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JPMorgan Chase spent about a year discussing a possible deal with Discover Financial before Capital One agreed a $35bn bid for the credit card company, as the largest US bank pursued ways to get control of Discover’s Pulse electronic payments network.
JPMorgan started actively exploring a deal in mid-2021, but abandoned the effort in mid-2022 when it failed to convince Discover of its merits, people familiar with the matter told the Financial Times.
A deal between JPMorgan and Discover would have been more difficult to get through regulators than the tie-up Discover ultimately struck with Capital One last month, because JPMorgan is already the biggest US credit card lender by loans. The Capital One deal will relegate Jamie Dimon’s bank to second place.
But the discussions underscore JPMorgan’s efforts to own a payments network to support its cards business and lessen its reliance on third parties such as Visa and Mastercard.
“This would’ve been a truly company-changing deal,” said one of the people familiar with the talks between JPMorgan and Discover.
Discover is a rarity in that it operates both as a card issuer and a payments network. Capital One chief executive Richard Fairbank told analysts after agreeing the Discover deal that being able to do both was his bank’s “Holy Grail”.
JPMorgan and Discover declined to comment.
Any JPMorgan deal would have faced steep regulatory and antitrust hurdles, as Dimon’s lender is blocked from buying other banks because of its gargantuan size. Despite that, he backed efforts to do a deal for all or part of Discover, codenamed “Diplomat”.
Most of the focus was on a deal for Discover’s Pulse debit and cash machine network, a pin-based network which processed about $285bn in payments last year, the people familiar with the talks said.
Capital One’s bid for Discover is the second major transaction in recent years where a JPMorgan rival has picked up an asset coveted by Dimon. In 2020, the bank lost out to Morgan Stanley in the $7bn bidding war to buy US investment manager Eaton Vance.
JPMorgan has become more acquisitive in recent years after Dimon warned in early 2021 that it “should be scared shitless” about emerging threats from technology companies. The bank also bought most of failed US lender First Republic last year.
Doubts exist about whether Capital One will secure regulatory approval for its Discover acquisition, with shares in its target trading below the deal’s purchase price.
But the transaction has an easier path to completion than if JPMorgan were the buyer, because an enlarged Capital One would ultimately control less than 10 per cent of US deposits. JPMorgan already exceeds that threshold.
Additional reporting by James Fontanella-Khan