Election Throws Potential Wrench Into Capital One-Discover Deal

Capital One Financial Corp.‘s proposed $35 billion acquisition of Discover Financial Services will require a new administration to quickly show its cards on bank merger policy if the approval drags into next year.

The deal, announced in February, awaits approval from the Federal Reserve and the Office of the Comptroller of the Currency, and faces the threat of antitrust action from the Justice Department.

Industry observers expect the agencies to approve the deal with further concessions from the two banks, despite the Biden administration’s tougher antitrust stance than previous administrations. But the looming presidential election adds uncertainty should the review process stretch into 2025.

“Competition policy is now inherently political,” said Isaac Boltansky, a policy analyst at investment bank BTIG LLC, in a July 22 client note on the Capital One-Discover deal. “And this deal is likely subject to the political winds.”

A win by the Republican candidate, former President Donald Trump, is likely to make the approval process smoother, but the addition of Ohio Sen. JD Vance as Trump’s running mate may signal less willingness to rubberstamp big deals.

Vice President Kamala Harris, the presumptive Democratic nominee, is a largely blank slate compared with President Joe Biden when it comes to both financial regulation and antitrust policy.

Biden’s regulators have signaled the “era of permissive bank merger review may be coming to a close,” said Jamie Grischkan, an Arizona State University law professor focused on financial regulation and antimonopoly law. “But it’s too early to tell. Discover-Capital One will be a test case.”

Personnel Is Policy

A Trump win in November’s election has the potential to change that tougher stance on mergers, but Vance represents a wild card, said Jeremy Kress, a professor at the University of Michigan’s Ross School of Business who advised Biden’s Justice Department on its bank merger policy.

Vance has publicly praised Federal Trade Commission Chair Lina Khan’s aggressive policing of markets and mergers.

“Would Trump appoint Wall Street veterans and other people sympathetic to the banking sector, as he did in his first term?” Kress, a former Fed attorney, said. “Or would he appoint more populist types, as his selection of running mate JD Vance suggests?”

As with any administration, personnel will end up defining much of policy.

And the potential for Trump to appoint someone such as Sen. Josh Hawley (R-Mo.), an economic populist who came out against the Capital One-Discover deal, to lead the Justice Department may throw a wrench into conventional wisdom about how a Republican administration would handle mergers, Kress said.

One complicating personnel factor for Trump is that all members of the Fed’s board of governors, including Biden appointees, have terms that end in 2026 at the earliest. Trump has said he doesn’t plan to fire Fed Chair Jerome Powell, whom he appointed and Biden retained, and a move to take out other board members could spook markets, said Peter Dugas, executive director at Capco, a financial services consulting firm.

“President Trump in his recent comments has focused really on keeping the Federal Reserve as is,” Dugas said.

Bank mergers during the Trump administration moved faster than they did under the Obama administration, though any regulators Trump might appoint in a second term could be wary of creating a new banking giant.

“Although far from guaranteed, a second Trump administration may be skeptical of mergers between significant financial institutions such as Capital One and Discover,” said Kathryn Judge, a professor at Columbia Law School who researches banking regulation.

Biden Push

The Capital One-Discover deal came after Biden in 2021 directed regulators to increase their scrutiny of corporate tie-ups as part of a broader focus on antitrust policy. While updated US bank merger guidance—last issued in 1995—has yet to emerge, lawyers say there’s a perception that bank acquisitions are more difficult to get across the finish line.

In 2023, a year that included a series of high-profile bank failures, bank deals in North America fell by 42%, according to S&P Global. Contributing factors included higher interest rates and regulatory pressure.

“There’s a general sense that it’s going to be a long slog to get something approved,” said Gregory J. Lyons, a leader of Debevoise & Plimpton’s financial institutions group.

DOJ antitrust chief Jonathan Kanter reinforced that view in a 2023 speech where he said the department would revamp its review of bank mergers. The DOJ’s merger analysis will broaden beyond local deposits and overlaps among branches to include examining fees, interest rates, interoperability, and customer service, he said.

The comments represented a “big pivot” from how the DOJ historically analyzed bank mergers, said Kathy O’Neill, a Cooley LLP partner who served as the DOJ’s senior director of antitrust investigations and litigation until 2022.

The DOJ provides “competitive factors” reports evaluating bank mergers for antitrust harms and retains the ability to bring a lawsuit.

Bank reform advocates have cheered the renewed emphasis on competition.

“For far too long, antitrust enforcement has failed to stop mass consolidation and banking is no exception,” said Patrick Woodall, a policy director at the nonprofit Americans for Financial Reform.

Capital One has argued that its takeover of Discover will give rise to greater competition while benefiting consumers in the credit card market. The deal would create the sixth-largest bank and the largest credit card issuer in the US.

Trump Priorities

Critics accused the Trump administration of using antitrust policy as a tool to go after perceived opponents, such as when it investigated several car manufacturers for complying with California’s enhanced fuel efficiency standards.

If he’s back in the White House, there’s a chance that Trump’s personal priorities may play a role in bank merger reviews, said Jesse Van Tol, the president and CEO of the National Community Reinvestment Coalition.

“You could see corporate policy be really shaped not just by being vindictive, but by a real sense of picking winners and losers,” Van Tol, a fierce critic of the Capital One-Discover deal, said.

Trump has already reportedly floated a rollback of environmental regulations in return for big campaign contributions from the oil and gas industry. That raises concerns among antitrust activists.

“Having the inclination to make deals with giants rather than try to minimize their power of the economy is not a great stance,” said Morgan Harper, the director of policy and advocacy at the American Economic Liberties Project and an opponent of the Capital One-Discover tie-up.

Trump is generally viewed as a figure who would be more favorable to Wall Street, at a time when many banks are looking to grow. “There is a lot of pent-up demand” for bank deals, Lyons said.

For now, the landscape is defined by uncertainty. A change in personnel, even under a Harris administration, may lead to different priorities, said Kress, an opponent of the deal.

“If there is turnover,” he said, “then you could see some agencies take different approaches.”