Capital One agrees to buy Discover Financial for $35bn

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US lender Capital One has agreed to buy rival Discover Financial for $35.3bn, in an all-stock tie-up that is set to unite two of America’s largest credit card companies.

Capital One’s acquisition of Discover values its smaller rival’s stock 27 per cent above Friday’s closing price. Under the terms of the deal, Discover shareholders would receive 1.0192 Capital One shares for each of theirs.

“Through this combination, we’re creating a company that is exceptionally well-positioned to create significant value for consumers, small businesses, merchants and shareholders as technology continues to transform the payments and banking marketplace,” said Richard Fairbank, founder and chief executive of Capital One.

The merger between Virginia-based Capital One and Illinois-based Discover would shake up the US credit card landscape and mark one of the industry’s biggest deals since the 2008 financial crisis. 

Capital One and Discover, are two of the biggest credit card lenders, behind JPMorgan Chase and Citigroup. Discover also offers a payment network, making it a competitor with the likes of Visa and Mastercard.

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

Consolidation in the highly fragmented US banking sector has long been expected but several large players have struggled to successfully integrate and capture the synergies hoped for when two rivals combine.

Capital One and Discover said on Monday that the transaction is expected to generate expense synergies of $1.5bn in 2027 and deliver a return on invested capital of 16 per cent in 2027.

The potential deal comes at a time when US regulators are planning to reform bank merger rules in an effort to boost transparency and increase scrutiny of deals.

A Capital One acquisition of Discover is…