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Discover and Snychrony will be acquired sometime over the next 24 mos

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Moderator Emeritus

Re: Discover and Snychrony will be acquired sometime over the next 24 mos

@CWA1984   others have said similar things to what you posted and it does make a lot of sense. Seems Citi Bank is on a similar course of action.

Saying that, with the question posed this is a topic to be followed as debt has climbed and many new banking partners are in the works.

In the state I live in, three bank mergers with out of state bank buyers has been announced and last year there were several. The industry seems to be on the M & A again? Sure makes me wonder?



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Message 11 of 20
Super Contributor

Re: Discover and Snychrony will be acquired sometime over the next 24 mos


@CWA1984 wrote:

I would say them cutting back benefits and and especially discover deals is due to how much it was costing them.  If you used discover deals for all or most of your online shopping in your first year of having the Discover It card and plus used it as your general spend card and were maxing out or close to maxing out the rotating categories getting over a $1,000 cashback match if not thousands in cashback match was possible to do.  Not to mention certain merchants might have not liked discover deals for example Walmart has it's own retail credit card that gives 3% cashback on walmart.com however if you were using discover deals you were getting 5% cashback shopping on walmart.com and if it's your first year with the discover it card it was 10% cashback on walmart.com.  So that begs the question to the intelligent shopper who would order off walmart.com "why get the 3% walmart credit card when I can get the 5% or 10% Discover It card?".  Overall it was probably just costing Discover to much so that's why they got rid of it.  


Nah, make no mistake — Discover Deals and other credit card portals are pure profit for the credit card companies. They get paid by the companies for the business referral and opt to share some of the profits with the consumer. Since you can’t use coupons other than the ones listed on the portal, sometimes it’s not even the best deal you can get. I have actually been using the Navy Federal Member Deals to get iTunes gift cards from Raise while earning bonus points on my More Rewards card because those deals are actually quite good. 

The other benefits I totally agree about but the killing of Discover Deals still baffles me. 


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Message 12 of 20
New Contributor

Re: Discover and Snychrony will be acquired sometime over the next 24 mos

Then it might have been the merchants who killed discover deals.  If I was walmart and wanted my store branded credit card to get more use why I keep a deal allowing a competitor to my credit card to give a much better deal to consumers then what my own credit card does?  Somebody somewhere was losing money or else discover deals wouldn't have gone away like it did.   

Message 13 of 20
Regular Contributor

Re: Discover and Snychrony will be acquired sometime over the next 24 mos


@Dinosaur wrote:

This thread has caught my eye. As other posters have stated, there may be some interesting potential partners for Discover and Synchrony. My concern is I am doubtful the consumer would be better for such combinations.

One thing is for sure, Wall Street is about money and as long as the consumer spends everyone doesn't really care! Smiley Sad


As a career-long Wall Streeter and a having been a FINRA licensed stock trader (still technically have a license, just not using it), you couldn't be more incorrect about our collective mission statement. Let's chill on the accusatory tone.

 


@Dinosaur wrote: 

Same response I had but, when we look at what Discover has been doing over the last many months (essentially gutting their card products benefits along with Discover Deals), one may wonder if they are establishing a lean mean profitable machine that would fetch a good price to investors on the open market?! Great for some of those who like to buy and gut the assets once acquired. In my mind that scenario is not for Discover but ...? Smiley Sad

Companies seek to get bought out when: 

 

  1. They lack the resources to gain marketshare, or
  2. Their supply chain is too costly to remain competitive in the market, or
  3. They're new(er) to market and there's concerning CFaR, or
  4. There's a concerning market short position against their stock that they can't defend against (such as Green Shoe'ing or treasury buybacks), or
  5. A selloff has taken out liquidity in the market and their stock has lost a lot of upside (likely due to VaR).

 

Do any of these apply to Discover? The answer is "no".

 

There's an increased cost in acquiring a large and non-complex BHC/IHC if the result is a large and complex BHC/IHC as defined by the Frank-Dodd Act.

 

Right now, Discover does not have to participate in the qualitative assessment of CCAR (since AUM < $100bn), which is the bigger headache of stress testing. You'd have to port over billions of assets into either an existing stress-testing framework, or new stress testing framework. Basel 3 just started to be in effect within the past couple of years, so there's added uncertainty to how the acquisition would value under a current IMM framework. This would be major turnoffs into acquiring Discover.

 

 

 

 


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Message 14 of 20
Moderator Emeritus

Re: Discover and Snychrony will be acquired sometime over the next 24 mos

@TheConstant    as you are well aware, the news media is full of activities that make it appear that Wall Street does not look beyond making money (hard to dispute their interest in that).

