The American Express Centurion Lounge at Reagan National Airport opened Wednesday for American Express cardholders, a little more than a year after its originally-scheduled date, as one of two new non-airline private lounges landing at DCA this year.
The food served at the new Centurion Lounge will include some of chef Michael Solomonov’s famous dishes.
(Courtesy American Express)
Courtesy American Express
The interior of American Express’s new Centurion Lounge at Reagan National Airport.
(Courtesy American Express)
Courtesy American Express
The bar serving D.C. area-inspired cocktails and curated wine list.
(Courtesy American Express)
Courtesy American Express
The American Express Centurion Lounge at Reagan National Airport opened Wednesday for American Express cardholders, a little more than a year after its originally-scheduled date, as one of two new non-airline private lounges landing at DCA this year.
The Centurion Lounge, located on the upper level at Reagan National, is the 15th airport lounge for American Express. Another Centurion Lounge is scheduled to open at Newark International Airport in 2026.
The 11,500-square-foot lounge at Reagan National has a complimentary premium food and drink menu from three Centurion Lounge chefs, including award winner Michael Solomonov, whose restaurant at City Center in Philadelphia, Zahav, won a James Beard Award for Outstanding Restaurant in 2019.
The lounge has restrooms and shower suites, plus floor-to-ceiling windows with views of the runways and airfield. American Express commissioned local artists for the art displayed in the lounge.
Use of the Centurion Lounge is exclusive for American Express Platinum Card members, Centurion Members and passengers who have a Delta SkyMiles Reserve card. Cardmembers can bring guests for an additional fee.
Capital One will soon open a hybrid lounge-dining space at Reagan National called Capital One Landing. It is designed for travelers who want to spend less time at the airport before their flight departs, offering perks like a grab-and-go menu. The 5,500-square-foot lounge will be past security where National Hall meets the entrance to Concourse D, within a short walk of all four concourses.
Capital One has not disclosed what the entry policies for the DCA Landing lounge. However, its Capital One Lounge at Dulles International Airport, which opened last fall, is open to cardmembers and anyone who pays an entry fee.
An opening date for the Capital One Landing at Reagan National hasn’t been announced, though it is expected to open later this year. The build-out of the space is currently underway.
The Centurion Lounge and Capital One Landing, along with the USO Lounge, are the only non-airline clubs at DCA. Other members-only lounges are three American Airlines Admirals Clubs, Delta Sky Club and United Club.
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Amazon is offering a 40% discount when you Shop With Points using Capital One reward points.
The Fine Print
The promotion will end on the earlier of (a) 5:00 PM PT on 7/19/2024, or (b) the time at which offers worth $115,000 have been redeemed.
Requires activation prior to use.
Must use a minimum of 625 points in order for this to work.
Max $20 discount.
Only items shipped and sold by Amazon.com are eligible for this discount.
Our Verdict
This is interesting as we’ve never seen Capital One take part in the Shop With Points promotions. I was not eligible when clicking the link; I added linked my Capital One card to Shop With Points on Amazon, and I’ll try clicking through again in a couple of days to see if the offer shows for me.
Capital One has announced that it will open a new lounge at John F. Kennedy International Airport. The lounge will be over 13,000 square feet and located in terminal 4. Unfortunately there is no opening date that has been released yet.
Walmart has ended a partnership with Capital One that made the banking company the exclusive issuer of Walmart’s consumer credit cards.
The companies announced the change in a joint statement Friday.
The companies said card-holders can still use their Capital One Walmart Rewards cards, which will continue to accrue rewards unless customers are notified of a change. Capital One will retain ownership and servicing of the credit card accounts.
Bentonville, Arkansas-based Walmart partnered with Capital One in 2019 after ending its previous credit card deal with Synchrony Financial. The rewards card was co-branded and offered rewards like cash back on in-store purchases and online orders set for pickup or delivery, according to a website for the program. The deal was set to run through 2026.
But Walmart eventually soured on Capital One. In 2023, Walmart sued the McLean, Virginia-based company, saying it wanted to terminate the agreement because Capital One was taking too long to process payments and mail replacement cards. The lawsuit also said Capital One “admitted” it had failed to meet some of Walmart’s service standards. Capital One said the service issues did not constitute grounds for the partnership to end, and said Walmart was attempting to “end the deal early.”
A federal judge ruled in Walmart’s favor in March.
