Capital One-Discover $35 Billion Merger Moves Forward After DOJ Decision

The proposed $35 billion merger between Capital One Financial Corp. and Discover Financial Services has taken a significant step forward as the U.S. Department of Justice (DOJ) informed banking regulators that it lacks sufficient evidence to challenge the deal, according to Bloomberg. This decision removes a key regulatory obstacle and brings the merger closer to final approval.

Per Bloomberg, the DOJ conveyed its stance in a confidential memo to the Federal Reserve and the Office of the Comptroller of the Currency, the two agencies responsible for reviewing the transaction. People familiar with the matter, who requested anonymity due to the sensitivity of the issue, indicated that this communication paves the way for the regulators to approve the merger.

This marks a shift from earlier concerns raised by DOJ antitrust officials under the Biden administration. In a preliminary memo issued in January, regulators had outlined potential risks, warning that the deal could reduce competition, particularly for first-time credit card applicants. Additionally, officials were concerned that Capital One might leverage Discover’s network to bypass regulatory caps on interchange fees for its debit card business, Bloomberg reported.

Related: New York Attorney General Seeks Subpoena in Investigation of Capital One-Discover Merger

Despite these initial hesitations, opinions within the DOJ were divided on whether to formally challenge the merger. Following internal discussions, newly appointed antitrust division chief Gail Slater ultimately determined that there was insufficient evidence to pursue a legal challenge, according to Bloomberg.

Capital One has maintained confidence in the legality of the transaction. “Our deal with Discover Financial complies with the Bank Merger Act’s legal requirements, and we remain well-positioned to gain approval,” the company stated. Meanwhile, both Discover and the DOJ declined to comment on the matter.

Unlike other types of corporate mergers, bank consolidations undergo a dual-layered review process. While the DOJ assesses competition-related concerns, ultimate authority rests with financial regulators, who evaluate factors such as financial stability and consumer impact. Historically, the DOJ’s bank merger analysis has focused on deposit overlaps. However, under the Biden administration, regulators have taken a broader approach, considering effects on fees, interest rates, branch locations, and overall consumer choice, according to Bloomberg.

Source: Bloomberg