FILE - The logo for Capital One Financial is displayed above a trading post on the floor of the New York Stock Exchange, July 30, 2019. (AP Photo/Richard Drew, File)
Capital One Financial has announced its acquisition of Discover Financial Services for $35 billion, marking a significant consolidation within the nation's banking and credit card sectors.
As per a joint news release issued by the companies on Monday, shareholders of Discover Financial will receive Capital One shares valued at nearly $140. Discover's shares closed Friday trading at $110.49.
Capital One, headquartered in Virginia, stands as the 12th largest U.S. bank based on third-quarter data from S&P Global, boasting $471.4 billion in total assets and $346 billion in deposits. Meanwhile, Discover, based in Illinois, ranks as the 33rd biggest, with $143.4 billion in assets and $104 billion in deposits.
Both firms have experienced growth in tandem with the increased use of credit cards among Americans. In the fourth quarter of 2023, U.S. consumers held $1.13 trillion in credit card balances, with aggregate household debt balances rising by $212 billion, an uptick of 1.2%, according to recent data from the New York Federal Reserve.
However, the surge in credit card usage has also prompted the two lenders to bolster their reserves against potential borrower defaults. Many lower- and middle-income individuals, grappling with inflation over the past couple of years, have depleted their savings and are increasingly relying on credit cards and personal loans.
The need for additional reserves has impacted the profitability of both banks. In the past year, Capital One witnessed a 35% decline in net income available to common shareholders compared to 2022, with provisions for loan losses soaring by 78% to $10.4 billion. Discover faced a similar scenario, with its full-year profit plunging by 33.6% versus 2022, as provisions for credit losses more than doubled to $6.02 billion.
Discover's customers are now carrying $102 billion in balances on their credit cards, marking a 13% increase from the previous year. Meanwhile, charge-off rates and 30-day delinquency rates have shown an upward trend.
