Capital One is close to a deal to buy Discover Financial

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US bank Capital One is close to concluding a deal to buy rival Discover Financial, according to a person familiar with the matter, in an alliance that would unite two of America's largest credit card companies.

A deal between Capital One and Discover, which has a market value of about $28 billion, could be announced as early as Tuesday, the source said, warning that the talks could fall apart.

A merger between Virginia-based Capital One and Illinois-based Discover would shake up the U.S. credit card landscape and represent one of the largest deals in the industry since the 2008 financial crisis.

Capital One, the nation's ninth-largest bank with a market capitalization of $52 billion, and Discover, are two of the largest credit card lenders, behind JPMorgan Chase and Citigroup. Discover also offers a payment network, making it a competitor to the likes of Visa and Mastercard.

Capital One and Discover did not immediately respond to requests for comment. Bloomberg first reported news of the talks earlier on Monday.

The last major merger between two banks occurred about five years ago, when regional lender BB&T bought SunTrust for about $28 billion in a $66 billion deal, forming Truist.

Consolidation in the highly fragmented U.S. banking sector has been long expected, but many large players have struggled to successfully integrate and obtain the synergies hoped for when two competitors come together.

The potential deal comes at a time when US regulators plan to reform bank merger rules in an attempt to enhance transparency and increase scrutiny of deals.

Capital One's acquisition of Discover is likely to be carefully scrutinized by U.S. antitrust regulators given the large size of both companies' credit card businesses.

After a weak year for dealmaking in 2023, due in part to stringent antitrust enforcement and rising interest rates, recent months have seen a resurgence in blockbuster deals as CEOs become more confident in their ability to close transactions.

Over the past few months, ExxonMobil agreed to acquire shale oil conglomerate Pioneer for $60 billion, Chevron reached a deal to buy Hess for $53 billion, and chip design tool maker Synopsys announced the acquisition of engineering software maker Ansys. For 35 billion dollars.

Capital One, famous in America for asking “What's in your portfolio?” The advertising slogan, delivered by celebrities such as Samuel L. Jackson and Jennifer Garner, is the twelfth largest U.S. bank by assets.

It was one of several banks that came under pressure after the Silicon Valley bank collapsed in March last year.

Capital One shares have rebounded since then, helped in part by Warren Buffett's Berkshire Hathaway taking a stake worth about $1 billion.

Discover announced in December that it had appointed former TD Bank executive Michael Rhodes as its CEO, months after the surprise departure of former company president Roger Hochschild.

Credit card lenders have seen very low delinquency rates in the wake of government stimulus programs during the Covid-19 pandemic, but have warned that consumers are gradually spending more of their excess savings.