Discover Financial refiled its 2023 annual report on Monday after correcting an accounting error, completing another task ahead of its pending merger with Capital One Financial next year.
The state of the deal is being closely watched in bank policy circles, as the $35 billion transaction will test how receptive regulators will be to large-scale bank mergers under the Trump administration. But with that major question pending, the two companies are ticking items off their to-do list.
One task that was temporarily blocking the deal was restating some recent financial reports that the Securities and Exchange Commission had flagged. The issue stemmed from how Discover classified more than $1 billion in expenses incurred to fix an error that led Discover to mistakenly overcharge some businesses for years.
Restating the SEC filings is the latest sign of progress for its deal with Capital One, since the companies couldn't move forward without updated statements from Discover. Over the past week, the two companies have also scheduled votes from their respective shareholders for Feb. 18. And they announced they got approval from Delaware's bank regulator, which oversees Discover's state-chartered bank.
Federal approval is still necessary, but the recent steps suggest "remaining approvals are close at hand," Vincent Caintic, an analyst at BTIG Research, wrote in a note to clients. Caintic expects to close the deal early next year.
The shareholders of the two companies are scheduled to meet on Feb. 18 to vote on the deal.
Capital One CEO Richard Fairbank has been confident about obtaining regulatory approval, countering antitrust critics who say the merger would create a gigantic credit card company and limit options for consumers. Fairbank has said the deal is pro-competition, since Capital One's strength and vast customer base would make Discover a better competitor to two key rivals in payments processing: Visa and Mastercard.
In October,
"Things continue to move along," Fairbank said at a Goldman Sachs investor conference this month.
The companies have submitted everything they've needed to their regulators, Fairbank said. The Federal Reserve and the Office of the Comptroller of the Currency, which held a public hearing on the deal in July, have
Capital One has also been talking with the Department of Justice given that the agency offers an opinion on antitrust matters, Fairbank said at this month's conference. Observers had expected the DOJ's antitrust division to play a larger role on the deal under the Biden administration, though
On Discover's now-resolved SEC issue, Fairbank said this month that despite the brief delay, the accounting disagreement had not impacted Discover's earnings.
The matter stemmed from Discover's admission last year that the payments processor had
Discover
While reviewing statements for the Discover-Capital One merger, staff at the SEC flagged that they disagreed with how Discover accounted for the merchant-overcharging issue and its remediation.
In prior investor disclosures, Discover executives said they were "working expeditiously" to restate affected financial statements after consulting with the SEC and its auditor.
In addition to restating its 2023 annual report, Discover also amended its quarterly reports from the first and second quarters of 2024 and filed a previously delayed report covering its third quarter. The company had shared its third-quarter earnings report in October but had yet to file a full quarterly report with the SEC.
