Investing.com -- Moody’s Ratings has confirmed the ratings of Capital One Financial Corporation (NYSE: COF ) and Capital One, N.A., including Capital One’s senior unsecured rating of Baa1, following the acquisition of Discover Financial Services (NYSE: DFS ). The acquisition, which took place on May 18, 2025, also resulted in an upgrade of Discover’s long-term ratings from Baa2 to Baa1.

As part of the acquisition, Discover was merged into Capital One and Discover Bank into Capital One, N.A., effectively dissolving both Discover entities. The rating actions taken today bring to a close the rating reviews for Capital One and Discover that began on February 20, 2024.

Moody’s will withdraw all the ratings of Discover and Discover Bank, with the exception of ratings on debt or preferred stock instruments that will remain outstanding. The outlooks on the senior unsecured debt and long-term deposit ratings of Capital One and Capital One, N.A., and on the instruments being assumed from Discover and Discover Bank, are stable.

The confirmation of Capital One’s ratings reflects the improved capitalization and expected profitability of the combined firm. The acquisition makes Capital One the eighth-largest bank in the US by total assets and the largest US credit card issuer by credit card receivables. The firm estimates financial synergy opportunities from the acquisition, including expense reductions and the integration of Capital One’s debit and credit purchase volumes with Discover’s payment networks, will total around $2.7 billion annually once fully phased-in.

The acquisition increases Capital One’s business concentration in consumer lending, particularly credit cards. It is estimated that the credit card business will contribute more than 75% of total revenue of the combined firm, and will constitute about 60% of its loan portfolio. However, this risk is offset by higher capitalization and profitability, and Discover’s prime-focused credit card portfolio reduces Capital One’s concentration of subprime loans.

Capital One’s management projected the consolidated common equity tier 1 (CET1) capital ratio of the combined firm to be approximately 13.9% at closing when they announced the transaction in February 2024. Capital One and Discover’s CET1 ratios were 13.6% and 14.7%, respectively, at the end of Q1 2025.

The acquisition places Capital One on a trajectory to exceed the $700 billion asset threshold for becoming a Category II bank under the Federal Reserve Bank’s tailoring framework over the next few years. The stable outlooks reflect Moody’s expectation that Capital One will maintain favorable capitalization and profitability and a strong liquidity and funding profile.

Capital One’s ratings could be upgraded if it maintains a Moody’s tangible common equity (TCE) to risk-weighted assets ratio above 13.0% and sustains profitability while also maintaining its strong funding profile, liquidity buffers and stable asset quality. Conversely, Capital One’s ratings could be downgraded if asset quality performance weakens materially compared to peers, its TCE ratio falls below 12%, or its funding or liquidity profile weakens significantly.

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