March 5, 2025 • 38 mins
Updates from the CFPB and SEC in litigation challenging rules concerning credit-card late fees and climate disclosures are among key March catalysts that BI’s litigation and policy analysts are watching. The team also discusses Nexstar and broadcasters in court March 19 over FCC limits on TV- and radio-station ownership. We’re also watching a March 24 hearing to bar experts in suits alleging Abbott and Reckitt’s Mead Johnson infant formula caused necrotizing enterocolitis. Apple may face sanctions in Epic v. Apple for violating an injunction. We expect a ruling on Elon Musk and xAI’s bid for a preliminary injunction against Sam Altman and others seeking to halt OpenAI’s conversion to for-profit status. We also discussed bank capital rules and the impact of budget talks to the health-care sector and the Inflation Reduction Act.
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Episode Transcript
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Speaker 1 (00:13):
Hello, and welcome to the Votes and Verdicts podcast, hosted
by the Litigation and policy team at Bloomberg Intelligence, the
investment research platform of Bloomberg LP. Bloomberg Intelligence has five
hundred analysts and strategists working across the globe focused on
all major markets. Our coverage includes over two thousand equities
and credits, and we have outlooks on more than ninety
(00:35):
industries and one hundred market industries, currencies, and commodities. This
podcast series examines the intersection of business policy and law,
and today we'll be looking at the litigation and policy
catalysts that we're watching in March twenty twenty five and
that we think will impact companies across a number of
different sectors. My name is Elliott Stein. I'm a senior
(00:58):
litigation analyst covering litigation in the financial sector, and I'll
be your host for today, February twenty eighth, twenty twenty five.
If you have any questions about any of the matters
that we'll be discussing on this episode, please don't hesitate
to reach out to us at your convenience with questions.
So we'll be discussing a handful of sectors and issues today. First,
(01:21):
Matt Schettenhelm, who covers TMT policy and litigation for US.
We'll discuss the March nineteenth court hearing where Nextstar and
other broadcasters will present their arguments and a challenge to
the FCC's limits on TV and radio station ownership. After that,
Holly Frome, who covers consumer and industrials litigation and policy,
(01:41):
and also healthcare litigation. We'll discuss the March twenty fourth
here into bar experts and suits alleging that infant formulas
made by Abbott and Records meet Johnson Unit caused necritizing
terra colitis. After that, we'll talk antitrust, and we'll bring
in Jen Reed to talk about Epic Games versus Apple
and an anticipated ruling by the judge in that litigation
(02:04):
on whether to sanction Apple for violating an injunction imposed
after its app store rules were found to violate California law.
After that, Justin Teresi will discuss the rule and he
expects in litigation by Elon Musk and XAI against Sam
Altman and others seeking to halt open ais conversion to
(02:25):
for profit status. Then we'll move on to healthcare and
we'll bring in Dwayne Wright, who covers health care policy
out of Washington, DC, and he'll update us on potential
cuts of ten billion dollars to medicare advantage as part
of the ongoing budget negotiations and why that matters for
companies like Humana and United Health. Well, then close out
(02:47):
with financials. First, we'll bring in Nathan Dean, our financials
policy analyst also in Washington, d C, to talk some
more about reconciliation and FED chair Jerome Powells testimony recently
concerned and in bank capital rules. And then I'll wrap
it all up with a pair of cases I'm watching
challenging Biden era financial regulations, one concerning the CFPB rule
(03:10):
that would cost credit card issuers about ten billion dollars
in late fees, and the other is the SEC's climate
disclosure rule. All of our research is available on the
Bloomberg terminal at bi GO. But with all that out
of the way, let's get started with the content. Matt Settinhelm,
let's start with you. Bring you in to talk about
(03:32):
limits on TV and radio station ownership. You're tracking litigation
by Nextstar and other broadcasters they sued to challenge such limits,
and it sounds like there's a key hearing you'll be
watching on March nineteenth. In that case, you want to
come in, Yes, tell us about the case, tell us
about the hearing and why it all matters.
Speaker 2 (03:51):
Yeah, thanks Elliott. Yes, circle March nineteenth on your calendar.
If you're an investor in US broadcast companies. One of
the things that most interesting for broadcasters under the Trump
administration is whether they're finally going to escape longstanding regulation
that they face that their competition from, you know, internet
(04:13):
based companies don't face. And one of the most important
areas of regulation is is these FCC media ownership rules
that limit how many TV and radio stations these US
companies can own. They've been on the books for decades,
and I think finally there's a chance for the companies
(04:37):
to chip away at them. So what happens March nineteenth?
That's the day that the National Association of Broadcasters and
Nexstar and other companies will present oral argument to a
three judge panel at the a Circuit Court of Appeals,
a federal Court of Appeals in Saint Louis, and the
broadcasters are challenging a Biden era FCC order from decem
(05:00):
member of twenty twenty three that basically said, look, we're
going to keep all of our broadcast ownership rules in place,
and in some cases, we're even going to tighten those rules.
