Latest news with #DiscoverFinancial
Yahoo
6 days ago
- Business
- Yahoo
COF Stock Tanks 5.9% Post Discover Merger: A Good Buying Opportunity?
Shares of Capital One Financial Corporation COF have lost 5.9% since the completion of the acquisition of Discover Financial Services on May 18. The $35-billion deal reshapes the landscape of the credit card industry, creating a behemoth (in terms of loan volume).Under the terms of the agreement, Discover Financial shareholders received 1.0192 Capital One shares for each Discover Financial share. Now, the company is well-positioned to capture a bigger share of spending on cards and compete with well-known card issuers. Also, it now has control of Discover's payments network—one of only four in the United States. This will enable it to generate greater revenues from interchange fees and offer independence from the Visa-Mastercard the time of the announcement (February 2024), it was noted that the Capital One-Discover merger will likely deliver attractive accretion and returns for shareholders. Expense synergies of $1.5 billion in 2027, coupled with network synergies of $1.2 billion, underscore the value-creation potential of the merger. The transaction will result in a more than 15% accretion to adjusted non-GAAP EPS by the years, COF has pursued a strategic acquisition strategy to diversify its offerings and expand its market presence. Some of the notable ones are ING Direct USA, HSBC's U.S. Credit Card Portfolio and TripleTree. These acquisitions have been instrumental in transforming the company from a monoline credit card issuer into a diversified financial services firm with a significant presence in retail banking, commercial lending and digital banking is this a good time to capitalize on the dip and add Capital One stock to your portfolio? Let's find out. Relatively Higher Rates: The Federal Reserve has kept interest rates unchanged because of tariff policy concerns. This will likely support COF's net interest income ('NII') and net interest margin ('NIM'). Capital One's NII recorded a compound annual growth rate (CAGR) of 6% over the five years ended 2024. Also, NIM expanded to 6.88% in 2024 from 6.63% in 2023. The momentum continued for NII and NIM in the first quarter of 2025. Though the company's revenues declined marginally in 2020, the metric witnessed a five-year (2019-2024) CAGR of 6.5%. In the same time frame, net loans held for investment recorded a CAGR of 4.3%. The uptrend continued for revenues and loans during the first three months of 2025. Quarterly Revenue Trend Image Source: Zacks Investment Research Rising demand for credit card loans and online banking businesses will aid both NII and NIM. Additionally, Capital One plans to continue to offer Discover credit card products as Discover-branded cards as well as the other consumer cards currently offered by Capital One. This will solidify its presence in an intensely competitive environment. COF has been demonstrating an improvement in the Domestic Credit Card division, which accounted for 95.6% of Credit Card net revenues in the first quarter of Capital One's "Digital First" banking model, characterized by its iconic customer experience and fee-free offerings, will be bolstered by Discover Financial's national direct savings bank. This synergy will increase the combined company's ability to compete with the nation's largest banks while accelerating national banking growth. Sales Estimates Image Source: Zacks Investment Research Solid Balance Sheet: As of March 31, 2025, Capital One had a total debt (securitized debt obligations plus other debt) of $41.8 billion. The total cash and cash equivalents balance was $48.6 the company maintains investment-grade long-term senior debt ratings of Baa1, BBB, and A- from Moody's Investor Service, the Standard and Poor's and Fitch Ratings, respectively. This renders the company favorable access to the debt market. Thus, given its decent earnings strength and a solid liquidity position, COF will likely be able to address debt obligations in the near term, even if the economic situation as of March 31, 2025, Capital One's common equity tier 1 ratio and the total capital ratio of 13.6% and 17%, respectively, were well above the regulatory requirements. Further, the company has an average liquidity coverage ratio of 152%. Average Liquidity Coverage Ratio Image Source: Capital One Financial Corp. Capital One's focus on maintaining strong capital and balance sheet positions supports its capital distribution July 2021, the company hiked its dividend by 50% to 60 cents per share and has maintained the same level