New York examines legality of Capital One-Discover merger

New York Attorney General Letitia James is investigating whether Capital One’s proposed $35.3 billion purchase of Discover Financial Services violates the state’s antitrust law.

James asked a Manhattan state judge in court papers Wednesday to subpoena Capital One to obtain documents needed for his investigation, citing the bank’s alleged lack of cooperation.

James said a merger could have a big impact in New York because Capital One and Discover have more than $9.5 billion and $6.5 billion in credit card loans there, respectively.

He also said that the impact of a union “will be especially felt by New Yorkers who are often vulnerable with subprime credit scores. “

Capital One, based in McLean, Virginia, is one of the largest banks in the US, with $480 billion in assets as of June 30. It is scheduled to report its third-quarter results on Thursday.

Riverwoods, Illinois-based Discover reported last week a third quarter profit of $965 million.

Capital One said in a statement that it would respond to James through appropriate legal channels, and that it was “well positioned” to obtain approval of the merger from federal banking regulators.

“We have made a strong case for the anti-competitive and pro-consumer benefits of this transaction,” he said.

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, with more than $250 billion in outstanding loans, surpassing JPMorgan Chase, and reaching to over 305 million subscribers.

James said the merger would extend Capital One’s lead as the largest US issuer of subprime cards, giving the combined company more than 30% market share.

The merger would also help Capital One, which distributes Visa and Mastercard brand cards, to expand its payments operations.

The merger also requires approval from shareholders, the Federal Reserve and the Office of the Comptroller of the Currency. Capital One and Discover have said they hope to close the deal in early 2025.

James said his office asked Capital One and Discover in May to waive confidentiality so he could review the documents they submitted to the Justice Department’s trust division.

Discover agreed to a full exemption, but Capital One did not, saying it would give New York illegal “visiting power” over national banks, which led to a subpoena, James said.

Consumers have also sued Capital One and Discover, alleging that the merger would reduce competition and raise consumer costs.