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What does the Capital One-Discover deal mean for you?

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What does the Capital One-Discover deal mean for you?

Capital One Financial Corp. announced Monday that it had reached an agreement to acquire Discover Financial Services for $35.3 billion, instantly creating a financial behemoth should the deal be approved by regulators.

The merger would combine one of the largest issuers of Visa and Mastercards with Discovery’s network of cardholders. However, such a mega-merger immediately raised antitrust concerns, as well as questions over how it might affect customers.

Here are some early answers to key questions.

Will I still be able to use my Discover card?

The proposed merger could take a year or more to gain regulatory approval, so in the immediate term don’t expect any changes as it’s reviewed. The companies have not yet disclosed how they might change their product mix. It’s possible Capital One might issue new Discover cards highlighting its name instead of Discover’s bright orange “O” logo — similar to how it issues its Visa and Mastercard credit cards.

However, don’t expect your card to go away. Capital One is buying a valuable asset.

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What if I use a Capital One Visa or Mastercard?

Capital One is one of the largest issuers of Visa and Mastercard credit cards in the nation and that is not expected to change, at least for some time. Michael Rhodes, chief executive of Discover, said the deal “brings together two strong brands with enhanced ability to accelerate growth.”

If I can keep my existing credit cards, what is the thinking behind the deal?

Capital One has grown rapidly since it was founded in 1994 and is now one of the nation’s largest banks. A big part of that growth has been its issuance of credit cards by the nation’s two leading card networks, Visa and Mastercard, with a focus on subprime customers who carry balances. Now, with Discover, it would also own its own network, similar to how American Express issues its cards.

What is the advantage for Capital One of owning a credit card network?

Discover, originated by Sears in the mid-1980s to get into the financial services business, has a network of 70 million merchant acceptance points in more than 200 countries and territories, according to the deal announcement. Capital One said the deal is a “key foundation” in its “quest to build a global payments company.”

Still, Discover is the smallest of the four U.S. global payments networks, also trailing American Express. The merger could allow it to expand rapidly and contribute significant profits to Capital One.

What are some of the downsides to the deal?

Consumer advocates are wary of large mergers, especially in the financial services industry, contending it can lead to higher costs for consumers in the form of interest rates and fees, whether in the insurance, mortgage or credit card markets. Also, critics say, larger financial institutions tend to have inferior customer service. Discover, which has focused on prime customers with better credit ratings, has a reputation for superior customer service.

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Is anyone opposing the merger?

The National Community Reinvestment Coalition immediately came out against the deal, noting that a report last week by the Consumer Financial Protection Bureau found that small banks and credit unions offered credit cards with significantly lower interest rates than large banks in the first half of 2023.

“This deal is not likely to create public benefits that outweigh its adverse effects. On that basis, we’re opposing it and would encourage regulators to block it,” NCRC Chief Executive Jesse Van Tol said.

How will shareholders make out?

The merger is structured as an all-stock deal, with Discover shareholders receiving 1.0192 Capital One shares for each of their Discover shares. That would give Discover shareholders a 26.6% premium, based on Discover’s closing price of $110.49 on Friday. When the merger closes, Capital One shareholders would own about 60% of the combined company, and Discover shareholders the rest.

What is the chance that such a large merger will be approved by regulators?

The deal could come under increased scrutiny by the Office of the Comptroller of the Currency (OCC) under a proposal last month by the regulator to give it more time and expand its criteria for reviewing mergers. That follows an announcement last summer by the Federal Reserve that indicated it also may strengthen merger oversight following the crisis last year that saw the failures of Silicon Valley Bank and other regional lenders.

Does Capital One have anything to worry about?

Capital One was fined $80 million by the OCC in 2020 for lapses in its failure to establish what it called “effective risk assessment processes” prior to moving information technology operations to the cloud — and then failing to correct the deficiencies in a timely manner. It was previously fined $100 million in 2018 by the regulator for deficiencies in the bank’s anti-money-laundering program.

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What about Discover?

The company has just gone through management turmoil. Chief Executive Roger Hochschild resigned in August after the company said that it misclassified some credit card accounts into its highest pricing tier as far back 2007, which resulted in merchants being charged more for accepting the cards for payment. The board vowed to improve the company’s governance.

