Capital One to acquire Discover Financial Services, according to report
OAN’s James Meyers
2:05 PM – Monday, February 19, 2024
Credit card issuer and Warren Buffet-backed consumer bank Capital One, will acquire the credit card lender Discover Financial Services, according to a report from The Wall Street Journal.
The reported move is expected to be finalized on Tuesday as Capital One has been working with advisers to negotiate a deal to buy Discover. Bloomberg reported on Monday that Capital One was considering making an offer for Discover.
“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.
Discover has a market value of roughly $28 billion and The Wall Street Journal reported that an acquisition would be expected to value it at above the $28 billion. Meanwhile, Capital One’s market value is just over $52 billion.
Additionally, in January, Discover and Capital One reported declines in fourth-quarter profits of 62% and 43%, with bank declines resulting from bad loans as rising interest rates have caused consumers to default on credit card debt and mortgages at a higher rate.
Capital One uses Visa and Mastercard but plans to also offer some of its cards through the Discover Network, according to the report. The company also bought digital concierge service Velocity Black, which is a premium credit card and luxury market platform, in June of last year.
“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 latest merger would be one of the biggest deals announced so far this year. Synopsys bought 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 last week.
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What risks and challenges does Capital One face in the credit card market, and how does the decision to acquire Discover showcase its confidence in overcoming them
Credit card issuer and Warren Buffet-backed consumer bank Capital One is set to acquire credit card lender Discover Financial Services, according to a report from The Wall Street Journal. The deal is expected to be finalized on Tuesday, as Capital One has been working with advisers to negotiate the acquisition.
Bloomberg reported on Monday that Capital One was considering making an offer for Discover. The reported move is seen as a strategic decision for Capital One, as Discover has been successful in attracting deposits and has access to a wide range of institutions to run the debit card network. David Schiff, West Monroe’s head of consumer retail and banking, emphasized the importance of Discover’s deposit gathering ability in the current market.
Discover currently has a market value of approximately $28 billion, and the acquisition is expected to value it above this amount. In comparison, Capital One’s market value is just over $52 billion. Both companies recently reported declines in fourth-quarter profits, with rising interest rates leading to increased consumer default on credit card debt and mortgages.
Capital One primarily uses Visa and Mastercard, but the company plans to offer some of its cards through the Discover Network as well. This move will provide Capital One with additional options and diversification in the credit card market. Furthermore, Capital One acquired digital concierge service Velocity Black, a premium credit card and luxury market platform, in June of last year.
This acquisition highlights the risks present in the market, as competing interests from regulators and changing market conditions continue to impact the financial industry. However, Capital One’s decision to acquire Discover showcases its confidence in the potential of the credit card market and its commitment to expanding its offerings and market share.
In conclusion, the acquisition of Discover Financial Services by Capital One is a significant development in the credit card industry. It will enable Capital One to enhance its product portfolio and gain access to a wider customer base. The successful completion of this acquisition will establish Capital One as a major player in the credit card market and strengthen its position as a leading consumer bank.
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