There are few things that can kill the mood of a stock quite like mom and dad coming home—that is, when regulators get involved in everyday operations. For lending company Capital One Financial (NYSE:COF), its plans to pick up Discover Financial Services (NYSE:DFS) left it prime territory for regulators to get involved. But in this case, investors weren’t overly concerned, and shares actually managed to tick up fractionally in Monday afternoon’s trading.
This time, the concern didn’t emerge from Lina Khan’s increasingly militant Federal Trade Commission (FTC) but rather from Senate Majority Leader Chuck Schumer (D-NY). The usual refrain issued forth by Schumer is about how “excessive market concentration has historically harmed consumers as larger issuers tend to charge consumers higher interest rates than smaller issuers.”
And that may be true, but given the state of the market, Schumer appears to have either forgotten or is ignoring two key points: one, interest rates are already cripplingly high as they are, and two, there are plenty of other competitors out there in the field, so Discover becoming part of Capital One may represent only incrementally less competition.
A Better Idea than Some Might Think?
While Schumer and those like him fret over the availability of competition, some believe this is actually an opportunity to genuinely and broadly impact the credit card market. A report in American Banker noted that it’s the right time to add a couple key conditions to allow the merger to go through:
- A 1% interchange fee that would pose a challenge to current top-dog Visa (NYSE:V)
- A 5% deposit reinvestment requirement
The latter would eliminate what’s known as “weblining,” a refinement of the original “redlining” concept in which certain areas were treated differently based on their location. Weblining, meanwhile, is just banks landing web-based deposits that would have gone to local areas instead.
What Is the Target Price for Capital One Stock?
Turning to Wall Street, analysts have a Hold consensus rating on COF stock based on five Buys and 15 Holds assigned in the past three months, as indicated by the graphic below. After a 54.78% rally in its share price over the past year, the average COF price target of $151.19 per share implies 5.03% upside potential.
