Capital One, a Warren Buffett-backed consumer bank and credit card issuer, will acquire the credit card lender Discover Financial Services, according to a report by The Wall Street Journal that cited people familiar with the matter.
Capital One has been working with advisers to “study a deal” to buy Discover, and a deal could be announced as soon as Tuesday, per the Journal’s report. Bloomberg reported earlier Monday that Capital One was considering making an offer for Discover.
Discover has a market value of roughly $28 billion and the Journal reported that an acquisition would be expected to value it at a premium beyond that valuation. Capital One’s market value is a little more than $52 billion, and a merger would be a significant expansion of its clout in the financial services sector.
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.
STUDENT LOAN PAYMENTS MAY BE TO BLAME FOR A SPIKE IN CREDIT CARD DELINQUENCIES
Capital One, which is a major credit card issuer and is also the ninth-largest bank in the U.S., primarily uses Visa and Mastercard but plans to offer some of its cards through the Discover network, according to the Journal’s report, which added that the Discover brand will be maintained on its cards and network.
Discover has previously been approached by banks and financial technology companies about selling all or part of its business – with tech companies interested in its payments network, although Discover balked at the prospect of splitting its credit card business from the network, per the Journal.
CREDIT CARD DEBT POISED TO HIT A NEW RECORD HIGH
The news comes after Discover Financial appointed Michael Rhodes as the company’s new CEO after the exit of Roger Hochschild in August. Rhodes previously worked for TD Bank Group.
In late 2023, Discover said it was exploring the potential sale of its student loan business and said it would stop new student loan applications in February.
Last July, Discover disclosed a regulatory review over some incorrectly classified credit card accounts from mid-2007.
The company said in October that it agreed to improve its consumer compliance and related corporate governance as part of a consent order with the Federal Deposit Insurance Corporation (FDIC).
GET FOX BUSINESS ON THE GO BY CLICKING HERE
Markets are closed in observance of President’s Day. Last week before the prospective merger was announced, Discover’s stock rose by more than 1% while Capital One’s share price increased by over 1.3%.
This is a developing story. Please check back for updates.
Reuters contributed to this report.