since then. The bank hiked dividends thrice during the last five years, with a dividend payout ratio of 16%. Dividend Yield Image Source: Zacks Investment Research Similarly, its close peer Ally Financial ALLY and OneMain Holdings, Inc. OMF increased their dividends twice and seven times over the past five years, One has a share repurchase plan. As of March 31, 2025, roughly $3.88 billion worth of shares remained available for repurchase under the authorization. Over the past week, the Zacks Consensus Estimate for 2025 earnings of $14.77 has moved down 3.1%, while the same for 2026 earnings has moved 1.4% upward to $18.49 per share. Estimate Revision Trend Image Source: Zacks Investment Research The projected figures imply a rise of 5.8% and 25.2% for 2025 and 2026, respectively. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.) COF stock has risen 35.5%, outperforming its close peers — Ally Financial and OneMain — over the past year. Further, it has outperformed the industry, Zacks Finance Sector and the S&P 500 index over the same time frame. Capital One's One-Year Price Performance Image Source: Zacks Investment Research Capital One is well-positioned to capitalize on the Discover Financial acquisition and expand its presence in the growing credit card market. Its revenue diversification efforts, relatively higher interest rates, and a solid balance sheet will continue to support its financials. Moreover, analysts remain optimistic regarding COF's long-term prospects despite near-term steadily rising expenses are a headwind. The company recorded a five-year CAGR of 6.8% (ended 2024) in non-interest expenses, mainly due to higher marketing costs and inflationary pressures. The uptrend persisted during the first quarter of 2025. Expenses are expected to remain elevated in the near term due to ongoing technological investments, integration of Discover Financial and high inflation. Deteriorating asset quality is another concern. Capital One's provisions and net charge-offs (NCOs) recorded a CAGR of 13.4% and 11.4% over the five years ended 2024. Though the trend reversed for provisions during the first three months of 2025, NCOs continued to rise. Amid a challenging macroeconomic backdrop and the Discover Financial merger, provision and NCOs are likely to remain terms of valuation, COF's price-to-book ratio (P/B) of 1.11X is higher than the industry's 0.71X. Thus, the stock is trading at a premium. This suggests that investors may be paying a higher price relative to the company's expected earnings growth. P/B Ratio Image Source: Zacks Investment Research Meanwhile, its peers Ally Financial and OneMain have a P/B ratio of 0.87X and 1.82X, respectively. This indicates Ally Financial is trading at a discount while OneMain is overvalued relative to Capital Capital One might be allocating capital inefficiently. This is demonstrated by the company's return on equity (ROE) of 9.63% compared with the industry's ROE of 9.78%. ROE Image Source: Zacks Investment Research Thus, investors should watch out for these concerns and also monitor how Capital One integrates the Discover acquisition into its businesses before making any investment decision. Those who already own the stock can hold on to it for robust long-term COF carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Capital One Financial Corporation (COF) : Free Stock Analysis Report Ally Financial Inc. (ALLY) : Free Stock Analysis Report OneMain Holdings, Inc. (OMF) : Free Stock Analysis Report This article originally published on Zacks Investment Research ( Zacks Investment Research Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
23-05-2025
- Business
- Yahoo
Crypto Joins the S&P 500. Here's What the Critics Are Saying
Coinbase became the first-ever native crypto company to join the S&P 500. Critics and naysayers are concerned about the potential risk of crypto being added to the portfolios of everyday Americans. Coinbase represents a safer, more regulated way for investors to get exposure to crypto without buying cryptocurrencies directly. 