Investigation of Capital One's Proposed Merger with Discover Financial Services

By Jonathan Stempel
NEW YORK (Reuters) – New York Attorney General Letitia James is investigating whether Capital One's proposed $35.3 billion takeover of Discover Financial Services (NYSE:DFS) violates the state's antitrust law.

James asked a state judge in Manhattan in court filings on Wednesday to subpoena Capital One for documents needed for her probe, citing the bank's alleged lack of cooperation.

James stated that a merger could significantly impact New York as Capital One and Discover have over $9.5 billion and $6.5 billion in credit card loans, respectively.

She noted that the merger's effects would be particularly harsh on vulnerable New Yorkers with subprime credit scores.

Capital One, based in McLean, Virginia, is one of the largest U.S. banks, boasting $480 billion in assets as of June 30, and expects to report third-quarter results on Thursday. Discover, located in Riverwoods, Illinois, reported a $965 million third-quarter profit last week.

In a statement, Capital One indicated it would respond to James through appropriate legal channels and claimed it was "well-positioned" to win merger approval from federal banking regulators.

"We have made a strong case on the pro-competitive and pro-consumer benefits of this transaction," the statement read.

Discover did not immediately respond to requests for comment.

The all-stock merger, announced in February, would create the largest U.S. credit card issuer, exceeding $250 billion in outstanding loans and surpassing JPMorgan Chase (NYSE:JPM), with access to over 305 million cardholders.

James remarked that the merger would extend Capital One's lead as the largest U.S. subprime card issuer, giving the combined company a market share of more than 30%. This merger would also allow Capital One to expand its payment operations, given its issuance of Visa and Mastercard-branded cards.

The merger requires approval from shareholders, the Department of Justice, and the Federal Trade Commission. Both companies hope to finalize the deal by early 2025.

James noted that her office requested Capital One and Discover waive confidentiality in May for reviewing documents submitted to the Justice Department's antitrust division. Discover agreed, but Capital One did not, asserting that it would unlawfully grant New York "visitorial power" over national banks, resulting in the subpoena, according to James.

Customers have also filed lawsuits against Capital One and Discover, arguing that the merger would reduce competition and increase consumer costs.