And so what's at issue here is a challenge to
that decision by the Biden.
Speaker 3 (05:16):
FCC to keep the rules.
Speaker 2 (05:18):
But what's really fascinating about it is is that the
broadcasters aren't just asking this court to strike down that
order keeping the rules. They're asking the court to go
further and just wipe the rules off the books entirely,
these long standing rules. That's an unusual request, not something
that a court of appeals would typically do. But the
(05:39):
FCC's response to it was was pretty weak in my view.
And the key thing to know here is that this
is a very favorable court for the industry. The case
will be heard by three Republican appointed judges. Again, this
is at the Eighth Circuit Court of Appeals in Saint Louis.
And so my question isn't whether the FCC will lose.
(06:01):
I think it will lose. The question is how badly
will it lose? And so you know, I put it
about an eighty percent chance of an FCC loss, but
a forty percent chance of sort of that drastic remedy
that the industry is seeking, that these rules just get
stricken from the books entirely. And so that's a real
possibility here. So and the reason that matters is timing.
(06:24):
If the court keeps the rules on the books, the
Trump FCC, I do think, is going to work to
tear those rules down, to take them down, but that
has to go through the Administrative Procedure Act, and so
that takes six to nine months in a rule making.
If the court rules in this case to wipe the
rules off the books, that could expedite the deregulation. So again,
(06:45):
hearing March nineteenth, we'll get a chance to look at
how these three judges are thinking about this case. They'll
issue a decision three to six months later. I think
it should go well for the industry. The only question
is how well with that. I'll toss it back to you.
Speaker 3 (07:01):
Great.
Speaker 1 (07:01):
Thanks a lot, Matt. We'll definitely look forward to seeing
your updates after the hearing. All right, Holly from Let's
bring you in to talk about Abbott and Recorts meet
Johnson Unit. Those companies are facing lawsuits alleging that their
pre term infant formulas caused necritizing enterra colitis. Can you
tell us more about that litigation and what you're watching
(07:24):
for this March twenty fourth, Here into bar.
Speaker 4 (07:26):
Experts, Thanks Elliott, Abbot and recorts meet Johnson, having sued
over one thousand buy over one thousand plaintiffs alleging preterm
infant formula causes necrotizing intro colitis, which is an intestinal disease.
Speaker 5 (07:40):
It's very serious, it could be to lifelong complications. Plaintiffs
counsel at a hearing suggested that there could ultimately be
ten thousand cases filed, so the motions coming up are
very important. There have been three verdicts so far, all
from state court. Two were for plainus and collectively they
totaled over a halfn billion dollars, and there was also
one defense for an We estimate about half of the
(08:02):
cases so far have been filed in federal court. Where
as you mentioned, we were waiting hearings on bidstabur or
plaintiff's experts. Those hearings are set to take place March
twenty fourth. If those motions are granted, federal cases likely
get dismissed because plaintiffs cannot prove their case without an expert.
We've said we think plaintiffs will have a harder time
in federal court admitting experts. From what we've read in
(08:24):
the briefing, it looks like plainiffs experts will have weaknesses,
primarily because they cannot identify the dose required to cause
a problem, and one causation expert relies on animal studies
rather than human studies, which are known to be you know,
have a less evidentiary persuasion than human studies. Still, the
(08:45):
briefing is incomplete, but we expect we may get a
better idea of what the judge is thinking at the
hearing in March, and we expect a decision on that
motion before the first trial, which is set for May.
And with that, I'll turn it back to you, Elliott.
Speaker 1 (09:01):
Great, Thanks Oli. All right, Jenrie, let's bring you into
talk antitrust Epic Games versus Apple. I know, from what
you've told me before, the judge previously found that Apple's
app store rules violated California law. But it sounds like
maybe Apple is in violation of an injunction related to that.
Why don't you come in remind us what the case
(09:22):
is about, what type of sanctions Apple might face if
the court finds it is indeed in violation of an injunction.
Speaker 6 (09:28):
Yeah, thanks Elliott. So really, honestly, this is a continuing
saga of a matter that should have concluded a long
time ago, because Epic Games originally sued Apple in August
of twenty twenty, and the litigation completed in total January
of last year, when the Supreme Court refused to hear
appeals by both companies, Epic and Apple of a Ninth
Circuit ruling. So finally, Apple's reckoning on this is kind
(09:52):
of coming and I think soon in the next couple months.