10 stocks we like better than Coinbase Global › More good news continues to roll in for the crypto industry. Market bellwether Bitcoin (CRYPTO: BTC) is back above $100,000 and just set a new high of more than $111,000 as of this writing. And, on May 19, cryptocurrency exchange Coinbase Global (NASDAQ: COIN) formally joined the S&P 500. While crypto enthusiasts view the inclusion of Coinbase in the S&P 500 as cause for celebration, the critics and naysayers are already out in force. Here's what they are saying. Coinbase joining the S&P 500 represents a changing of the guard. As the first-ever native crypto company in the S&P 500, Coinbase will replace credit-card company Discover Financial Services, which is being acquired by Capital One Financial (NYSE: COF). So, the S&P 500 is essentially swapping out a "traditional finance" stock with a "blockchain finance" stock. So what's wrong with that? The problem, quite simply, is that any mutual fund or exchange-traded fund (ETF) that tracks the S&P 500 will now be forced to buy Coinbase. That means millions of Americans, whether they realize it or not, will also be buying Coinbase. As a result, they will (indirectly) be adding a tiny amount of crypto risk to their portfolios. If you think that crypto is a volatile and toxic asset, that's not good news. In fact, some industry watchdogs are now warning that the mainstream adoption of crypto is "a disaster courting a catastrophe." As they see it, any implosion of the crypto sector -- of which there have been more than a few -- will ultimately reverberate in the portfolios of everyday Americans. In a worst-case scenario, it might lead to something along the lines of what we saw in 2022, when the value of all crypto assets fell significantly, and Coinbase took a beating. Or, even worse, something along the lines of the global financial crisis of 2008. But any mention of the global financial crisis of 2008 is where things get interesting. That's because it was arguably the event that gave rise to the creation of Bitcoin. In the very first block ever mined for the Bitcoin blockchain, there is a direct reference to the shenanigans of bankers and government officials. The so-called Bitcoin "genesis block" quotes a U.K. newspaper headline from Jan. 3, 2009: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks." While nobody knows for sure what Satoshi Nakamoto (the pseudonymous founder of Bitcoin) had in mind with this cryptic message, it is generally interpreted as a warning against the perils of the traditional financial system. So, if anything, investors should be excited about Coinbase joining the S&P 500. They should be excited about Bitcoin surpassing $100,000. And they should be over-the-moon excited about the U.S. finally adopting pro-crypto policies and building a Strategic Bitcoin Reserve. From this perspective, blockchain finance is going to save the world of traditional finance, not wreck it. That's why Coinbase is potentially such an exciting investment play these days. It is at the forefront of crypto and blockchain innovation. In 2023, for example, it became the first publicly traded company with its own blockchain network. And it continues to develop innovative new digital assets for investors. At the same time, Coinbase is helping to build a stronger crypto industry through its support of better crypto regulation. I'm taking a positive view of the Coinbase news. Tech innovation is where value is being created these days. Coinbase -- as the first-ever pure play crypto stock added to the S&P 500 -- is arguably the single biggest innovator within the crypto industry right now. The same people who are worried about crypto joining the S&P 500 are probably also the same people who are worried about new artificial intelligence (AI) companies joining the S&P 500. With AI, too, there is potential risk. Just talk to any industry leader in AI -- they will admit there's theoretical existential risk of super-smart AI wiping out humanity. That's scarier than anything that could happen with crypto. There is a crypto revolution happening in America these days. Crypto is going mainstream, and a growing number of crypto companies are benefiting from this trend. If you're not quite ready to add crypto to your portfolio directly, it might be worth taking a look at stocks such as Coinbase, which provide exposure to the broader crypto market in a safer, more regulated way. Before you buy stock in Coinbase Global, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Coinbase Global wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $644,254!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $807,814!* Now, it's worth noting Stock Advisor's total average return is 962% — a market-crushing outperformance compared to 169% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of May 19, 2025 Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Coinbase Global. The Motley Fool has a disclosure policy. Crypto Joins the S&P 500. Here's What the Critics Are Saying was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
19-05-2025
- Business
- Yahoo
Capital One just bought Discover. Here's what it means for their customers.
