Capital One Financial Corp. and Discover Financial Services shares fell after a report that staff at the US Department of Justice had concerns about their $35 billion merger.

Discover slid as much as 12.5%, the most since July 2023, while Capital One shares dropped as much as 7%. Traders attributed the decline to a report by The Capitol Forum that they described as stating Justice Department staff had misgivings about the deal.

A representative for Capital One said in an emailed statement that the merger remained “well-positioned to gain approval.” The deal complies with the relevant legal requirements, the representative said. A spokesperson for Discover didn’t immediately respond to a request for comment.

Justice Department staff have expressed concerns that the merger will harm competition, according to people familiar with the matter, who asked not to be identified discussing private information.

The department has yet to make a final determination on how to proceed, and the companies have yet to meet with the department’s leadership to advocate for the deal, said one of the people. The Justice Department has previously voiced its concerns to banking regulators informally, according to another person.

A representative for the Justice Department declined to comment.

Concerns ‘Overblown’

Analysts at KBW said they still favored the likelihood of a deal getting done.

“We think the concerns seem overblown since this has not been validated by the DOJ,” analyst Sanjay Sakhrani wrote.

Both firms pared some of their earlier losses. Capital One closed down 3.9% while Discover ended the day down 6.9%.

The merger is still awaiting approval from the Federal Reserve and the Office of the Comptroller of the Currency after shareholders for both companies voted in favor of it earlier this year. The transaction has raised concerns from lawmakers, some of whom have taken a dim view of the deal’s size or expressed outright opposition.

If the regulators allow the transaction, the Justice Department could still sue to block it — despite Donald Trump’s election win initially allaying some doubts about its fate.

In October, New York Attorney General Letitia James asked a state court for permission to issue subpoenas to Capital One as part of an ongoing antitrust probe by the state. At that time, she said New York would be particularly impacted by the deal because Capital One and Discover have more than $16 billion in combined credit card loans in the state.

— By Josh Sisco, Yiqin Shen and Paige Smith (Bloomberg News)