And honestly, it could cost the company billions of dollars
in app store revenue. So as a recap because it
has been a winding road. When Epics sued Apple back
in August of twenty twenty, it was about rules for
its app store and iOS. Generally, Apple operates as a
walled garden, and what that means is that it generally
(10:13):
maintains control of any apps that you can download on
its mobile devices. So the app store, you know, as
we know, whoever has an Apple phone is the only
distribution point for apps that you might want. And if
you make any app purchases that takes place in the
App Store and always flows through Apple's own payment processing systems. Now,
Epic is a really big digital gaming company, and it
(10:35):
wanted its own storefront on Apple devices. Google too, but
that's a whole different litigation. And it wanted the ability
to use its own payment processors for purchases of its
games in the app Store. Now, this is not just
because it wants to sell apps and make some money
doing that, but it also didn't want to pay Apple's fees,
and those fees are pretty high. So for transactions in
(10:55):
the app Store, they are fifteen percent and thirty percent,
depending on the size of the developer, whether they're under
a million in revenue per year or over. So when
it sued Apple from anopolization, it claimed that it was
unlawfully monopolizing the distribution of apps on iOS devices and
the payment for apps. Now, oddly, because I just set
a reckonings coming for Apple, Epic did lose on all
(11:17):
of its anti trust claims, and that's mostly because the
judge disagreed with the way Epic defined the market In antitrust,
this can often be the downfall of plaintiffs. It's really
kind of a dispositive issue. Epic kind of said, Apple
doesn't compete with any other entity, but the judge said, well,
it's really a mobile digital gaming market where Apple does
(11:38):
compete with others and doesn't have monopoly power. But the
thing is that judge did find that one of Apple's
rules violated a California's state law prohibiting unfair business practices,
and these are Apple's anti steering rules. These prevent developers
from communicating with users within the app in the app store.
So if the developer, let's say, offer that app for
(11:58):
a lower price on its own way website, they can't
communicate that to a user within the app, as that
user may be opening the app for the first time.
So she ordered Apple to drop the rules and then
also to allow developers to communicate within the app to
users and to include a link so a user could
click that link to take them out of the app
store into the web, and they could pay for the
(12:19):
purchase in the web if they wanted to. Apple had
to comply. Once the Supreme Court ruled in January of
twenty twenty four, I guess I should say refuse to
hear the appeal, and it said it had done so.
In March of last year, but Epic challenged its compliance
and asked the court to find Apple in contempt. And
that's because as part of its compliance, what Apple did,
(12:40):
which is that it charged developers twelve percent and twenty
seven percent as opposed to the fifteen percent and thirty
percent for any purchases that started in the app store
but then ultimately were made on the web. Now here's
the thing. Developers have to pay at least three percent
or more for payment processing in their own website, so
this didn't change their costs and it essentially disincentivized any
(13:02):
developer from actually taking up this option of including this link.
So there were hearings on epics challenge last May last
year and also this week. The judge is expecting post
heering briefing on both sets of hearings by March seventh,
and she has said she's going to rule very quickly
after that, So in my mind, I think that's going
to be about a month. She is visibly angry with Apple,
(13:25):
so I think not only is she going to find
the company in contempt civil contempt, I think there will
be ramifications for the injunction and compliance with the injunction.
Now a contemporarily might just mean a fine, which I
don't think will be material to Apple. But where they're
going to end up here is that they're going to
have to charge much lower fees or no fees at
(13:46):
all for these purchases that are linked out of the
app store. Apple makes billions of dollars in App store revenue,
and the majority of that comes from the twenty to
thirty biggest apps. Those are the ones that can easily
set up payment within their own websites and use this
linking out option. And Apple's own finance department has modeled
the impact on Apple of a lower fee or even
(14:07):
no fee. Now, those figures were kept confidential in the hearings,
but what was clear is that it could be in
the multimillions, if not billions of dollars if they have
to drastically lower that fee. So, like I said, the
judge is going to decide soon within a month. I
think after that it's just going to just give Apple
whatever time it technically it needs to make the technological
(14:28):
changes to implement whatever it needs to implement here. And
so that means very likely this year, and that is it.
Back to you, elliott O.
Speaker 1 (14:37):
Thanks Jen All right, justin let's bring you in to
talk some Elon, Musk and Ai, because I mean, how
can we have an episode that doesn't touch on either
of those things, much less both. At the same time,
you're following this case where Musk and his company Xai
are trying to stop Sam Altman from converting open Ai
(14:59):
from a non time to a for profit. Hopefully I
have that all right, But why don't you come in
and make sure I have that right and get us
up to speed on the case and why it's important
for investors exactly.
Speaker 3 (15:10):
I know that that's really right, And you know, Matt
and I have been taking a look at this case here.
It's everybody's favorite subjects I think rolled into one litigation
at least at the moment, we've got Elon and Musk
on one side, Sam Altman on the other, and we're
really looking at Ai and the development of both of
their companies moving forward here from a competitive standpoint. If
this one seems a little bit haywire, that's because it
(15:31):
really is. So we're looking here at the third amendic
complaint now in a lawsuit. The last two were withdrawn
by Musk and Xai before a court could even rule
on the dismissal for the case. So we're really getting
our first look here as to whether or not there's
anything to the allegations that have been brought by Musk.