In a government filing Friday, Capital One said there are approximately $8.5 billion in loans in the existing Walmart credit card portfolio.
It’s not yet clear when Walmart might name a new banking partner. The Associated Press sent an email message seeking comment to Walmart on Saturday.
Based on the statement released by both companies existing Capital One Walmart cardholders will be able to continue to use their cards and will eventually be product changed to another Capital One product. This means that whoever is going to be the new issuer of Walmart credit cards has not purchased the back book from Capital One (or Capital One didn’t want to sell it). So far no word on who will issue a new Walmart credit card.
Financial institutions that think about efficiency and growth when considering tech spend can respond quickly to merger and acquisition opportunities, Danny Baker, vice president of market strategy at technology provider Fiserv, told Bank Automation News. “Successful banks, when they think about their technology investment, they don’t think about efficiency from a penny-pinching [perspective],” he said. […]
Federal regulators might find reasons beyond antitrust concerns to block the Capital One-Discover merger.
Adobe Stock
As federal regulators review Capital One’s merger application to buy Discover Financial Services, they will need to untangle a host of regulatory issues, across multiple competitive dimensions. All of this will be done against the backdrop of fierce criticism of the deal from powerful coalitions in Washington.
The regulators that are most likely to have the power to scuttle the acquisition are the Federal Reserve and the Office of the Comptroller of the Currency under federal banking laws and the Department of Justice under antitrust statutes. The likelihood of approval will depend on their relative satisfaction with whether the transaction will not substantially lessen competition and how a combined Capital One-Discover would prevent damage to the broader economy in the event of its failure or financial distress.
Capital One is subject to examination and regulation by the Federal Reserve and the OCC. The banking regulators work in parallel with the DOJ when evaluating bank mergers. But if they disagree over the competitive effects of the transaction, the DOJ may still challenge the proposal in court, though these disagreements are rare. The DOJ and the banking agencies both assess the competitive effects of the proposal, but the banking agencies also take into account other banking-specific factors, including the supervisory views of other agencies, such as the Consumer Financial Protection Bureau, and whether the merger could increase risk to the stability of the U.S. financial system.
Although the DOJ released revised merger guidelines that shift away from completely relying on the concepts of “horizontal” and “vertical” mergers, that framework is still helpful. “Horizontal mergers” refer to mergers that occur between firms in the same industry, and “vertical mergers” refer to mergers that occur between companies at different stages of the production process. The deal has components of both and they should be analyzed separately.
Capital One and Discover are both credit card issuers, which has horizontal merger implications. Capital One would become the largest credit card issuer in the country, with a 22% market share. There are at least a dozen sophisticated, well-capitalized businesses competing as credit card issuers. Federal regulators may conclude that there is insufficient evidence that the merger should be blocked over antitrust concerns.
But federal regulators might find other reasons to block the deal. Discover is a payment network, which has vertical merger implications. In its updated merger guidelines, one of the factors the DOJ considers in assessing whether a merger could substantially lessen competition is if there is an industry trend toward consolidation. There is a reasonable possibility that Capital One’s purchase entices American Express to seek a buyer in the long term. In addition to its plans to migrate all of its debit spend away from Mastercard’s network, Capital One is also considering moving its credit spend as well. That would total possibly $606 billion dollars worth of credit card volume moving to Discover’s payment rails.
Any increase in revenue as a result of fees charged to new cardholders, more processing activity from merchants or income from any applicable customers in the broader payments ecosystem could significantly increase Discover’s ability to invest in upgrades and enhancements that improve its service. While it is unlikely Discover will ever exceed Mastercard or Visa in market share given the scale of their respective networks and their significant lead in overseas markets, Discover may become the third largest credit card network in the United States, overtaking American Express.
Regulators should also gather information about whether the merger would bring any decrease in credit and debit swipe fees charged to merchants and assess if Discover will continue to be exempt from rules that cap debit interchange pricing set by the Durbin Amendment.
Additionally, regulators should evaluate Discover’s supervisory records with the CFPB, which has issued multiple consent orders against Discover for issues in student loan servicing. They should also question plans to improve Discover’s compliance with consumer protection laws, as required by a consent agreement with the Federal Deposit Insurance Corp.
Regulators should also determine whether the failure of the combined company could inflict damage on the broader economy. Under the Dodd-Frank Act, Capital One must create a living will that describes how it would address bankruptcy or dissolution. The Federal Reserve recently extended the deadline for a living will to March 31, 2025.
