Elizabeth Warren Opposed CapitalOne + Discover? Really?

April 21, 2025 | Last week Capital One Financial (COF) finally received approval to acquire Discover Financial Services (DFS), a transaction that should have caused no concern but still was the subject of progressive grousing. Progressives like to hold merger acquisitions hostage so they can solicit extortionate concessions from the parties. In fact, if progressives in Congress had a clue about banking and finance, or actually cared about consumers, they would applaud the CapitalOne-Discover transaction. 

Senator Elizabeth Warren (D-MA) said when the transaction was announced:

“President Trump promised to cap credit card interest rates, but his Administration just rubber-stamped the creation of the largest credit card company in the country, which will hurt consumers and small businesses with inevitably higher credit card interest rates, increased junk fees, and reduced availability of credit. Today Wall Street initiates the newest member of its Too-Big-To-Fail club at the expense of working Americans and our nation’s financial stability—a daily theme of the Trump Administration.”

Liberals like to hound President Donald Trump for inaccuracies, but what about Elizabeth Warren, the sage banking expert of the Democratic Party? Warren’s statement about CapitalOne is factually incorrect. Not only is COF, the 11th largest US bank, definitely not the largest credit card issuer, as Warren pretends, this transaction actually gives the underdog in credit cards a chance for survival against the top-four banks.  

Do you think CapitalOne bangs away with the television ads late at night because they like to spend money? Arguably COF is the weakest large credit card franchise in the US. Since Senator Elizabeth Warren has never in her entire life actually understood banking and finance, she misses this little nuance – and an opportunity to actually support a company that lends to consumers with less than stellar credit. Duh.

Warren’s public lack of a clue is widely shared among progressives. The chart below shows the net loss rate for the top banks, COF, the US unit of Barclays Bank (BSC) and Synchrony Financial (SYF). Notice that SYF leads the way with more than 600bp of net loss, followed by COF over 300bp and the US unit of BCS next. The larger banks and Peer Group 1 are at the bottom of the chart and also the lowest risk. JPM CEO Jamie Dimon does not lend to poor people.

Source: FFIEC

Rep. Maxine Waters (D-CA) said: “I am deeply opposed to Capital One’s announced acquisition of Discover. This merger, which involves two of the country’s largest banks and credit card companies, will have major implications for consumers and small businesses everywhere.”  Yes Maxine, the transactions will actually be good for consumers.

Like most progressive yowling about banks, the comments by Waters and other Democrats were completely wrong on the facts and demonstrate remarkable naivete. First, COF had been renting access to the payments “rails” of Discover for years. Why? Because the larger bank did not have its own payments platform. COF has no rails and no card brand. Hello. Do you think Liz Warren knows this?

Readers of The Institutional Risk Analyst know that banks with payments platforms and unique brands are highly differentiated and greatly advantaged. Both American Express (AXP) and DFS own their own rails and brands. In this sense, the COF + DFS transactions represents no change to the competitive landscape at all. COF is buying an existing business partner in DFS. Clearly, neither Elizabeth not Maxine get it, but maybe they don't care.

When Waters (and Warren) also called DFS “one of the country’s largest banks and credit card companies,” she was again completely misinformed – as usual. After former Speaker Diane Feinstein (D-CA), Waters is among the best advertisements for congressional term limits we can imagine. The ranking member on the House Financial Services Committee, Waters inherited her seat in Congress in 1991 from Rep Augustus Hawkins.

In fact, at year-end DFS was the sixth largest credit card issuer in the US and a tiny bank holding company at just $147 billion in total assets. The $225 billion credit card portfolio of JPMorgan Chase (JPM) is bigger than all of DFS, which was the 33rd largest US bank in 2024. But even at $490 billion in total assets, COF is only able to compete with JPM and other large banks by serving more risky customers. 

How do we measure risk? The gross spread on the portfolio tells you the default target of the lender. JPM’s card book yielded 14.6% in Q1 vs 15.5% for its large bank peers. COF’s gross spread on its credit card loan portfolio was almost 20% in Q1 2025. The chart below shows the gross spread for the consolidated banking groups. Note that SYF and the US unit of BCS have the highest gross spreads followed by COF in the middle of the group.

Source: FFIEC

COF’s delinquency rate on consumer loans was almost 4% of assets at the end of 2025, putting the bank in the top decile of the average for the 110 plus banks in Peer Group 1. JPM’s level of delinquency on consumer loans was just over 1% at the end of 2024 or below the average for Peer Group 1. A 1% net loss rate for JPM is a "BBB" bond equivalent, but 400bp of net loss for all of COF is a "B" headed for "CCC" rating equivalent. These banks serve two totally different parts of the US consumer market. Again, Maxine Waters, Elizabeth Warren and their fellow progressives in Congress have no idea. They should applaud the COF purchase of Discover.

Third and most important, the Discover and other brands owned by DFS are far smaller than the dominant Visa and Mastercard card franchises. Visa has almost 50% market share, Mastercard almost 40% and American Express and Discover together about 16% for their card brands. If progressives like Waters and Warren were really interested in helping consumers, they’d support a transaction that creates a larger, better funded competitor to JPM and the other big banks.  But they have no idea about such things and therefore opposed the transaction!

When Elizabeth Warren and Maxine Waters spoke publicly against the CapitalOne-Discover transaction, they were actually supporting the monopoly position of JPMorgan and the other too-big-to-fail banks. JPM looked at acquiring Discover in 2021, let us recall, to keep the Discover payments platform from going to CapitalOne. The CapitalOne-Discover deal will make the combined company's credit card book slightly bigger that JPM's $203 billion credit card portfolio, for now.

JPM's consumer loan book excluding cards is another $400 billion. Big picture, the octopus known as JPM is six times larger than COF, has far lower funding and credit costs, and is growing in cards aggressively. By opposing CapitalOne-Discover and, indirectly, supporting JPM, Warren, Waters and other progressives are actually hurting low income consumers.

Most of the big banks have exited the government-insured mortgage loan market and have no desire to do business with the bottom third of consumers in autos or credit cards. Indeed, Elizabeth Warren warned the largest banks to avoid risk, and that is precisely what they are doing and thereby reducing access to credit for millions of the poorest Americans.

Release Scheduled for May 16 2025!

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