And here this is where the case gets a little crazy.
There are twenty six distinct, distinct counts claims in this
(15:54):
case alone, so really every corner of the law that
you could think of is involved with this litigation. Really,
looking back to my own first year of law school here,
I can't tell you how many different classes have really
come into play, but trying to understand what's happening with
the litigation here moving forward, the case appears personal in
several different ways. It's really aimed at slowing the growth
(16:14):
of a open AI, we think, but it does purport
to open a space to more AI competitors for consumer
facing aspects of AI and how it develops moving forward. So,
originally the case was just Elon Musk and XAI versus
Sam Altman and open AI on a series of claims
that stemmed from Musk's original fifty million dollar donation to
(16:35):
open AI that was made several years ago. Other claims
in the lawsuit now are really the standing comes in
on the grounds of Xai being a competitor of open ai.
And the chief issue here is really Musks asked to
block open ai from becoming a for profit entity on
grounds that that would violate open AI's nonprofit charter, which
generally says that it's supposed to exist for the greater
(16:56):
good of humanity. So Musk's claim was relation to that,
is that to convert to a for profit status, it'd
be a breach of treedable trust under California state of law. Now,
whether Mosk has any standing to bring that particular claim,
that is in and of itself a whole issue that
is about to be the subject of ongoing motion to
dismiss briefing in the case. The case has also got
(17:17):
claims related to breaches of fiduciary duty, breaches of contract,
reco violations, you name it. It is here in this
litigation every last kind of claim you could think of
in a business context. The most recent complaint added Microsoft
and Microsoft's Cena Templeton along with ried Hoffman, has defended
in the case, and this is really on the basis
of Microsoft's fourteen billion dollar investment into open Ai and
(17:40):
their partnership that involves exchange of technology is back and
forth between each other to develop their consumer facing products.
So that's really caused us to take note now that
there's Microsoft involved in the case. It continues to be
organized in chief open AI as a nonprofit entity, but
there's several arms of the organization that are LLC's and
also named as defendants in the litigation. I kind of
(18:02):
piggyback in what Jen was saying just now about Epic vehple.
The same judge hearing that case is hearing this litigation.
She's very steep in technological issues, very steep in edge
a dress law, which we'll get to in a minute,
and the original hearing she had on a preliminary injunction
related to some of these claims. She expressed her to state,
I think at the litigants involved in the litigation, she said, quote,
(18:23):
I've got billionaires versus billionaires involved in this litigation. She
couldn't believe that there was no contract in place for
a fifty million dollar donation that Mosk made to open AI.
Just really critical of this whole situation before her in
the courtroom. And what we have here is there's a
practice around a preliminary injunction and emotion to dismiss happening
at the very same time, we think there's an eighty
(18:44):
percent chance that preliminary injunction fails on the grounds that
the accounts that were included as part of that motion,
there's really not a showing of a reparable harm here
that would meet that standard for issuing a preliminary injunction.
Musk is saying, Look, if you allow this entity to
convert to a for profit status, it's going to be
too difficult to unwind that later on. If you don't
issue preliminary injunction as to interlocked boards of directors, then
(19:07):
that's a problem for later on too. But at the moment,
there's no interlocking of the boards. And the last thing
that Musk is really accusing here under the preliminary injunction
bucket is that there's this fund no competitors edict that
basically claiming that open Ai and Sam Altman told folks
who were investing in open Ai as part of a
funding round that they couldn't invest in Xai or other competitors,
(19:28):
and that's proceeding under this group boycott theory of anti
dress law. We'll get to that why that's a little
bit of a weak argument a second, but I think
more importantly for the complaint itself and the preliminary injunction asks,
there's really no evidence outside of just anecdotes in the
media that these kinds of prohibitations were made on folks
looking to invest in both open ai and Xai. So
(19:51):
you know, again, Judge very skeptical of that claim. We
think there's a seventy percent chance that the antitrust claims
in the case are tossed as part of the dismissed
but it does appear, based on our judges comments, at
least some of these claims are going to make their
way through to discovery and possibly on to trial. The
one that really stood out as having an issue in
the judge based on the judge's comments, was this issue
(20:13):
of interlocked boards. Right, You've got Microsoft, who claims to
be a competitor with consumer facing AI products, you know,
with open Ai. But there are folks for Microsoft and
out Temple To namely in the past, who served in
an advisory function as an kind of an overseer on
the board of directors and open Ai. The judge had
had an issue with that, even though that's not in
place anymore. Saw some problems with how that was kind
(20:36):
of shape and how that rolls out from a competition standpoint,
So we could see that Clayton that claim continuing on
pass emotion to dismiss. Now, though the amended complaint doesn't
really outline monetary damages that are sought, we think the
real risk here probably stems to threats to Microsoft's partnership
with and its investment in open Ai, including that effort
to halt that conversion from open Ai to afford profitity
(20:58):
and what we think, you know, also what be an
issue here is alleged favorable pricing terms between the duo.