But given the overlapping timelines for the merger and the new deadline, federal banking regulators should explore whether Capital One can proactively describe how the combined entity would handle financial stress. Importantly, regulators would need to ensure the American people do not pay for it.
As it waits for regulators to approve its $35 billion acquisition of payments network Discover, Capital One is “fully mobilized to plan and deliver a successful integration.”
Adding Discover will make the $475 billion bank a more “diversified, vertically-integrated global payments platform,” and Discover’s payment volume generated from its 100 million customers will scale Capital One operations and reach, Chief Executive Richard Fairbank said during Capital One’s first-quarter earnings call on April 25.
Courtesy/Bloomberg
All applications for regulatory approval have been filed, Fairbank added.
In the first quarter, Discover reported payment volume of $51.8 billion, flat year over year, on its Discover Network.
“The Capital One team is leading the integration planning process,” MichaelShepherd, chief executive of Discover, said during the company’s earnings call on April 18. “The process has achieved the first important milestone, the submission of the merger applications to the Federal Reserve and the [Office of the Comptroller of the Currency].”
Capital One will “leverage and scale the benefits of our 11-year technology transformation across every business and the network, which will serve as a catalyst for innovation and enhanced capabilities in risk management and compliance, underwriting, marketing and customer service,” Fairbank said on the April 25 call.
THE BIG PICTURE: Many financial institutions are preparing for a wave of mergers and acquisitions in 2024.
MorganStanley is deploying technological tools to aid M&A activities while GoldmanSachs is eyeing increased revenue from a potential increase in M&A activities.
BY THE NUMBERS: In Q1, Capital One reported;
Net revenues of $9.4 billion, down 1% YoY;
Employees of 51,300, down 9% YoY;
Net interest income of $7.4 billion, up 4% YoY; and
Net income of $1.2 billion, up 33% YoY.
OF NOTE: The Federal Reserve has extended the public comment period on the acquisition of Discover until May 31. The initial deadline was today.
Of six public comments posted on the Fed’s website, five are opposed to the merger to avoid consolidation of financial services in the industry.
NOTEWORTHY: Its technology and digital-first banking capabilities are driving Capital One deposits, Fairbank said.
In Q1, Capital One reported total deposits of $2.8 billion, up 52% YoY, according to the bank’s earnings report.
Morgan Stanley, acknowledging the growing importance of AI in the financial services industry, has named Chief Analytics and Data Officer Jack McMillan to the newly created position of head of companywide AI. McMillan is responsible for identifying and prioritizing AI implementation across business units and infrastructure throughout Morgan Stanley, he told Bank Automation News. “Morgan […]
Capital One’s deal to purchase Discover has drawn opposition from the National Community Reinvestment Coalition, which has more than 700 member organizations.
Capital One is “proactively meeting” with organizations to gather feedback that would help with the creation of such a plan, the McLean, Virginia, company disclosed in a merger application submitted last week to the Federal Reserve.
Capital One did not disclose the names of specific community groups with which it is engaging. But the bank said in its merger application that its 27-member Community Advisory Council has helped it to better understand the financial needs of underserved consumers.
Current members of the company’s Community Advisory Council include the National Coalition of Asian Pacific American Community Development, the National Association of Latino Community Asset Builders and the Local Initiatives Support Corporation.
One group that is not active in discussions with Capital One is the National Community Reinvestment Coalition, a fair-lending advocacy group that has negotiated 21 community benefits plans with banks since 2016, according to its website.
The NCRC, which has more than 700 member organizations, opposes Capital One’s pending acquisition of Discover, arguing that much of Capital One’s business model takes advantage of lower-income credit card holders, and that the deal would diminish competition.
A source familiar with Capital One’s thinking said that the company is not closing doors on the involvement of any community groups. This source also said that Capital One plans to move quickly to develop a community benefits plan after the public comment period on the proposed merger ends.
Community benefits plans have become commonplace in connection with acquisitions as banks seek to outline to regulators how their deals will satisfy Community Reinvestment Act requirements.
Such agreements often include pledges to expand banking services in low- and moderate-income areas. The commitments typically fall in three buckets — community development lending and investments; affordable housing and residential mortgage lending; and philanthropic dollars.
In connection with Capital One’s 2011 acquisition of ING Direct USA, the bank agreed to a plan that included a community lending pledge of $180 billion over 10 years. Despite this pledge, the Capital One-ING Direct transaction still ran into opposition from consumer groups, and the regulators’ review process took longer than expected, but the deal was ultimately approved.