On Sunday, Capital One acquired Discover Financial, becoming the sixth-largest US bank by assets. Online-focused Discover stands to gain a big physical footprint from the deal. A pair of top Democrats warned last month that the deal could spell trouble for customers. Capital One has acquired Discover Financial, becoming the sixth-largest bank in the US by asset size. In an earnings call last month, Capital One's CEO, Richard Fairbank, said the goal was to "preserve the best" of what Discover does, such as its advertising and focus on customer experiences. Capital One's $35.3 billion acquisition of Discover was first announced in February 2024. The deal was approved by regulators last month, despite pushback from top Democrats and consumer advocates who raised concerns about lower competition and risks to low-income customers and those with poor credit scores. Representatives of Capital One and Discover didn't respond to a request for comment. On Monday, both banks said that "customer accounts and banking relationships remain unchanged" at this time. Here's what customers of each of the two companies stand to gain and lose from the deal. A much bigger Capital One could mean more products, but some Democrats have warned of higher fees. Capital One previously said the merger would increase competition with the transaction giants Visa, Mastercard, and American Express and improve access for lower-income customers. In a white paper published in July, four economists and lawyers at the International Center for Law & Economics wrote that the merger might finally end the Visa and MasterCard "duopoly." They added that the merger would let Capital One switch its debit cards to Discover's payment networks, and it might offer "more attractive products to depositors." This could include free checking accounts with no minimum balance rules and debit cards with cash back for lower-income customers. Cost savings and other benefits from the acquisition could also make Capital One a stronger competitor to "behemoths such as JPMorgan Chase, Citibank, and Bank of America," the ICLE group wrote. The merger doesn't appear to mean any big immediate changes. Discover has said accounts aren't linked to the new corporate owner, so Capital One branches and customer service can't help with Discover products. Eventually, Discover customers may have greater access to the bank through Capital One's branches and ATMs. Right now, Discover has just one physical outpost in Delaware. Michael Shepherd, the interim CEO of Discover, said on an earnings call last month that the deal would "increase competition in payment networks" and "offer a wider range of products." In a letter written to the Federal Reserve System earlier this month, Rep. Maxine Waters of California and Sen. Elizabeth Warren of Massachusetts argued that the merger would hurt Capital One customers. Warren and Waters are top Democrats on the Senate Banking, Housing, and Urban Affairs Committee and the House Financial Services Committee, respectively. "These are not two traditional banks — they are credit card giants," they wrote. Waters and Warren said post-merger Capital One would have 40% of the general-purpose credit card issuance market share. This would give Capital One the power to increase fees for merchants and reduce rewards and other benefits for customers. "Merchants would have no choice but to accept the terms dictated by Capital One's network, since they need to access the customers of the largest credit card issuer in the country," they wrote in the letter. Warren and Waters said it was "doubtful" that Capital One could fix the "myriad issues" that Discover faces. "For roughly 17 years, Discover misclassified millions of consumer credit cards as commercial, resulting in higher interchange fees for transactions," the politicians wrote. In the white paper, the ICLE economists and lawyers wrote that a merger could improve data protection because the combined company would have the capacity to increase "financial investments in security." A bigger company also means access to more data, which can be a plus, they wrote. "The ability to capture and analyze more data on more customers may also permit the larger and more competitive company to develop and offer new innovative products," the ICLE experts wrote. Read the original article on Business Insider
Yahoo
19-05-2025
- Business
- Yahoo
Capital One just bought Discover. Here's what it means for their customers.
