulatory scrutiny and new leadership. The current CEO Michael Rhodes was announced in December 2023.
Shares of Discover are down 1.7% lower for the year, putting the company at a $27.63 billion market cap. Capital One has a market cap of $52.2 billion and shares of the company are up 4.6% in 2024.
Bloomberg News reported on Monday that Capital One was considering the Discover acquisition.
The Capital One-Discover merger would be one of the largest deals announced so far this year. Synopsys announced a deal to buy Ansys for $35 billion in January and Diamondback Energy‘s $26 billion deal to buy privately held oil and gas producer Endeavor Energy was announced on Feb. 12.
Massachusetts Sen. Elizabeth Warren on Tuesday called for the deal to be blocked by regulators, saying in a post on X that the merger would reduce competition and increase credit costs and fees.
“This Wall Street deal is dangerous and will harm working people,” Warren said.
Senate Banking Committee Chairman Sherrod Brown said in a Tuesday statement that regulators need to make sure the financial system remains competitive.
“We will be monitoring all developments to ensure that this merger doesn’t enrich shareholders and executives at the expense of consumers and small businesses,” Brown said.
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This article was originally published by a www.cnbc.com . Read the Original article here.