Capital One Financial is set to acquire Discover Financial Services for $35 billion, merging two major lenders and credit card issuers in the United States.
Under the deal, Discover Financial shareholders will receive Capital One shares valued at nearly $140 each.
As of the third quarter, Capital One is the 12th largest U.S. bank, boasting $471.4 billion in total assets and $346 billion in deposits, while Discover ranks as the 33rd biggest, with $143.4 billion in assets and $104 billion in deposits.
Both companies have profited from the increased usage of credit cards among Americans, with total credit card debt reaching $1.13 trillion in the fourth quarter of 2023.
However, they have also had to bolster reserves in anticipation of potential borrower defaults due to economic challenges.
Lower- and middle-income Americans, struggling with inflation, have depleted savings and turned to credit cards and personal loans, prompting banks to increase reserves.
These reserve adjustments have impacted the profitability of both Capital One and Discover, with Capital One experiencing a 35% drop in net income available to shareholders in the past year.
Similarly, Discover saw a 33.6% decline in profit compared to 2022, as provisions for credit losses more than doubled.
Discover’s credit card balances held by customers have surged to $102 billion, a 13% increase from the previous year, while charge-off and delinquency rates have risen.
The acquisition aims to strengthen both companies’ positions in the competitive financial services market.
By combining resources, they hope to navigate economic uncertainties and better serve their customer base.