On Sunday, Capital One acquired Discover Financial, becoming the sixth-largest US bank by assets. Online-focused Discover stands to gain a big physical footprint from the deal. A pair of top Democrats warned last month that the deal could spell trouble for customers. Capital One has acquired Discover Financial, becoming the sixth-largest bank in the US by asset size. In an earnings call last month, Capital One's CEO, Richard Fairbank, said the goal was to "preserve the best" of what Discover does, such as its advertising and focus on customer experiences. Capital One's $35.3 billion acquisition of Discover was first announced in February 2024. The deal was approved by regulators last month, despite pushback from top Democrats and consumer advocates who raised concerns about lower competition and risks to low-income customers and those with poor credit scores. Representatives of Capital One and Discover didn't respond to a request for comment. On Monday, both banks said that "customer accounts and banking relationships remain unchanged" at this time. Here's what customers of each of the two companies stand to gain and lose from the deal. A much bigger Capital One could mean more products, but some Democrats have warned of higher fees. Capital One previously said the merger would increase competition with the transaction giants Visa, Mastercard, and American Express and improve access for lower-income customers. In a white paper published in July, four economists and lawyers at the International Center for Law & Economics wrote that the merger might finally end the Visa and MasterCard "duopoly." They added that the merger would let Capital One switch its debit cards to Discover's payment networks, and it might offer "more attractive products to depositors." This could include free checking accounts with no minimum balance rules and debit cards with cash back for lower-income customers. Cost savings and other benefits from the acquisition could also make Capital One a stronger competitor to "behemoths such as JPMorgan Chase, Citibank, and Bank of America," the ICLE group wrote. The merger doesn't appear to mean any big immediate changes. Discover has said accounts aren't linked to the new corporate owner, so Capital One branches and customer service can't help with Discover products. Eventually, Discover customers may have greater access to the bank through Capital One's branches and ATMs. Right now, Discover has just one physical outpost in Delaware. Michael Shepherd, the interim CEO of Discover, said on an earnings call last month that the deal would "increase competition in payment networks" and "offer a wider range of products." In a letter written to the Federal Reserve System earlier this month, Rep. Maxine Waters of California and Sen. Elizabeth Warren of Massachusetts argued that the merger would hurt Capital One customers. Warren and Waters are top Democrats on the Senate Banking, Housing, and Urban Affairs Committee and the House Financial Services Committee, respectively. "These are not two traditional banks — they are credit card giants," they wrote. Waters and Warren said post-merger Capital One would have 40% of the general-purpose credit card issuance market share. This would give Capital One the power to increase fees for merchants and reduce rewards and other benefits for customers. "Merchants would have no choice but to accept the terms dictated by Capital One's network, since they need to access the customers of the largest credit card issuer in the country," they wrote in the letter. Warren and Waters said it was "doubtful" that Capital One could fix the "myriad issues" that Discover faces. "For roughly 17 years, Discover misclassified millions of consumer credit cards as commercial, resulting in higher interchange fees for transactions," the politicians wrote. In the white paper, the ICLE economists and lawyers wrote that a merger could improve data protection because the combined company would have the capacity to increase "financial investments in security." A bigger company also means access to more data, which can be a plus, they wrote. "The ability to capture and analyze more data on more customers may also permit the larger and more competitive company to develop and offer new innovative products," the ICLE experts wrote. Read the original article on Business Insider
Bloomberg
19-05-2025
- Business
- Bloomberg
What to Know About Capital One's $35 Billion Takeover of Discover Financial
Capital One Financial Corp. has bought Discover Financial Services, bringing together two of the biggest credit card firms so they can better compete with other Wall Street behemoths. The takeover was valued at $35 billion when it was announced in February 2024. Here's all you need to know about the acquisition and what it means for consumers: The combination allows Capital One, the US lender backed by Warren Buffett, to surpass rivals JPMorgan Chase & Co. and Citigroup Inc. to become the largest US credit-card issuer by loan volume. It also gives it a stronger foothold in the world of payments. That's because on top of being a credit-card business, Discover operates three payment networks of its own: the Discover global network, Diner's Club and Pulse, a system for processing debit card payments. Historically, Capital One had to rely on companies such as Visa Inc. or Mastercard Inc. for its cards. Acquiring Discover allows it to cut them out of the picture for some of its cards and reap more revenue.
