Capital One stock surges after Discover Financial deal approved

Investing.com -- Capital One shares are up premarket Monday after U.S. regulators approved the bank’s $35 billion acquisition of Discover Financial.

The stock is trading 3.8% higher following the decision from the Federal Reserve and the Office of the Comptroller of the Currency. 

The deal, now cleared to close on May 18, will give Capital One (NYSE:COF) control of Discover’s payment network and provide long-term strategic benefits, according to analysts.

“We view the deal as a positive for COF bringing long-term strategic benefits while also being attractive from a financial standpoint,” Bank of America wrote in a note to clients, maintaining a Buy rating on the stock.

Wells Fargo added that the approval “should support multiple expansion and 15%+ EPS accretion in ’27,” with the merger giving Capital One “a global payment network” and the potential to “expand into areas ’beyond banking.’”

The move also sets the stage for broader bank consolidation. “Investors believe approval of the COF/DFS deal will kick off further bank M&A,” Wells Fargo wrote. 

The firm added that the deal reflects “a down payment on the improved regulatory environment from the new administration.”

Discover, meanwhile, will pay $1.2 billion in restitution to affected merchants and $250 million in fines tied to years-long card misclassification practices. 

However, Bank of America noted that Discover “has already reserved for these fines / restitution so the earnings impact should be limited.”

 

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