Capital One, Discover Soar on Trump Win Easing Merger Approval

(Bloomberg) - Donald Trump's return to the White House is poised to mollify lingering doubts that Capital One Financial Corp. will be allowed to take over Discover Financial Services, one of the biggest mergers announced this year.

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A Republican president would bode well for the $35 billion deal that would create the biggest credit-card issuer in the US by loan volume. The tie-up is pending approval from the Federal Reserve and the Office of the Comptroller of the Currency. The US Justice Department could then sue to block it. The deal is scheduled to be completed early next year, Capital One has said.

"Former President Donald Trump's reelection likely removes the final significant hurdle for Capital One to acquire Discover — a sign-off from the Department of Justice," Bloomberg Intelligence analyst Jennifer Rie said in a research note Wednesday. "A Trump DOJ is much less likely to take issue with the combination, while most potential obstacles on the regulatory side have already been cleared."

Capital One and Discover shares jumped as much as 19% and 24%, respectively, Wednesday morning, with both surging by the most in more than four years to reach record highs. That narrowed the gap between the value of Capital One's stock offer and Discover's current trading level to roughly $14 from $18 earlier this week — a sign that the market is increasingly positive about the odds of the deal going through.

Representatives for McLean, Virginia-based Capital One and Discover, based in Riverwoods, Illinois, didn't immediately respond to requests for comment.

Republicans have historically been kinder than Democrats to deals of all kinds, including those that involve banks, and Trump would have authority to appoint a number of banking regulators. Isaac Boltansky, director of policy research at trading and investment firm BTIG LLC, said one of the "more meaningful" implications of a Trump return to the White House "could be the fostering of a far more supportive environment for consolidation."

"There are caveats as turnover for some key policy positions could take time, but any shift from current leadership would likely lead to more M&A activity," he said in a note to clients Wednesday. "We view this as positive for deals currently under review," including Capital One's planned takeover of Discover.

More broadly, larger bank mergers and acquisitions would at a minimum become more of a possibility, according to Piper Sandler Cos. analysts Scott Siefers and Frank Williams.

"The group's regulatory story could certainly change meaningfully under greater Republican control," they said in a research note Wednesday. "Within the large regional space, we can at least put M&A back into the discussion," something that "has been largely nonexistent over the past few years on a punitive regulatory backdrop."

-With assistance from Eleanor Harmsworth.

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