Capital One (COF: Baa1 neg/BBB/A-); acquisition of Discover (DFS: Baa2/BBB- pos/BBB+ pos) reported increased chance of competition authorities blocking. In the event of a block, this could be spread positive, even after the EUR bond’s positive performance this year, we feel.

• BBG is reporting that new US federal guidelines on bank mergers, announced on 17-Sep by the FDIC, OCC and DoJ, will put in place a “high bar to clear”, citing a range of legal and industry figures. This represents a change of nuance, rather than rules, but this does appear to reduce competition and, in the run-in to a US election, the politics of this could be tough to call.
• The USD35bn deal was first announced in Feb-24 with an expectation of closure in 4Q24 or 1Q25, we believe. Consumer advocates have been agitating against this deal but, considering the power of the US banking lobby, this once would have been seen as an easy merger to clear.
• COF only has one EUR bond (DFS none) and it tightened significantly in the earlier part of the year and has performed better than EUR financials’ spreads over the last month (-7bp vs. flat). If the deal falls apart, we could see this going further as execution (and rating dilution) risk would abate.