Capital One posted a mixed set of Q2 2025 results - its first earnings report since completing the Discover acquisition. Adjusted earnings per share came in at $5.48, well above analyst expectations, while revenue missed estimates at $12.5 billion. Period-end loans rose 36% to $439.3 billion, driven by a 72% surge in credit card balances to $269.7 billion, largely due to the Discover deal. We will be updating our model for Q2 results and the Discover deal shortly.
Capital One closed its deal to acquire Discover Financial Services on May 18th, 2025 - creating the largest credit-card issuer by loan volume in the U.S. The most attractive part of the acquisition would be Discover’s proprietary card network, which charges merchants a fee for processing credit card transactions. The acquisition also allows Capital One to cross-sell a wide range of financial products, including checking and savings accounts and personal and automotive loans, to Discover’s loyal base of cardholders.
Below are key drivers of Capital One's value that present opportunities for upside or downside to the current Trefis price estimate for the bank:
Capital One is one of the largest banks in the United States, offering a wide range of financial products and services through its banking and non-banking subsidiaries. Its key subsidiaries include Capital One Bank National Association (COBNA), which provides credit and debit card products, personal and auto loans, and deposit accounts. Capital One National Association (CONA) serves consumers, small businesses, and commercial clients with a broad spectrum of banking solutions, including lending, treasury management, and wealth management services.
The Credit Cards division is the primary source of value for Capital One for the following reasons.
Capital One's Credit Card division accounted for 69% of the firm's total revenues in 2024, compared to 22% from the Consumer Loans division and 9% from the Commercial Loans division.
As a result of the Covid-19 crisis in 2020, the Federal Reserve reduced the interest rates to a near-zero level. That said, the Federal Reserve increased interest rates considerably over 2022-23 to combat the spike in inflation, which positively impacted the company's net interest income. With the Federal Reserve likely taking a more cautious approach to cutting interest rates in 2025, relatively high interest rates should largely benefit Capital One.
Capital One also operates in the cashless payment solution market. This includes payments using credit cards. The market for such transactions is growing at a rapid pace. Consumers are moving toward cashless transactions in large numbers, particularly in international markets where credit and debit cards are becoming more prevalent. We expect significant growth in this segment soon as more customers and merchants embrace credit/debit card payment solutions.
