NY AG Letitia James vs Capital One: Subpoena Rocks $35B Deal

New York Attorney General Letitia James is investigating the proposed $35.3 billion merger between Capital One and Discover Financial Services to determine if it violates state antitrust laws. This scrutiny arises from concerns about the potential impact on competition, particularly in the subprime credit market, where the merged entity would hold a significant market share.

The investigation involves a request for subpoenas to obtain documents from Capital One, as the bank has not voluntarily waived confidentiality protections that would allow New York to review documents submitted to the U.S. Department of Justice's antitrust division. Discover has agreed to a full waiver, but Capital One has resisted, citing concerns about granting New York "visitorial power" over national banks.

The merger would create the largest U.S. credit card issuer, surpassing JPMorgan Chase, with more than $250 billion in outstanding loans and access to over 305 million cardholders. The combined company would dominate the subprime credit card market with a 30% market share, raising concerns about reduced competition and increased consumer costs.

The deal also requires approval from shareholders and federal regulators, including the Department of Justice and the Federal Trade Commission. Capital One has expressed confidence in obtaining regulatory approval, emphasizing the merger's pro-competitive and consumer benefits.

Our Opinion

The most obvious potential downside is that this merger could lead to reduced competition in the credit card market. If the number of major players is reduced, it could potentially lead to higher rates for consumers, fewer choices, and less innovation in the long term. This is a core concern of antitrust regulators when evaluating mergers and acquisitions.

This uncertainty in the big league gives smaller lenders an excellent opportunity to snag a larger slice of the market share. They need to refine their underwriting processes to be more responsive and efficient. Also, it’s crucial to ramp up marketing efforts in strategic locations such as NY/NJ/CT. There's a good chance that customers might be on the lookout for new options, alternative lenders need to be visible and ready to welcome them.

1-Minute Video: FBI-level Due Diligence Process

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