Open ais technology is said to be behind many of
Microsoft's new product launches, which could increase cloud revenue by
five to seven billion dollars in the next year for Microsoft,
outside of its cloud offerings like Microsoft three sixty five
Copilot could bring in another one to two billion in
sales during that span the next coming year. So not
(21:20):
small change from Microsoft here with relation to its partnership
with OpenAI. But really we think the risk here for
this partnership comes from other sources. The FTC completed a
six p study related to these Ai partnership situations just
before Lena Khan left in January. Whether the new FTC
will continue to be involved in competition issues related to
(21:41):
this partnership, that remains to be seen. We're all kind
of scratching our heads still as to what new leadership
at the FTC will do. We also note there are
already discussions underway with the California Attorney General's Office and
the Delaware Attorney General's Office taking interest in this particular case.
We think development's happening there from an enforcement perspective could
have a greater impact than what a few sure of
this partnership looks like versus this actual litigation between Musk
(22:04):
and allmen. And lastly, just kind of zeroing in here
on those those anti trust issues again, you know, the
pricing issues between the two. The judge was very skeptical
as to whether those could continue. And with relation again
to that fund of competitor's edicts where XAI is saying, look,
this isn't fair, we can't we can't be funded, you know,
if folks are banned from funding us if they participate
(22:25):
in open AI. The judges again to point out that
XAI is raised successfully billions and billions of dollars as
parts of funding arounds, we're on our way I think
to a seventy five dollars billion dollar there's discussions on
our way to a seventy five billion dollar valuation at XAI.
If that were the case that folks couldn't invest in XAI,
I think she kind of indicate already at the preliminary
injunction phase that it's hard to believe that that such
(22:47):
an edict could be in place with the amount of
funding that's actually happening. There, so a lot going on.
We think of ruling on that preliminary injunction is luckily
to deep be denied sometime in March, and a ruling
on the motion dismiss we're expecting that other than a
second or third order this year.
Speaker 1 (23:01):
BAK to you, Elliott, great, thanks justin. All right, let's
move on to healthcare, Dwayne. Let's bring you in. Lots
of talk, lots of drama with the budget negotiations going
on in DC. You've written that Humana and United Health
and other Medicare advantage plans could see over ten billion
dollars in cuts as early as twenty twenty seven. Why
(23:23):
don't you come in tell us more about that and
how you think that might play out.
Speaker 7 (23:28):
Thanks Elliott, So I would say at this point, you know,
a maid's not on the table in terms of potential cuts.
The focus has been on Medicaid, but when you hear
stories about the DOJ and Senator Grassley looking into billing
practices for these companies, specifically targeting United Health, it does
(23:54):
make me wonder if the door does become a bit
more open to Medicare cuts, especially given the pushback we've
seen from Republicans about potential Medicaid cuts. And so maybe
to take a small step back to provide some background,
private health plans in Medicare get extra payment for beneficiaries
that are above average in terms of their risk profile.
(24:18):
In other words, they're less healthy than your average Medicare beneficiary.
And the goal is twofold one to ensure that these
plans don't market to a select group of patients that
are healthier, and to ensure that every beneficiary does have
access to these plans. And then also these insurers are
(24:42):
adequately compensated for treatment. But there's evidence that these plans
upcode or and or search for more diagnoses codes to
get more revenue. But there's a lack of evidence of
corresponding care. Now, the underlying law already recognizes this and
(25:06):
accounts for this so called upcoding by shaving off about
five point nine percent six percent of payments to health plans,
and this is called the coding intensity adjustment. There have
been calls for this to go higher, and that's largely
based on evidence from the Office of the Inspector General, lawsuits,
(25:29):
whistleblower lawsuits, and other events that have focused the spotlight
or shined the spotlight on these billing practices. Now, in
most cases where health plans have been dinged for this,
they've settled out the court. The cost of business of
doing this or the punishment was not all that high
(25:52):
given the amount of money that they bring in. But
I think we need to look at the Grassly Letter,
the dog investigation in a different light now because, as
I mentioned earlier, Republicans are trying to pass a reconciliation
bill that may look for offsets to offset tax cuts
(26:14):
or new spending if they can't get all of that
from certain programs like Medicaid or from hospitals. And one
could make the argument that Medicare advantage could be on
the table. Given some concerns here. Now, let's put this
in perspective though, when you had mentioned the potential ten
(26:34):
billion dollars in cuts, when you go over ten years,
that's probably about one hundred and forty hundred and fifty billion,
depending on when you start it. Medicare payment for private
health plans by twenty thirty three will be about one
trillion dollars. It's about half of all Medicare spending. So
(26:55):
it's a bit of a drop in the bucket for
some of these companies and for this sector as a whole.