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Read Nick Bilton’s Letter to Scott Pelley

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Read Nick Bilton’s Letter to Scott Pelley

Dear Mr. Pelley:

I meant what I said in my letter last week to the 60 Minutes team: joining 60 Minutes is the honor of my career and I am grateful to be working alongside the people who have contributed to the most important television journalism brand this country has ever produced. While I’m new to 60 Minutes, I’ve devoted my career to investigative journalism and storytelling. I started this job excited to collaborate and to benefit from the wisdom and experience of the 60 Minutes veterans, with you among them. For that reason, one of the first things I did in my new role was call you to talk and invite you to dinner. It is a profound disappointment that you rejected that overture and chose ambush instead. Yesterday, you hijacked my first meeting with staff to disparage me, my qualifications, and my intentions with remarkable incivility and contempt. I welcome a diversity of viewpoints and respectful debate among the team, but this was nothing of the sort. Yesterday’s performative display of hostility enacted in front of the staff instead of in a civil, private conversation-demonstrated that you have no interest in contributing to the future success of the show, or approaching my new tenure with a mind open to collaboration and progress. I am here to deliver first-in-class news programming, not to make headlines about newsroom drama. I am eager to work alongside those who share this goal.

Despite yesterday’s misconduct, I had hoped that in sitting down with you today we could find a path forward together. You made clear that you are not interested in such a path.

Your antipathy to the future of the show has come through loud and clear. And I have heard you. I therefore write on behalf of CBS News, Inc. (“CBS”) to inform you that your employment with CBS is terminated for cause effective immediately. Enclosed is your formal termination letter.

Sincerely,

Nick Bilton

Executive Producer, 60 Minutes

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Aspiration co-founder sentenced to 14 years for fraud

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Aspiration co-founder sentenced to 14 years for fraud

The co-founder of Aspiration, Joseph Sanberg, was sentenced to 14 years in prison on Monday after defrauding investors and lenders of over $248 million.

The startup, an eco-friendly digital banking company boasting fossil fuel-free investments, carbon offsets for gas purchases, and a debit card with cash-back benefits for shopping at clean companies, was founded by Sanberg and Andrei Cherny. Cherny left the company in 2022 and has not been charged.

Sanberg, an Orange County native, pleaded guilty to wire fraud in October after being arrested in March last year. Aspiration subsequently filed for bankruptcy and liquidated all of its assets by July.

Sanberg and venture capitalist Ibrahim AlHusseini, who also faces charges, together forged a series of bank statements in order to obtain loans. From 2020 to 2021, the pair forged AlHusseini’s bank statements to show millions of dollars in assets in order to obtain millions of dollars from lenders.

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Additionally, they forged a letter from their audit committee stating that $250 million in funds were available, when in reality Aspiration had less than $1 million. The amount of loans defrauded exceeded $248 million.

In 2021, Sanberg artificially inflated Aspiration’s 2021 revenue by $44 million by recruiting 27 fake customers to sign letters of intent pledging tens of thousands of dollars per month for tree planting services. Sanberg himself funded the contracts and used the inflated revenue numbers to obtain more loans.

The charges sparked an NBA investigation into salary cap allegations due to Aspiration’s connections with Clippers owner Steve Ballmer.

Ballmer personally invested $60 million in Aspiration, all of which was lost. He is now the target of a civil lawsuit alleging his participation in the scheme. Ballmer denies the allegations.

The team announced a $300-million sponsorship deal with Aspiration, and Clippers player Kawhi Leonard signed a four-year, $28-million marketing contract with the company, which reportedly performed no duties. The issue has raised concerns about how players are circumventing the NBA’s salary cap.

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The team lost the $300-million sponsorship deal and an additional $20 million paid for carbon offset purchases.

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Monterey Park takes landmark vote on banning data centers

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Monterey Park takes landmark vote on banning data centers

Residents in the city of Monterey Park will be the first in the nation to vote on a permanent ban on data centers Tuesday.

If approved, Measure NDC would prohibit data centers within the city limits and could only be overturned by another vote.

