Merger may be in trouble

Discover Financial (NYSE:DFS) and Capital One (CFO) quickly fell after a report that Dept. of Justice staff has concerns about the $35.3 billion deal.

The DOJ staff has come to the conclusion that the planned purchase of Discover Financial (NYSE:DFS) would harm competition in the subprime sector, according to traders, who cited a Capitol Forum report that circulated on Monday. The finding is part of draft report the agency is preparing to give to the Federal Reserve and the Office of the Comptroller of the Currency about the combination.

The deal spread widened to $16.54 after the report from $10.90 on Friday. Capital One fell 5%, while Discover Financial dropped 8.6%.

The latest update comes after a report last month that states, including New York and California are considering a lawsuit to block the combination. Bloomberg reported in October that New York Attorney General Letitia James was seeking court permission to issue subpoenas as part of an antitrust review of the deal.

Hoping for the best…let’s keep them separated