By Emily Dattilo
Holders of Capital One Financial and Discover Financial Services stock got spooked on Monday, but there is no real cause for alarm, Citi says.
More than a year ago, Capital One offered to acquire Discover. The all-stock deal, valued at about $35 billion, has garnered tons of support from Wall Street and investors.
Now all that remains is regulatory approval, so investors are keeping close tabs on that process.
On Monday, a Bloomberg article cited a report by The Capital Forum saying the Department of Justice might oppose Capital One's acquisition of Discover, pointing to antitrust concerns related to the companies' shares of the market for subprime debt. That report sent Capital One stock down 3.9% and Discover 6.9%, respectively on Monday.
"Our deal with Discover Financial complies with the Bank Merger Act's legal requirements and we remain well-positioned to gain approval," a Capital One spokesperson told Barron's. The Justice Department declined to comment. Discover didn't immediately respond to a request for comment.
According to Citi analysts, if Discovery and Capital One merged, Discover's share of the total balance of subprime credit-card debt among the seven largest U.S. card companies would rise to about 43% from 31%.
"Our view remains that if Justice Department finds issue with this subprime concentration, COF will work with regulators to find a compromise which could include selling part of the Discover card portfolio but retaining the network, which is the crown jewel of the deal," the analysts said. Citi rates Capital One at Buy with a price target of $245.
Capital One shares gained 1.1% to $167.10 on Tuesday.
"The issue remains that the administration has the leverage here, which makes sizing the risk challenging...but our working assumption remains the deal closes," they said.
Write to Emily Dattilo at emily.dattilo@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 18, 2025 11:56 ET (15:56 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.