Capital One, Discover Financial In Spotlight After Report Hints At Removal Of DOJ Hurdle To $35B Deal, Retail’s Bullish
Synopsis
The recent report, published on March 28, said the Justice Department is refocusing on how the deal might affect borrowers without credit histories.
Capital One Financial (COF) and Discover Financial (DFS) stocks saw a jump in retail chatter on Monday after a report by the publication Capitol Forum said that the Department of Justice is divided over the strength of a potential antitrust case against the two companies' $35 billion merger.
Earlier this month, the shares of the credit card firms fell after the Capital Forum reported that Justice Department staff believe the deal would be anti-competitive in the subprime sector.
The recent report, published on March 28, also said that the DOJ is currently refocusing on how the deal might affect borrowers without credit histories.
Capital One and Discover shareholders voted in favor of the deal in February. However, the merger has yet to receive approval from the Federal Reserve and the Office of the Comptroller of the Currency.
In October, New York Attorney General Letitia James had urged a state court to issue subpoenas to Capital One related to an antitrust case on the merger. The two companies have a combined $16 billion in credit card loans in New York.
Capital One shares rose 3.3%, while Discover shares rose 7.5% on Monday.
According to The Fly, Barclays analysts said last week that reports about the DOJ's competitive concerns in the subprime card market shouldn't derail deal.
The brokerage also noted that there could be a path to regulatory approval through divestiture, which would, according to its estimates, result in only a modest reduction in earnings estimates.
Retail sentiment about Capital One on Stocktwits jumped to ‘bullish’ (56/100) territory from ‘bearish’(40/100) a day ago, while retail chatter rose to ‘normal.’
While retail sentiment about Discover stayed in the ‘bullish’ (59/100) territory and retail chatter rose to ‘high.’
One retail trader cited the chatter around the deal as the reason behind the stocks’ upward movement and said that Capital One stock could rise to $190 rapidly.
Capital One shares have fallen marginally year-to-date, while Discover is down 2.4%.
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