On Monday, NCRC President and CEO President Jesse Van Tol said in an email that Capital One’s pledge related to the ING Direct acquisition was “largely a commitment to do the same level of subprime credit card and auto lending as they were already doing.” He said one part of the commitment — related to mortgages — wasn’t fulfilled because Capital One exited the residential mortgage business.
“We don’t need to speculate about what a Capital One community benefits agreement would look like,” Van Tol said in the email. “Nobody should believe a Capital One-developed commitment.”
Andy Navarette, Capital One’s head of external affairs, said in a written statement that the company has a “proud history of serving the full spectrum of American consumers and of outstanding Community Reinvestment Act performance.
“Through the creation of our Community Advisory Council in 2013, as well as our deep relationships with over 1,000 non-profit partners, we work every day to develop innovative ways to best serve our communities and customers, including being the first large bank to completely eliminate overdraft fees in 2021,” Navarette said.
“As noted in our application, we are in the process of seeking input as we develop our community benefit plan, and we welcome the opportunity to work with any individual or organization that shares our commitment to investment in communities,” he added.
In its merger application, Capital One noted that it received an “outstanding” rating on its most recent Community Reinvestment Act performance evaluation in 2020 — the second consecutive evaluation where it got the highest possible rating.
Discover’s banking unit received “outstanding” ratings in its 2016, 2018 and 2020 performance evaluations before more recently being downgraded to “satisfactory” because of ongoing deficiencies in its student loan servicing business, Capital One said in its merger application.
Critics of community benefits plans point out that the agreements aren’t codified, and thus banks don’t have a legal obligation to fulfill the financial commitments they lay out. There have recently been renewed calls to hold banks accountable for what they promise.
Last week, the Federal Deposit Insurance Corp. issued a policy statement on bank merger transactions that called for a change in the way regulators would assess a merger’s impact on communities. The Capital One-Discover deal needs to be approved by the Fed and the Office of the Comptroller of the Currency, but not the FDIC.
The FDIC’s policy statement aims to force banks to show not only their past performance, but also how communities will be better off after an acquisition, according to Rohit Chopra, who is a member of the FDIC’s board of directors as well as director of the Consumer Financial Protection Bureau.
The FDIC statement would mean that regulators stop “outsourcing their legal requirement to community organizations,” and it would give those organizations “more confidence that the commitments made have some real teeth to them” and are “not just utter fakery,” Chopra said at an event in Washington last week.
“We saw a number of community organizations ask some real big questions after the failure of Silicon Valley Bank,” Chopra said.
In November, First Citizens BancShares, which acquired parts of Silicon Valley Bank after its collapse, updated the community benefits plan. It agreed to invest more than $6.5 billion in California and Massachusetts communities that were set to benefit from Silicon Valley Bank’s plan.
Discussions about the FDIC’s policy statement might help “to figure out how we can make some of this merger review actually lead to improvements rather than what I see as a hollowing out of a lot of services to a lot of low- to moderate-income people,” Chopra said.
This is a roundup of news and other interesting pieces that I’ve come across over the last few days. I thought they are worth sharing so I hope you enjoy reading them.
Longest zipline in US, going from NY to MA, set to open in spring
The longest zipline in the U.S., which will take you across two states, will be opening this spring. The Catamount Zip Tour runs two hours over the Hudson Valley and into the Berkshires. It features three dual ziplines, and you can control how fast you’re going. ➡️ Read more
A new type of pilot could be key to solving a looming crisis in the skies
A fully autonomous aviator, equipped with artificial intelligence, could help alleviate a looming pilot shortage, according to the head of a company working on the tech. ➡️ Read more
Rooms Burglarized at Rio Las Vegas
Several guests staying at the Rio Las Vegas claimed their room was broken into while they slept and had thousands of dollars worth of property stolen. “The feeling of being violated while we were sleeping is still kind of haunting me,” said Mindy Smith, who stayed at the property in February. ➡️ Read more
Why To Start Elite Status Qualification Early
In general, when a member reaches a given status, most loyalty programs provide that status for the remainder of a given calendar year, all of the next, and perhaps the beginning few months of a third. The earlier one reaches status the first year, the longer the benefits of that effort last, reflecting a larger potential return on the investment. ➡️ Read more
Recent Data Point Could Change What We Thought We Knew About Capital One
One of the Capital One application rules that has shown some cracking over the last year is the long held belief that Capital One will only approve you for one card every six months. It didn’t matter if they were business cards, personal cards or a mixture of both. If it was within six months since your last approval you would be automatically denied for any other application. ➡️ Read more
American opening Boeing 787 pilot base in New York
The airline will initially base just 20 captains and 20 first officers there, which would probably be enough for one ultra long haul route (that requires four pilots) or two shorter long haul flights (that require two pilots). The base is expected to grow over time. ➡️ Read more
Guru’s Wrap-up
Let me know if you enjoyed these articles and comment with any opinions you might have. You can also share any other interesting articles about deals, travel, credit cards and more.
