Federal regulatory approval granted for collaboration between Capital One and Discover
The Capital One-Discover merger, which is set to create the largest U.S. credit card issuer, has received approval from the Federal Reserve and the Office of the Comptroller of the Currency (OCC). However, the deal has raised significant antitrust concerns and has sparked investigations from state Attorneys General.
Antitrust Implications
The merger combines two major credit card issuers, potentially reducing competition in the credit card market. The vertical integration of both issuing and payment network operations could decrease competition, increase merchant leverage, and alter interchange fees, impacting both consumers and merchants. This vertical integration has the potential to disrupt market dynamics currently controlled by American Express and Visa.
State AG Response
In response to these concerns, state Attorneys General have launched antitrust investigations into the merger. For instance, New York Attorney General Letitia James initiated an investigation to assess whether the acquisition violates state antitrust laws, even subpoenaing Capital One for related documents as part of her probe.
Federal Response
While the U.S. Department of Justice (DOJ) under the Trump administration reportedly allowed the merger to proceed without blocking it, state-level enforcement has been more proactive in examining potential anticompetitive effects.
Regulatory Approvals
The Fed issued a consent order on the matter, in coordination with the Federal Deposit Insurance Corp. The OCC's approval of the deal is contingent on Capital One submitting a plan, within 120 days after the deal closes, on the actions it plans to take to address the causes of the enforcement actions against Discover.
The approval represents the last two regulatory approvals needed to close the largest merger in the banking space in at least six years. However, the Justice Department's new antitrust leader, Gail Slater, has determined there isn't sufficient evidence to challenge the deal in court.
Impacts and Benefits
The deal is estimated to unlock $1.2 billion in annual revenue for Capital One. Capital One will implement a $265 billion community benefits plan, including $200 billion in consumer lending to low- and moderate-income consumers, $575 million in philanthropy, and $44 billion for affordable housing, economic development, public infrastructure, and alternative energy.
After the transaction closes on May 18, Capital One is expected to count $660 billion in assets, making it the nation's eighth-largest bank. Despite the regulatory approvals, more than 90% of the comments the OCC received regarding the merger were negative, and the Fed found a similar ratio of opposition to support in the comments it received.
In conclusion, the Capital One-Discover merger raises ongoing tension between achieving scale and innovation in financial services and preserving a competitive market environment through antitrust enforcement efforts at multiple government levels. It is essential to monitor the developments in this case, particularly the ongoing state-level investigations and potential challenges to the merger.
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