A vocal coalition is calling on the Federal Reserve to abandon its massive credit card merger.
The scale of the opposition surrounding Capital One’s high-profile acquisition of Discover underscores a broader trend in mergers and acquisitions, in which huge prices typically trigger enormous—and time-consuming—regulatory pressure.
As pre-closing periods stretch from months to years, corporations are preparing for the long haul, said Bankrate senior analyst Ted Rossman.
“The general atmosphere is anti-merger,” Rossman says. For Capital One, the ninth-largest bank in the U.S., the chances of it completing its acquisition of the more than $35 billion Discover credit card brand are slim, he adds.
“I’d take ‘less’ based on some of these others [M&A] developments,” he says, citing a growing list of other deal plans that have either been put on hold or scrapped outright.
In the transportation sector, JetBlue Airways confirmed March 4 that its $3.8 billion deal with Spirit Airlines had ended after 17 months of wrangling between carriers and lawmakers. A federal judge blocked the deal, and the New York operator had to pay Spirit $69 million in termination fees.
In the retail industry, the US Federal Trade Commission (FTC) recently attempted to block Kroger’s $25 billion acquisition of Albertsons, citing concerns that it would limit competition in the supermarket industry and negatively impact customers.
And the Federal Trade Commission is currently assessing the antitrust implications of the $53 billion Chevron-Hess merger involving key assets in Guyana. The situation is further complicated by right of refusal claims brought by rival Exxon Mobil.
This trend is not unique to the United States. At least $361 billion of announced deals were challenged by regulators around the world in 2022 and 2023, according to mergers and acquisitions consultancy Bain & Co.
Of these deals, about $255 billion were ultimately completed, but almost all of them required some adjustment to the original purchasing plan. For example, Microsoft, to seal its $69 billion acquisition of Activision Blizzard, satisfied the European Commission and the UK Competition and Markets Authority (CMA) by granting cloud video game streaming rights to Paris-based Ubisoft.
Other well-known companies have not been as successful as Microsoft. On January 29, Amazon said it would not move forward with plans to buy vacuum cleaner maker iRobot for $1.7 billion. The European Commission, the EU’s executive body, ruled that the proposed deal could result in the Seattle-based e-commerce giant harming iRobot’s rivals by preventing them from competing on Amazon.com. A couple of months ago, the EU also blocked the acquisition of the Swedish Etraveli Group by Booking Holdings Inc. for 1.6 billion euros ($1.7 billion), after it emerged the deal would hurt other online travel agencies.
“Increased scrutiny and lengthened review times have caused several companies to abandon their deals,” a Bain & Co. vice president wrote in a January report. Suzanne Kumar. “However, the simple reality is that buyers still need to close deals to achieve strategic objectives, and the majority of contested deals do close.”
Whether Capital One and Discover will be able to “close down” remains to be seen. So far it doesn’t look very good.
In the letter dated March 6, which I saw Global finance Magazine, a chorus of about two dozen advocacy groups called on Fed Chairman Jerome Powell and other regulators to intervene and block the Discover acquisition. Combining the two largest credit card companies would harm competition and concentrate risks in an already fragile financial system that – just last year – was rocked by the FDIC’s surprise takeover of both Silicon Valley Bank and Signature Bank, they argue.
Signatories, including the American Economic Liberties Project, also warned that the purchase would likely result in higher post-acquisition fees for Capital One, harming both consumers and businesses across the country.
Capital One CEO Richard Fairbank expects the acquisition to help the bank “build a payments network that can compete with the largest payment networks and payment companies.”
JPMorgan Chase controls approximately 17% of credit card balances; Capital One, if it bought Discover, would beat that number, but by only 2%.
Other competitors in this space include Mastercard, Visa and American Express.
Powell addressed the issue briefly Wednesday at a House Financial Services Committee hearing.
“I think for the potential merger… we haven’t received an application,” he said. Powell was referring to protocols that require any company wanting to become a bank or acquire a bank to apply for Fed approval under the Bank Holding Company Act of 1956.
“So there’s not much to say for now,” he added. “These are the first days. However, when we receive this announcement, we are, as always, going to evaluate this merger based on the factors required by law, and that is our commitment.”
Applications that require review or action by the Federal Reserve Board may add at least 60 days to the transaction process.
Additionally, the nature of the Capital One deal is particularly complex given that the Biden administration has made a major effort to clamp down on all banking and credit card matters outside of mergers and acquisitions.
Most recently, on March 5, the Biden administration finalized a rule eliminating unwanted credit card fees and capping most late fees at $8, down from an average of $32. The Consumer Financial Protection Bureau said the new rules would save families more than $10 billion a year.
“This issue will be scrutinized by regulators,” says Bankrate’s Rossman. “The credit card industry is under a microscope, especially during an election year. I’m not sure it will continue, but it will be interesting to watch.”