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The finance behemoth created by Capital One’s pending merger with Discover would immediately surpass credit card leader JP Morgan Chase, but CEO Jamie Dimon isn’t worried about the competition—he relishes it.
“Let them compete, let them try,” he said in a Monday interview with CNBC.
Regulators should allow the merger to go through and let the market hash out the rest, he said. Despite the deal’s threat to his own company, the long-time finance industry veteran said he was “not worried about it really.”
Yet, Capital One’s $35 billion acquisition of Discover would allow it to supplant JP Morgan Chase as the largest credit card issuer in the country, and give it access to the lucrative fees Discover’s network charges to facilitate transactions with merchants. It would also allow Capital One to cut costs by shifting some debit and credit transactions to Discover’s payments network.
When asked about the implications of JP Morgan being replaced as the top credit card issuer, Dimon said that would only be the case, “for now.”
Still, he added that if the deal went through it would give Capital One an unfair advantage when it comes to debit cards.
Thanks to an exception in the 2010 Dodd-Frank Act created for companies like Discover and American Express that issue credit cards and deal directly with merchants, post-merger, Capital One would be allowed to jack up the fees charged to merchants to use Discover debit cards while banks like JP Morgan are more limited due to the law.
“Of course I have a problem with that,” Dimon said. “Why should they be allowed to price debit different than we price debit just because of a law that was passed?”
Showing no fear of competition, Dimon added that regulators shouldn’t stand in the way of more mergers in the financial sector.
“I think they should allow some of these smaller banks to merge,” he said. “If that’s how they think they can best compete with JP Morgan, you should let them.”
But while JP Morgan’s top boss seems fine with the tie-up of Capital One and Discover, lawmakers are fiercely opposed to the proposal. On Sunday, 13 Democrats led by Sen. Elizabeth Warren (D-Mass.) signed an open letter urging President Biden to block the deal because it would be bad for consumers. On the other side of the aisle, last week Sen. Josh Hawley (R-Mo.) also came out against the deal in a letter to Assistant Attorney General Jonathan Kanter, who leads the antitrust division.
Jamie Dimon’s career
The 67-year-old’s long track record of success at the helm of JP Morgan shows why he’s not worried about the threat of Capital One’s tie-up with Discover.
Dimon is well versed in financial industry acquisitions. His tenure at JP Morgan itself came about as a result of the bank’s merger with Bank One Corporation, where he was chairman and CEO. And before that he helped guide several acquisitions as chief financial officer and later president of Commercial Credit, including its acquisition of Traveler’s Group in 1993. He served as president of Citigroup after the $70 billion merger between Travelers Group and Citicorp. in 1998.
After becoming CEO of JP Morgan in 2006, Dimon helped navigate the bank through the 2008 financial crisis, offloading billions of dollars of subprime mortgages that allowed the company to weather the turmoil better than other competitors.
More recently, Dimon led JP Morgan to its seventh consecutive quarter of record net interest income and clinched the title for the most profitable year on record for a U.S. bank in 2023.
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Capital One could be excluded from the proposed Credit Card Competition Act of 2023 if its acquisition of Discover Financial Services goes through and the bank creates an in-house processor. Read more on the Capital One, Discover deal The proposed act, introduced in June 2023 by U.S. Sen. Richard Durbin, D-Ill, would require credit card […]
Institutions approaching mergers and acquisitions must consider how to combine cultures, business models in addition to their tech stacks. Tech stack integration doesnât have to be the most challenging aspect of a merger or acquisition, especially if the institutions are already using the same core provider, Tom Ruppel, vice president and business strategy manager at […]
Under Attorney General Merrick Garland, the Department of Justice has signaled that it will take a tougher approach to bank mergers. But the department’s leadership could change in early 2025, at which point the Capital One-Discover deal might still be under review.
