Capital One strikes $5.15 billion Brex deal, quarterly profit rises on interest income boost | Reuters

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REUTERS/Dado Ruvic/Illustration Purchase Licensing Rights, opens new tabSummaryCompaniesDeal boosts push beyond consumer creditBrex CEO to stay after takeoverCapital One CEO warns rate cap risks recessionInterest income soars 54%Jan 22 (Reuters) - Capital One Financial (COF.N), opens new tab said on Thursday it will acquire fintech firm Brex in a ​cash and stock deal valued at $5.15 billion and reported a rise in quarterly profit on the back of higher ‌interest income from its credit card debt.Shares of the consumer lender fell more than 5% following the announcement of the deal, but robust results helped them pare losses to trade 1.5% lower. Sign up here.The move comes as dealmakers prepare for another strong year in 2026, with a record slate of transactions expected as executives pursue scale to navigate rising economic and geopolitical uncertainties.The deal, which is expected to close in mid‑2026, will be carried ‌out on an approximate 50-50 cash-stock basis, Capital One said.Brex operates in corporate cards and expense management ​software used by firms such as DoorDash (DASH.O), opens new tab and Robinhood (HOOD.O), opens new tab, which could give Capital One greater exposure and reduce its reliance on consumer credit, cushioning it against the impact of economic downturns.Brex operates in more than 120 countries according to its website.Capital One said the fintech ‍firm's chief executive and founder, Pedro Franceschi, will remain at the helm following the transaction.FOURTH-QUARTER EARNINGSU.S. consumer spending rose at a solid pace in November and October, suggesting the economy was on track for a third consecutive quarter of strong growth.Economic momentum has been underpinned largely by resilient household demand as well as ⁠a narrowing trade deficit, with imports declining in response to President Donald Trump's broad tariff increases.However, the tariffs have pushed up the ‍prices of many goods, weighing unevenly across income groups.Economists say spending strength is increasingly concentrated among higher-income households, while lower- and middle-income consumers have limited ‌scope to ‌switch to cheaper alternatives.Capital One's net interest income — the difference between what it makes on loans and pays out on deposits — rose 54% to $12.47 billion in the fourth quarter from a year ago.The McLean, Virginia-based company's net income available to common stockholders came in at $2.06 billion, or $3.26 per share, for the quarter, compared with $1.02 billion, or $2.67 per share, a year earlier.CREDIT CARD CAP CONUNDRUMTrump said last week he was ⁠calling for a one‑year cap on ⁠credit card interest rates at ​10% starting January 20, but offered few details on how the proposal would be implemented or how companies would be compelled to comply.Banking industry groups have pushed back against the proposal, warning it would restrict the availability of credit for everyday consumers.JPMorgan Chase (JPM.N), opens new tab CEO Jamie Dimon said on Wednesday a ‍proposal to cap credit card interest rates would amount to economic disaster.However, Bank of America (BAC.N), opens new tab is considering options to offer new credit cards with an interest rate of 10% to satisfy Trump's demands, a source familiar with the matter said on Thursday.The introduction of an interest rate cap would deal a significant blow to Capital ​One Financial, which has one of the most credit-card‑dependent business models among major U.S. ‍lenders."We feel strongly that a cap on interest rates would catalyze a number of unintended consequences," CEO Richard Fairbank said in a call with analysts.He added that lack ​of credit would result in reduced consumer spending and likely bring on a recession.Reporting by Pritam Biswas in Bengaluru; 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Capital One finalized a $5.15 billion deal to acquire fintech firm Brex, alongside reporting a significant rise in its fourth-quarter profit driven by increased interest income. The acquisition underscores a strategic shift within Capital One, aiming to diversify its revenue streams and mitigate risks associated with over-reliance on consumer credit. This move is particularly noteworthy amidst a turbulent economic landscape and evolving regulatory environment. The acquisition signals a concerted effort to bolster resilience and adapt to shifting market dynamics.

The transaction, slated for completion by mid-2026, represents a roughly 50-50 split of cash and stock. Brex specializes in corporate cards and expense management software, catering to companies like DoorDash and Robinhood. This expansion taps into a growing segment of the financial services market and reduces Capital One’s exposure to the consumer credit sector, a factor considered by CEO Richard Fairbank. The deal’s timing aligns with heightened M&A activity anticipated for 2026, driven by corporate leaders seeking scale and stability in a period of economic uncertainty.

Capital One’s fourth-quarter 2025 results showcased a robust 54% increase in net interest income, reaching $12.47 billion, reflecting a successful strategy focused on leveraging its credit card portfolio. This substantial growth contrasted with the prior year’s $1.02 billion figure, signaling a solid financial performance. Alongside increased interest income, the company reported net income available to common stockholders at $2.06 billion, a considerable improvement from the $1.02 billion reported in the previous quarter. This demonstrates Capital One’s adeptness in navigating fluctuating economic conditions and capitalizing on interest rate growth.

The acquisition arrives amidst considerable regulatory scrutiny and debate surrounding potential changes to credit card interest rates. President Donald Trump’s proposal for a one-year cap at 10% has generated substantial discussion. However, as stated by Fairbank, Capital One executives view this proposal as “catalyzing a number of unintended consequences," expressing concern it would negatively impact consumer spending and accelerate a potential recession. The company’s position reflects a broader industry sentiment, with JPMorgan Chase CEO Jamie Dimon citing the proposal as an “economic disaster.” While Bank of America is currently considering a 10% interest rate option, Capital One maintains a cautious approach.

The strategic alignment of Brex’s corporate focus with Capital One's expanding presence in the business sector is a crucial element of this deal. This allows Capital One to gain insights into corporate financial management, further strengthening the bank’s portfolio. Further complicating the situation is the macroeconomic backdrop, including shifting consumer spending habits and the effects of ongoing trade tariffs. The rise in higher-income household spending, juxtaposed with the limited scope for lower- and middle-income consumers to adjust, is a key factor shaping the financial landscape and potentially influencing Capital One's future strategy. Ultimately, Capital One’s decision to move forward with the Brex acquisition is a measured response to market pressures and demonstrates a proactive approach to risk management within a rapidly evolving financial environment.