But for the purposes of meeting revenue targets or saving targets,
this could be a place to go with these billing
concerns as an excuse. Now it's early innings. We still
need the House and Senate to agree on a budget
and then to find the underlying cuts, So stay tuned
(27:19):
for some potential clarity on where they'll go overall and
how this may or may not impact Medicare advantage. And
with that, I'll turn it back to you.
Speaker 1 (27:29):
Great, thanks a lot, Dwayne. All Right, let's stick with
d C, but let's move over to the financial sector. Nathan.
Let's bring you in to talk a little bit more
about reconciliation. Dwayne touched on it, but what are you
looking at in terms of the financial sector? And also,
(27:50):
I know FED shared your own Powell testified before Congress,
I don't know last week of the week before. Wanted
to remind us what he said, in particular the future
of bank capital rules.
Speaker 8 (28:02):
Yeah, so let's start with the Federal Reserve first. I mean,
so today we're recording this on February twenty eighth. This
is also the date that Michael Barr, who is the
FED Vice Chair for Supervision, is going to leave that post. Now,
he's going to remain as a board governor, but he's
not going to be the FED Vice chair anymore. And
that position is the one who really drives the regulatory
agenda now. Dream Powell testified to Senate Banking and House
(28:24):
Financial Services. He essentially said a couple of things. He
said first that this position, the FED Vice chair position,
does bring a little bit more political instability to the FED.
And that's certainly interesting because our working theory at this
point is because Michael Barr is staying on the FED
board but not leaving. President Trump's replacements or potential replacements
(28:46):
that he could pick is fairly fairly limited. I mean,
there is some thought out there that FED Governor Michelle
Bowman could be the next Vice Chair of Supervision. But
our take is is that we think that this position
is essentially going to be left open for a while.
Speaker 1 (29:00):
Results.
Speaker 8 (29:00):
You know, you may have heard me say this in
other broadcasts, but you know, bank capital and bank regulation
is going to have this great pause of twenty twenty five.
Speaker 2 (29:09):
Now.
Speaker 8 (29:09):
Jerome Paul also said a couple of things in this
hearing that were interesting. First, he reiterated the calls for
the Bosle three endgame to be renewed, reproposed, and finalized. Now,
if this happens, and we think if there's a decent
chance of it happening, it would happen in twenty twenty
six after Jerome Paul leaves. Because remember, in order to
do anything, you really need the Office of the Controur
or the Currency and the FDIC to come on board.
(29:32):
But if the Basil three endgame were to be reproposed,
we think it would be done in a capital neutral layer,
or in capital neutral manner so as to not increase
capital requirements like the proposed nine percent that we were
seeing under the end of the Biden administration. But again,
there's a couple of folks here in Washington that think
that the BOSAL three endgame shouldn't be finalized at all,
and I think that debate is going to have to
(29:53):
take place over the next six to nine months. But
the more interesting thing that Jerome Paul said is he
called for the enhanced supplemental the leverage ratio. This is
a proposal that goes back to twenty sixteen. This takes
what's known as the SLR or the EESLR in case
for the g sibs, the Bank of Americas, the JP
Morgans to the city groups of the world, puts the
American SLR on par with how it's constructed internationally. Now,
(30:16):
this is a proposal that was originally proposed to twenty sixteen,
wasn't done during the Trump administration, wasn't completed during the
Biden administration, and I don't think it's going to be
completed anytime soon this year. But within that proposal, or
within the idea of the SR, relief banks have been
pushing for treasuries and centrally clear deposits to be held
at the FED to be excluded from the SLR. This
(30:37):
happened during COVID times. It was actually a temporary emergency measure,
and State straight Bank of New York and Northern Trust
we're able to permanently get this type of relief through
a bill that passed in twenty eighteen. But the JP
Morgans and the city groups and the Bank of Americas
now want this same relief. I actually think this could happen.
(30:58):
So we have to wait and see what happens with
the OCC in the FDIC, but I could see this
proposal coming out later this year, so stay tuned on that.
I certainly think that was one of the more interesting
pieces that comes up from his testifying now when it
comes to reconciliation. Just to further support what Dwayne was
talking about, I wanted to talk about the Inflation Reduction
Act a little bit because you know, if you haven't
talked to our colleague Andrew Silverman about the tax reform,
(31:20):
you know, to extend the Trump air tax cuts using
the current baseline as policy would cost around four point
five trillion dollars to do that, and as a result,
Republicans are gonna be looking for pay for us, whether
it's Dwayne's Medicare cuts, you know, and other types of aspects.