My comment was more to be flip but, looking at what I can read and not being a Wall Streeter, "Let's chill on the accusatory tone" is based on outside forces. As you know, we are entitled to share our thoughts which may differ from each other.

It would take a lot to convince me that Wall Street is engaged with the person on the streets. Not sure that is their function?

One of the great things about this Forum is to get input and knowledge such as you shared so we are better able to understand the greater financial scene and expand our learning and understanding.

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Message 15 of 20
New Contributor

Re: Discover and Snychrony will be acquired sometime over the next 24 mos


@TheConstant wrote:

@Dinosaur wrote:

This thread has caught my eye. As other posters have stated, there may be some interesting potential partners for Discover and Synchrony. My concern is I am doubtful the consumer would be better for such combinations.

One thing is for sure, Wall Street is about money and as long as the consumer spends everyone doesn't really care! Smiley Sad


As a career-long Wall Streeter and a having been a FINRA licensed stock trader (still technically have a license, just not using it), you couldn't be more incorrect about our collective mission statement. Let's chill on the accusatory tone.

 


@Dinosaur wrote: 

Same response I had but, when we look at what Discover has been doing over the last many months (essentially gutting their card products benefits along with Discover Deals), one may wonder if they are establishing a lean mean profitable machine that would fetch a good price to investors on the open market?! Great for some of those who like to buy and gut the assets once acquired. In my mind that scenario is not for Discover but ...? Smiley Sad

Companies seek to get bought out when: 

 

  1. They lack the resources to gain marketshare, or
  2. Their supply chain is too costly to remain competitive in the market, or
  3. They're new(er) to market and there's concerning CFaR, or
  4. There's a concerning market short position against their stock that they can't defend against (such as Green Shoe'ing or treasury buybacks), or
  5. A selloff has taken out liquidity in the market and their stock has lost a lot of upside (likely due to VaR).

 

Do any of these apply to Discover? The answer is "no".

 

There's an increased cost in acquiring a large and non-complex BHC/IHC if the result is a large and complex BHC/IHC as defined by the Frank-Dodd Act.

 

Right now, Discover does not have to participate in the qualitative assessment of CCAR (since AUM < $100bn), which is the bigger headache of stress testing. You'd have to port over billions of assets into either an existing stress-testing framework, or new stress testing framework. Basel 3 just started to be in effect within the past couple of years, so there's added uncertainty to how the acquisition would value under a current IMM framework. This would be major turnoffs into acquiring Discover.

 

 

 

 


Just to add to this for anyone who follows the stock market and top investors their is a reason why Berkshire Hathaway only owns a certain percentage of banks and it's due to legal reasons which the post I'm quoting mentions and it not being worth the hassle of having 10% or more stake in these large banks.  That's why Buffet had to sell off shares of Wells Fargo due to them doing a share buy back that would've put Buffet over 10% ownership.  I'd imagine a giant holding company like Berkshire Hathway which owns billions of dollars worth of shares in Bank of America, Wells Fargo, US Bank, Chase, etc. not outright buying these banks doing to the hassle would be the same reason no one is going to outright buy Discover.  

Message 16 of 20
Established Contributor

Re: Discover and Snychrony will be acquired sometime over the next 24 mos


@SEBanker wrote:

That’s my prediction! Discover would be attractive based on its global payments and network to a large bank who could leverage the asset to increase profitability of its card units.  Wells Fargo is desperate to grow its card business. If they can get around the FEDS I’d say they are the likely candidate. 

 

I think synchrony’s access to capital will come under pressure and therefore impact growth.  Plus with all the headwinds in retail they will need deep pockets sooner of later. I could see Citi making a play here. Retail cards are in their wheelhouse and it doesn’t seem to be a business that chase or B of A find of interest.  One might say Cap One but I also think they will might be on the block in about 5 years.  

 

I also think Barclays will ditch the US operation.  


If we had a trusted escrow account, I would take an even money wager against "Discover and Snychrony will be acquired sometime over the next 24 mos".

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Message 17 of 20
Super Contributor

Re: Discover and Snychrony will be acquired sometime over the next 24 mos


@CWA1984 wrote:

Then it might have been the merchants who killed discover deals.  If I was walmart and wanted my store branded credit card to get more use why I keep a deal allowing a competitor to my credit card to give a much better deal to consumers then what my own credit card does?  Somebody somewhere was losing money or else discover deals wouldn't have gone away like it did.   