Yard signs saying “No Data Center” in English and Chinese with images of dragons line sidewalks in the San Gabriel Valley city.

As a wave of data center opposition sweeps the country, numerous towns and counties across the U.S. have instituted temporary moratoria and other restrictions on the facilities. But only a handful have instituted indefinite bans, and just four other towns have sent related matters to the ballot.

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Supporters are hoping the vote will set a precedent for the rest of the region, where residents are fighting proposals in Vernon and City of Industry.

“This is about as permanent a ban as we can get,” said Steven Kung, co-founder of the group No Data Center Monterey Park. “Winning Measure NDC would send a huge message to the rest of the San Gabriel Valley about how residents don’t want data centers.”

The ballot measure emerged from the fight against a 247,000-square-foot center proposed in 2024 by the Australian-owned investment firm HMC StratCap for a residential area in Monterey Park.

The facility would have sat less than 500 feet away from the nearest home and used three times the electricity of the 60,000-person, predominantly Asian American city.

While the developer touted the potential for jobs and tax revenue, residents expressed concerns about noise and air pollution, rising electricity rates and a potential to lower property values.

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The company pulled its plans in late March following public outcry and a March 4 city council vote to extend a temporary data center moratorium and place a ban on Tuesday’s ballot.

In a letter to the city council, HMC StratCap said it would pursue a different use for the land and would not engage in a ballot measure fight.

The city council later banned data centers indefinitely, the first in California to do so, said Mayor Elizabeth Yang. But she’s still been out campaigning for the measure with all four other council members.

“If a council puts in an ordinance, a future council can reverse it too,” said Yang. “With the ballot measure, unbanning it is a lot harder because you need the entire city to vote on it.”

The measure proposes the ban “to protect air quality, drinking water resources, and public health” and “prevent impacts to electricity and water rates.”

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While California places third in the country for existing data centers with about 300 facilities, it hasn’t been a hot spot in the recent AI-driven data center boom. High electricity rates, expensive land and regulatory hurdles mean that fewer, and smaller, facilities are currently planned than in Virginia, Texas, Georgia, Illinois or Arizona.

“Most of California’s data centers are small by today’s standards,” said Shaolei Ren, an engineering professor at UC Riverside who studies how to reduce the environmental impacts of data centers. “Ten years ago, they would be medium-sized, but the power demand for new AI data centers has increased a lot.”

The average operating data center demands 45 megawatts, according to the Washington Post, while the average planned one would draw 430 MW. The one proposed for Monterey Park would have required about 50 MW at peak demand.

As proposals crop up in SoCal, they’re met with fierce opposition. Montebello, El Monte and Baldwin Park have all enacted temporary moratoria, and Alhambra recently banned data centers as part of a zoning code update. City of Industry, Vernon, City of Commerce and Santa Fe Springs are moving in the other direction, trying to court developers and streamline data center approvals. Community groups are fighting that.

Outside the San Gabriel Valley, residents of Coachella and Imperial County are showing up in droves to protest local proposals.

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Matthew Shaw, a volunteer with the Coalition for Responsible Data Center Development, who recently published a report on opposition to AI data centers, said a vote to ban them in Monterey Park “would lead to copycats, partially because so many groups are just opposed to any data center development at all.”

While there is no formal opposition to Measure NDC, some building trades like Ironworker Local 433 supported the Monterey Park data center when it was still live before city council. Those in the data center industry are lamenting the state of public opinion.

“These are multi-billion-dollar assets that are built by multi-trillion-dollar companies. These things will get done,” said Mehdi Paryavi, chairman of the International Data Center Authority. “My biggest problem is that our industry does not invest enough in community engagement.”

Paryavi said towns that seek to limit data centers are missing out on thousands of jobs generated by data center construction, operations and customers, as well as faster artificial intelligence speeds and better performance.

Kung said local community organizers are “looking at the empirical evidence” and seeing a ban as a win.

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“We’ve never seen a city that embraces a data center and is like, ‘Look how our quality of life has increased, look how all the revenue has gone into citywide improvements,’” he said. “That just doesn’t exist.”

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