But there are other things to keep in mind, and
that is the Inflation Reduction Act. Now, the Inflation Reduction Act,
(31:41):
this was passed to via reconciliation under the Biden administration
back in twenty twenty two. It's about four hundred and
thirty three billion dollars in terms of grants, loans, tax incentives.
Now the Trump administration has already frozen the grants. You
know that money has already been frozen. He can do
that via the executive branch. I mean, obviously there's going
to be lawsuits about this, and there are lawsuits about this,
(32:03):
But I want to talk about the congressional aspect because
Republicans have said that they would like to repeal the
ira IS as a way to help pay for these
tax cuts, and our piece that we put out on
the terminal essentially says that we don't think that's going
to happen, at least not in its entirety. The tax
cuts of many of those bush that boost US domestic
energy production, like the forty A five X tax credit
(32:27):
or the forty five C tax credit, A lot of
that has popularity within Republican states, especially Republican states in
the South, there's a lot of non US cap X
that's coming into those states that are building factories, and
you know, seven hundred jobs here, nine hundred jobs there.
And we've already seen statements, including a letter from eighteen
House Republicans to Speaker Mike Johnson saying please don't touch
these tax credits. So you know, as we get into
(32:49):
further debate of reconciliation, we're still just in the early
stages of this, but our message to clients is that
we do think the IRA is going to be tweaked.
Things like the electric vehicle tax credit, or the Greenhouse
Gas Fund or the energy efficiency rebates, those could be
on the chopping block, but when it comes to these
tax credits in particular that are key for the solar industry,
we think they're sticking around. So with that, Elliott, I'll
(33:10):
pass it back to you.
Speaker 1 (33:12):
Great, thanks a lot, Nathan. Okay, last, but not least,
I'll jump in here to talk about a couple of
cases I'm watching challenging Biden era financial regulations. One concerns
the CFPB rule that would cost credit card issuers about
ten billion dollars in late fees, and the other is
the SEC's Climate Disclosure Rule, which would require enhanced emissions
(33:33):
disclosures and climate risk disclosures for almost all companies. One
of the major themes that we're tracking is what happens
to all these Biden era rules and regulations and the
lawsuits that were filed challenging them now that Trump's regulators
are in place and no longer support the Biden error rules.
(33:53):
The CFPB credit card fee case and the SEC Climate
Disclosure Rule litigation are just a couple of example of
how that process plays out. In both instances, the rules
are on hold. In the CFPB credit card lakefee case,
the industry groups challenging the rule one a preliminary injunction
in court that put the rule on hold while the
(34:15):
litigation plays out. And in the SEC Climate Disclosure rule case,
the agency itself put the rule on hold after the
litigation was filed so that you could see how the
litigation plays out as well. In the CFIB case, the
court reached just a couple of weeks ago asked the
(34:36):
new CFB leadership to tell the court by March twelfth
how it plans to proceed in that litigation. And in
the SEC case, the new interim leadership at the SEC
issued a statement that it no longer supports the SEC
Climate Disclosure Rule, and it asked the Eighth Circuit or
told the Eighth Circuit that the agency would update the
(34:57):
court by March twenty eighth about how it wants to
proceed in that litigation. Written arguments are done in the
SEC Climate dis Disclosure Rule case, and so we're just
waiting for the Eighth Circuit to schedule argument. And the
SEC basically told the court, Hey, you know, before you
schedule anything, let us tell you how we plan to proceed.
So again, we think both these cases are good examples
(35:19):
where the agency will no longer wish to defend the
Biden era rules in court. But you know, I tend
to think that the industry groups that sued may want
to press on with their litigation because they probably have
pretty strong convictions that they're likely to get good court decisions.
And so in that scenario, if that happens and the
(35:41):
agencies don't want to support the rules anymore, then most
likely third parties, whether they be blue states or progressive
trade groups might intervene in the litigation to defend the rules.
If the Trump administration no longer wants to and If
that happens, we expect both rules to fall in court
on the merits. But again, these are just two examples
(36:02):
that we're watching. Not every case will play out the
same way. In some cases, you know, with some rules
like the cfpp's overdraft rule, you know that's likely to
get struck down by the Congressional Review Act. And then
in other cases, you know, litigation may go on hold
completely and the rule will then get rescinded via the
(36:23):
regulatory process, which.
Speaker 3 (36:25):
Takes some time.
