If investors were worried that Capital One’s proposed $35 billion bid to buy Discover Financial Services would face roadblocks, the market is sending a strong signal that those concerns have all but faded.
Shares of Capital One and Discover each soared to record highs on Wednesday after former President Donald Trump beat Vice President Kamala Harris to win the presidential election. Capital One and Discover jumped 15% and 18%, respectively, as the S&P 500 rose 2%.
The expectation that the regulatory backdrop will be much less stringent than it has been under President Joe Biden is encouraging investors who want to see the transaction go through. The Biden-Harris administration has criticized the proposed deal, which was announced in February, over antitrust concerns. The merger would create the country’s largest credit- card issuer by outstanding loans and the sixth-largest bank by assets.
Leadership across regulators is expected to change, leading to friendlier relations with Wall Street and rolling back years of a tougher approach toward banks and other financial institutions. Mergers are expected to pick up as regulators review deals more quickly.
Discover and Capital One say the combination is meant to make a more formidable competitor to dominant payments companies like Visa and American Express. Capital One is the ninth-largest U.S. bank, while Discover, best known for its cards business, is the 27th largest, according to Federal Reserve data.
“We’re working closely with the regulators as our applications continue to work their way through the regulatory approval process,” Richard Fairbank, the chief executive of Capital One, said on an Oct. 24 call to discuss the bank’s third-quarter earnings with analysts.
Analysts have noted that although fewer deals are being made as a result of expectations that proposals will face pushback—a dynamic compounded by high interest rates that are just starting to fall—no bank mergers have been rejected under the Biden administration.
Investors are betting not only that mergers will continue to win approval under Trump, but that bank and antitrust regulations will be so weak that it will spur more consolidation and create opportunities to boost profits.
Write to Rebecca Ungarino at rebecca.ungarino@barrons.com