Competition — or the lack thereof — will be at the heart of the debate as bank regulators and antitrust officials weigh whether to approve the deal.
Does Capital One’s purchase of Discover create an unstoppable credit card-issuing giant? Does it help consumers by giving Discover’s payments network a fighting chance against massive rivals Visa and Mastercard? Or does it do both? And if so, what should be the verdict?
“The question is: Is this anti-competitive or is it pro-competitive?” said Todd Baker, a professor at Columbia Law School and managing principal at Broadmoor Consulting.
The Biden administration, which has pledged aggressive scrutiny of mergers in the banking and financial sectors, would ideally like not to be approving more big-bank mergers, Baker said. “But this might actually be one which is relatively pro-competitive,” he added.
Monday’s announcement of the proposed $35.3 billion merger immediately drew criticism from Democratic lawmakers.
Sen. Elizabeth Warren, D-Mass., said that the deal “threatens our financial stability, reduces competition, and would increase fees and credit costs for American families.”
“Regulators must block it immediately,” Warren said on X, formerly known as Twitter.
Consumer groups, including the National Community Reinvestment Coalition and Americans for Financial Reform, also came out against the deal, which would combine two of the top six U.S. credit card lenders.
“Today’s concentrated markets and behemoth banking organizations are the result of a thirty-year run of mergers and consolidation,” said Patrick Woodall, senior fellow at the Americans for Financial Reform Education Fund. “It is time for the banking regulators to stop rubber-stamping these transactions and stand up for consumers, communities, and a more stable financial system by blocking this takeover.”
The deal’s approval is not a slam dunk, experts said, nor is its rejection. But they also said there are reasons to think that the Biden administration, notwithstanding its general skepticism of large mergers, might approve this particular deal.
Even if Capital One were to suddenly account for 19% of U.S. credit card loans — as some analysts calculated would be the case if the merger goes through — it would still face strong rivals such as JPMorgan Chase, Citigroup, Bank of America, Wells Fargo and American Express.
But the clearer argument for approval is that, thanks to Capital One’s larger balance sheet and customer base, Discover’s payments network would get the lift it needs to better compete with Visa and Mastercard, which are often described as a “duopoly.”
“Will this introduce more competition into cards or reduce competition in banking?” asked Peter Conti-Brown, a professor at the University of Pennsylvania’s Wharton School. “These are the questions on which the preliminary announcements are light, but that regulatory processes will be focused like lasers.”
Within the Biden administration, bank regulators and the Department of Justice don’t see the risks in a uniform way, Conti-Brown said. Some officials see any concentration as something to fight, while others see bank concentration as serving useful purposes, he said.
During a Tuesday morning conference call, Capital One CEO Richard Fairbank was optimistic about the deal’s chances for regulatory approval. He said he expects the deal to close in late 2024 or early 2025.
The timeline could be crucial. Brian Gardner, chief Washington policy strategist for Stifel, noted that, should Republicans take the presidency after the 2024 election, many of the existing dynamics involving Democratic agency heads could be moot.
“At that point, things have shifted in favor of the industry,” he said.
Fairbank hinted that concerns about the power of Visa and Mastercard could work in Capital One’s favor, saying that the deal would “position us to compete more effectively against some of the largest banks and payment companies in the United States.”
“We believe that we are well positioned for approval,” he said.
The dominance of Visa and Mastercard in card processing has been the target of recent legislation that aims to reduce credit card swipe fees. That bipartisan bill would require larger banks to offer merchants the choice of two unaffiliated card networks that aren’t both Visa and Mastercard.
The legislation has picked up momentum with additional co-sponsors and a potential hearing with the heads of the card networks.
Shahid Naeem, a senior policy analyst at the American Economic Liberties Project, a left-leaning group that criticizes corporate consolidation, argued that regulators should not take Capital One’s pro-competition arguments at face value. He said it will be tough for Discover to “become a threat” to Visa and Mastercard.
Some Capital One customers may not want to ditch their current Visa and Mastercard cards and switch to the Discover network, Naeem noted.
“It’s a tall task,” Naeem said. “When these arguments are being made about, ‘This is how this deal is going to improve competition,’ it’s important to just ask the next question … ‘OK, why?’ ‘OK, how?’ ‘What’s the time frame?’”