Nah, there are still plenty of credit card and other portals like ebates and BeFrugal that still offer these referral bonuses. It’s how Navy Federal’s Member Deals works and last time I looked I believe Wal-Mart is on there too. Who knows the real reason Disco got rid of it. That’s the whole point — it makes no sense. They lose out on swipe fees, kickbacks from the merchant, and interest income from consumers. The only thing that comes to mind as a plausible reason is that people were spending too much and Discover’s uptick in default rates showed some correlation between people who used Discover Deals and their risk of default. Sometimes bargain hunters are hunting because they can’t afford what they’re buying after all. 


Scores 1/2019:
Scores 9/2019:

Hover over my cards to see my limits!
Goal cards: Does it look like I really need any more cards? My goal is to garden until 2/2020.
Message 18 of 20
Regular Contributor

Re: Discover and Snychrony will be acquired sometime over the next 24 mos


@CWA1984 wrote:

@TheConstant wrote:

@Dinosaur wrote:

This thread has caught my eye. As other posters have stated, there may be some interesting potential partners for Discover and Synchrony. My concern is I am doubtful the consumer would be better for such combinations.

One thing is for sure, Wall Street is about money and as long as the consumer spends everyone doesn't really care! Smiley Sad


As a career-long Wall Streeter and a having been a FINRA licensed stock trader (still technically have a license, just not using it), you couldn't be more incorrect about our collective mission statement. Let's chill on the accusatory tone.

 


@Dinosaur wrote: 

Same response I had but, when we look at what Discover has been doing over the last many months (essentially gutting their card products benefits along with Discover Deals), one may wonder if they are establishing a lean mean profitable machine that would fetch a good price to investors on the open market?! Great for some of those who like to buy and gut the assets once acquired. In my mind that scenario is not for Discover but ...? Smiley Sad

Companies seek to get bought out when: 

 

  1. They lack the resources to gain marketshare, or
  2. Their supply chain is too costly to remain competitive in the market, or
  3. They're new(er) to market and there's concerning CFaR, or
  4. There's a concerning market short position against their stock that they can't defend against (such as Green Shoe'ing or treasury buybacks), or
  5. A selloff has taken out liquidity in the market and their stock has lost a lot of upside (likely due to VaR).

 

Do any of these apply to Discover? The answer is "no".

 

There's an increased cost in acquiring a large and non-complex BHC/IHC if the result is a large and complex BHC/IHC as defined by the Frank-Dodd Act.

 

Right now, Discover does not have to participate in the qualitative assessment of CCAR (since AUM < $100bn), which is the bigger headache of stress testing. You'd have to port over billions of assets into either an existing stress-testing framework, or new stress testing framework. Basel 3 just started to be in effect within the past couple of years, so there's added uncertainty to how the acquisition would value under a current IMM framework. This would be major turnoffs into acquiring Discover.

 

 

 

 


Just to add to this for anyone who follows the stock market and top investors their is a reason why Berkshire Hathaway only owns a certain percentage of banks and it's due to legal reasons which the post I'm quoting mentions and it not being worth the hassle of having 10% or more stake in these large banks.  That's why Buffet had to sell off shares of Wells Fargo due to them doing a share buy back that would've put Buffet over 10% ownership.  I'd imagine a giant holding company like Berkshire Hathway which owns billions of dollars worth of shares in Bank of America, Wells Fargo, US Bank, Chase, etc. not outright buying these banks doing to the hassle would be the same reason no one is going to outright buy Discover.  


Agreed on the 10% stake being a concern for Berkshire. They'd be considered an "affiliate" by the SEC and that leads to more legal headaches if the staked company had illegal practices.

 

I think the other main concern regarding being an "affiliate" is Rule 144, making the ownership restrictive in how much and when stock can be liquidated. 

 

With that said, Discover has no reason to seek out being acquired, nor would anyone be interested in picking them up. The large banking industry works in a unique way due to strict laws being put into place from both the U.S. 2008 crisis, as well as International initiatives. It does more harm than good to merge anymore. You could still see this regularly with proprietary trading firms, however.

 


Goal Score:725

[ Chase Sapphire Reserve - $22400 ]
[ BofA BankAmericard - $16000 ]
[ AmEx Blue Cash Preferred - $16000 ]
[ Cap. One QS - $7800 ]
[ Cap. One QS - $7000 ]
[ Discover IT - $4500 ]
[ AmEx EveryDay Preferred - $2000 ]
Message 19 of 20
New Member

Re: Discover and Snychrony will be acquired sometime over the next 24 mos

Funny that Citi sold Diners Club to Discover. Now someone is speculating that they want to buy Discover.

Message 20 of 20
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