In response to the financial deterioration caused by soaring bad debts, American credit card giant Capital plans to acquire credit card lending company Discover.
Recently, media revealed that two American credit card giants, Capital One and Discover Financial, are about to merge. Capital One is willing to acquire Discover with a market value of approximately $28 billion by offering a stock premium, without involving cash payments, aiming to gain control and quickly achieving integration between the two companies. This transaction may become the largest M&A transaction in the industry since the 2008 financial crisis and is considered a signal of a rebound in the US M&A market in 2024. However, there is still uncertainty about the negotiation progress, and approval from regulatory institutions is further required.
Last March, with the collapse of Silicon Valley Bank, Capital One and several other banks faced considerable pressure. According to public data, the bad debt rate of the two companies has risen significantly in the past two years, reaching the highest level since the COVID-19 epidemic. This trend has intensified the market's concern about the deterioration of the financial situation of American consumers. Goldman Sachs research shows that Discover's net income bad debt ratio (NCO) has surged from 2.81% to 5.23%, and overdue loans and high net income bad debt ratios may lead to a deterioration of the balance sheet. In this context, merging has become a preferred solution. By integrating resources, optimizing operations, and reducing costs, the two companies can improve their financial situation and market position.
In 2023, under the sluggish macro context, coupled with high interest rates, global M&A transactions has cooled down. In 2024, however, with the increasing confidence of CEOs in completing transactions, large-scale M&A transactions have rebounded. This potential merger may be a model of a "strong alliance" in the credit card market, which could bring financial stability to the two companies, enhance their competitiveness, and further change the landscape of the US credit card industry.