Jeremy Kress, a University of Michigan professor who was recently detailed at the Department of Justice to work on bank merger policy, said that he sees “red flags” in terms of the deal’s competitive effects on the credit card market, given that Capital One and Discover are already among the top issuers.
“Antitrust law is not a balancing act,” he said.
The recent rejection of the JetBlue-Spirit Airlines merger by a judge is a good example of why the Capital One-Discover deal should fail, Kress said.
JetBlue had argued that allowing the two airlines to merge would help the buyer to compete better with larger, legacy airlines. But the Department of Justice contended — and the judge agreed — that it’s not enough for a deal to help competition in one customer segment. If another segment will be hurt, the deal should be rejected.
“You could see a similar line of reasoning applying here, even if for the sake of argument, you assume competitive efficiency in the card network business,” Kress said. “If it would be anti-competitive for the card issuance market, then the deal is anti-competitive.”
Bank regulators have also been rethinking how they approach merger applications.
Late last month, acting Comptroller of the Currency Michael Hsu said in a speech that the agency he leads would remove a rule that limits the amount of time it has to consider mergers — a change that could slow the approval of deals, but which some advocacy groups still found to be anemic.
For the proposed Capital One-Discover merger, the bank regulators’ review process will not follow its typical path.
Such reviews typically involve careful consideration of a deal’s impact on bank branches in certain areas — often dealing with concerns about financial deserts — but Discover does not operate branches.
Baker said the deal would create a dominant player in the subprime credit card market, and potentially also in the near-prime market. That’s a factor that might draw regulators’ focus, he said.
“It really becomes a question, almost not of antitrust, but more around industrial policy,” Baker said. “What do we want the banking and payment system to look like in the future?”
Capital One announced its plans to acquire Riverwoods, Ill.-based Discover Financial Services and expects to spend $2.8 billion on integration costs, including tech conversion. âCapital One certainly has some good experience in the space. ⦠They have done a number of tuck-ins and so I imagine they have [an acquisition] playbook,â Matthew Goldman, founder and […]
New York — Capital One Financial said it will buy Discover Financial Services for $35 billion, a deal that would bring together two of the nation’s major credit card companies as well as potentially shake up the payments industry, which is largely dominated by Visa and Mastercard.
Under the terms of the all-stock transaction, Discover Financial shareholders will receive Capital One shares valued at nearly $140. That’s a significant premium on the $110.49 that Discover shares closed at Friday. Capital One said the deal is expected to close late this year or early next.
Capital One shareholders would own 60% of the new company and Discover shareholders would own the rest, analysts say.
The deal marries two of the largest credit card companies that aren’t banks first, like JPMorgan Chase and Citigroup, with the notable exception of American Express. It also brings together two companies whose customers are largely similar — often Americans who are looking for cash back or modest travel rewards, compared to the premium credit cards dominated by AmEx, Citi and Chase.
“This marketplace that’s dominated by the big players is going to shrink a little bit more now,” said Matt Schulz, chief credit card analyst at LendingTree.
Nearly every bank issues a credit card to customers but few companies are credit card companies first, and banks second. Both Discover – which was long ago the Sears Card – and Capital One started off as credit card companies that expanded into other financial offerings like checking and savings accounts.
The deal will give Discover’s payment network a major credit card partner in a way that could make the payment network a major competitor once again. The U.S. credit card industry is dominated by the Visa-Mastercard duopoly with AmEx being a distance third and Discover an even more distant fourth. It’s unclear whether Capitol One will adopt the Discover payment system or set up a payment network that allows parallel use of Discover and a second payment network like Visa.
“Our acquisition of Discover is a singular opportunity to bring together two very successful companies with complementary capabilities and franchises, and to build a payments network that can compete with the largest payments networks and payments companies,” said Richard Fairbank, the chairman and CEO of Capital One, in a statement.
Can the deal get past regulators?
It’s unclear whether the deal will pass regulatory scrutiny.
“I predict that this deal …will provoke a significant push-back and receive heightened regulatory scrutiny,” Jeremy Kress, a University of Michigan professor of business law who used to work on bank merger oversight at the Federal Reserve, wrote in an email, according to the Reuters news agency. “It will be the first big test of bank merger regulation since the Biden administration’s executive order on promoting (banking industry) competition in 2021.”
Consumer groups are expected to put heavy pressure on the Biden Administration to make sure the deal is good for consumers as well as shareholders.
