Capital One’s $120 billion merger is already fueling $14 billion in buybacks — but credit risks are rising

Credit card charge-offs and loan loss allowances are elevated at Capital One Financial, signaling rising consumer credit risk just as the company emerges from its integration of Discover Financial. The combined entity is now a $120 billion financial powerhouse, a scale that has preserved a 14.3% Tier 1 capital ratio despite aggressive capital returns. Capital One is deploying that strength into a $14 billion share repurchase program, buying back stock while trading at a low double-digit P/E ratio. The market has underperformed the broader indices by more than 15% since the merger, pricing in concern over credit quality. But the analyst sees the dip as an opportunity: synergies from both the Discover and Brex acquisitions are expected to accelerate earnings, making further buybacks at current valuations a compelling use of capital. Despite the risks, the analyst holds a long position in COF and recommends buying the stock.