Capital One cleared a significant obstacle to its proposed acquisition of Discover Financial Services after the Justice Department told regulators that it didn’t see sufficient competition concerns to block the deal, according to two people with knowledge of the matter.
The deal, a $35 billion merger of some of the nation’s largest credit card companies announced in February 2024, was initially met by concerns that it could harm consumers. During the Biden administration, the Justice Department told regulators that it was concerned, in part, about the deal’s impact on potential credit card users who had no credit.
But the department’s investigation into the deal was still active when President Trump took office. This week, the department sent a letter to the Federal Reserve and the Office of the Comptroller of the Currency saying it had concluded its investigation and did not believe there were concerns that warranted blocking the deal, said the two people, who requested anonymity because the information is confidential.
A spokeswoman for the Justice Department declined to comment. A spokesman for Capital One also declined to comment on the review process, but said in a statement that the deal “complies with the Bank Merger Act’s legal requirements, and we remain well positioned to gain approval.”
The department does not have direct authority to approve banking deals, but it can sue to block them. The Federal Reserve and comptroller could still block the deal, but the new legal analysis is significant because analysts had expected the Justice Department to be the most likely of the three agencies to object. Federal banking agencies have not formally denied a bank merger application since 2003, according to Jeremy Kress, a professor of law at the University of Michigan business school.
In the last months of the Biden administration, the Justice Department moved to tighten oversight of banking deals. The department put in place more stringent guidelines over how it evaluates banking deals, updating that framework for the first time since 2008.
“This would identify that this administration is more open to bank mergers than the Biden administration,” said Todd Phillips, an assistant professor of law at Georgia State University focused on banking and financial regulation. “When people thought of the Trump administration as being friendlier to business, this is the type of thing they were thinking of.”
Capital One, with $479 billion in assets, is the nation’s ninth-largest bank. Acquiring Discover would give it access to a network of 305 million cardholders, adding to its base of more than 100 million customers. The banks argued that the deal would create a stronger competitor in the space to the giants, Visa and Mastercard.
Shareholders have already approved the all-stock deal, valued at roughly $35 billion when it was announced last year. The companies have said they expect to close the deal early this year, pending regulatory approval.
Those opposed to the deal were concerned about control of the credit card market.
Jesse Van Tol, the chief executive of the National Community Reinvestment Coalition, which has been opposing the deal since it was announced, said Capital One’s acquisition of Discover would allow one of the country’s biggest credit card issuers to control its own network. That element of the merger — seen as a type of vertical integration — does not have clear precedent, he said, and raises anticompetitive concerns.
“The market power it gives them, and the opportunity it gives them to set pricing in ways that captures a lot of value for the company at the expense of the consumer, is significant,” Mr. Van Tol said.
Capital Forum earlier reported that the Justice Department was leaning toward supporting the deal.