“The deal also poses massive anti-trust concerns, given the vertical integration of Capital One’s credit card lending with Discover’s credit card network,” said Jesse Van Tol, president and CEO of the National Community Reinvestment Coalition.
Consumer trends in focus
With its purchase of Discover, Capital One is betting that Americans’ will continue to increasingly use their credit cards and keep balances on those accounts to collect interest. In the fourth quarter of 2023, Americans held $1.13 trillion on their credit cards, and aggregate household debt balances increased by $212 billion, up 1.2%, according to the latest data from the New York Federal Reserve.
As they run up their card balances, consumers are also paying higher interest rates. The average interest rate on a bank credit card is roughly 21.5%, the highest it’s been since the Federal Reserve started tracking the data in 1994.
Capital One has long has a business model looking for customers who will keep a balance on their cards, aiming for customers with lower credit scores than American Express or even Discover.
At the same time, the two lenders have had to boost their reserves against the possibility of rising borrower defaults. After battling inflation for more than two years, many lower- and middle-income Americans have run through their savings and are increasingly running up their credit card balances and taking on personal loans.
The additional reserves have weighed on both banks’ profits. Last year, Capital One’s net income available to common shareholders slumped 35% versus 2022, as its provisions for loan losses soared 78% to $10.4 billion. Discover’s full-year profit sank 33.6% versus its 2022 results as its provisions for credit losses more than doubled to $6.02 billion.
Discover’s customers are carrying $102 billion in balances on their credit cards, up 13% from a year earlier. Meanwhile, the charge-off rates and 30-day delinquency rates have climbed.
Beyond boosting bank deposits and loan accounts, the acquisition would give Capital One access to the Discover payment processing network. While smaller than industry giants Visa and Mastercard, the Discover network will enable Capital One to get revenue from fees charged for every merchant transaction that runs on the network.
Discover’s behavior a factor
Discover has been operating under heightened scrutiny from regulators. Last summer, the company disclosed that beginning around mid-2007, it incorrectly classified certain card accounts into its highest merchant pricing tiers. The company also received an unrelated consent order from the Federal Deposit Insurance Corporation over its customer compliance management.
Analysts at Citigroup say the regulatory issues may have prompted the sale.
“We are surprised that DFS would sell, but suppose that its regulatory challenges such as its recent October FDIC consent order and the card product misclassification issue may have opened the door for the board to consider strategic alternatives that it may not have in the past,” wrote analysts Arren Cyganovich and Kaili Wang in a note to clients.
🔃 Update: Capital One Financial Corporation and Discover Financial Services today announced that they have entered into a definitive agreement under which Capital One will acquire Discover in an all-stock transaction valued at $35.3 billion.
Under the terms of the agreement, Discover shareholders will receive 1.0192 Capital One shares for each Discover share, representing a premium of 26.6% based on Discover’s closing price of $110.49 on February 16, 2024. At close, Capital One shareholders will own approximately 60% and Discover shareholders will own approximately 40% of the combined company.
Here’s some unexpected news in the world of credit cards. Capital One is looking to acquire Discover Financial Services in a deal that would merge two of the largest credit-card companies in the U.S.
Capital One ranked fourth in the list of U.S. credit card issuers in 2022, after Chase, American Express and Citi. It rang up $534.5 billion in credit card transactions that year. Discover is sixth in the rankings, after Bank of America, with $210.7 billion in credit card transactions.
Capital One has been improving its credit card offerings in recent year with popular business cards which now include the Venture X Business card, and the consumer Venture X card. Discover on the other hand offers several credit card options, with the Discover it card being the most popular as it has no annual fee and earns up to 5% back.
The all-stock deal could be announced Tuesday, according to people familiar with the matter, as reported by WSJ. Discover has a market value of $28 billion, and the takeover would be expected to value it at a premium to that.
In January, Discover and Capital One reported declines in fourth-quarter profits of 62% and 43%, respectively, as banks increased provisions for losses from bad loans as rising interest rates raised the risk of consumer defaults on credit card debt and mortgages. Discover Financial has a market capitalization of $27.6 billion, while Capital One is valued at $52.2 billion.
Capital One Financial Corp. agreed to buy credit-card lender Discover Financial Services in a $35 billion all-stock deal to create the largest US credit card company by loan volume. McLean, Virginia-based Capital One will pay 1.0192 of its own shares for each Discover share, a 26.6% premium to the closing price on Feb. 16, the […]