Speaker 1 (36:27):
And just one other thing I'm watching. There's a lot
of cases I'm sure everyone is aware of these, in
which the Trump administration has fired the head of a
federal agency terminated that person, and that fired person then
turns around ensues the administration, challenging the president's authority to
(36:47):
fire them. The agencies so far that are involved in
these cases are the National Labor Relations Board, the Office
of Special Counsel, and the Merit Systems Protection Board. But
I'm really watching these because I'm interested in what these
cases mean for President Trump's ability to fire Federal Reserve
Board members, including fed. Shared's your own Powell, I won't
(37:10):
you know, in the interest of time, I'm not going
to go into detail right now on this episode, but
i have published a note on this on the terminal
a couple of weeks ago, and I'm happy to answer
any questions if any listeners want to reach out. But
with that, we will wrap up this episode of Votes
and Verdicts. As always, thank you for listening. As a reminder,
(37:31):
you can find all of our research on the Bloomberg
Terminal at big and we encourage you to reach out
to us with any questions that you may have, and
we also encourage you to listen to other episodes of
Votes and Verdicts on whatever platform do you like to
get your favorite podcasts. Thanks for listening and have a
Speaker 2 (37:48):
Great day at to
Hello, and welcome to the Votes and Verdicts podcast, hosted
by the Litigation and policy team at Bloomberg Intelligence, the
investment research platform of Bloomberg LP. Bloomberg Intelligence has five
hundred analysts and strategists working across the globe focused on
all major markets. Our coverage includes over two thousand equities
and credits, and we have outlooks on more than ninety
(00:35):
industries and one hundred market industries, currencies, and commodities. This
podcast series examines the intersection of business policy and law,
and today we'll be looking at the litigation and policy
catalysts that we're watching in March twenty twenty five and
that we think will impact companies across a number of
different sectors. My name is Elliott Stein. I'm a senior
(00:58):
litigation analyst covering litigation in the financial sector, and I'll
be your host for today, February twenty eighth, twenty twenty five.
If you have any questions about any of the matters
that we'll be discussing on this episode, please don't hesitate
to reach out to us at your convenience with questions.
So we'll be discussing a handful of sectors and issues today. First,
(01:21):
Matt Schettenhelm, who covers TMT policy and litigation for US.
We'll discuss the March nineteenth court hearing where Nextstar and
other broadcasters will present their arguments and a challenge to
the FCC's limits on TV and radio station ownership. After that,
Holly Frome, who covers consumer and industrials litigation and policy,
(01:41):
and also healthcare litigation. We'll discuss the March twenty fourth
here into bar experts and suits alleging that infant formulas
made by Abbott and Records meet Johnson Unit caused necritizing
terra colitis. After that, we'll talk antitrust, and we'll bring
in Jen Reed to talk about Epic Games versus Apple
and an anticipated ruling by the judge in that litigation
(02:04):
on whether to sanction Apple for violating an injunction imposed
after its app store rules were found to violate California law.
After that, Justin Teresi will discuss the rule and he
expects in litigation by Elon Musk and XAI against Sam
Altman and others seeking to halt open ais conversion to
(02:25):
for profit status. Then we'll move on to healthcare and
we'll bring in Dwayne Wright, who covers health care policy
out of Washington, DC, and he'll update us on potential
cuts of ten billion dollars to medicare advantage as part
of the ongoing budget negotiations and why that matters for
companies like Humana and United Health. Well, then close out
(02:47):
with financials. First, we'll bring in Nathan Dean, our financials
policy analyst also in Washington, d C, to talk some
more about reconciliation and FED chair Jerome Powells testimony recently
concerned and in bank capital rules. And then I'll wrap
it all up with a pair of cases I'm watching
challenging Biden era financial regulations, one concerning the CFPB rule
(03:10):
that would cost credit card issuers about ten billion dollars
in late fees, and the other is the SEC's climate
disclosure rule. All of our research is available on the
Bloomberg terminal at bi GO. But with all that out
of the way, let's get started with the content. Matt Settinhelm,
let's start with you. Bring you in to talk about
(03:32):
limits on TV and radio station ownership. You're tracking litigation
by Nextstar and other broadcasters they sued to challenge such limits,
and it sounds like there's a key hearing you'll be
watching on March nineteenth. In that case, you want to
come in, Yes, tell us about the case, tell us
about the hearing and why it all matters.
Speaker 2 (03:51):
Yeah, thanks Elliott. Yes, circle March nineteenth on your calendar.
If you're an investor in US broadcast companies. One of
the things that most interesting for broadcasters under the Trump
administration is whether they're finally going to escape longstanding regulation
that they face that their competition from, you know, internet
(04:13):
based companies don't face. And one of the most important
areas of regulation is is these FCC media ownership rules
that limit how many TV and radio stations these US
companies can own. They've been on the books for decades,
and I think finally there's a chance for the companies
(04:37):
to chip away at them. So what happens March nineteenth?
That's the day that the National Association of Broadcasters and
Nexstar and other companies will present oral argument to a
three judge panel at the a Circuit Court of Appeals,
a federal Court of Appeals in Saint Louis, and the
broadcasters are challenging a Biden era FCC order from decem
(05:00):
member of twenty twenty three that basically said, look, we're
going to keep all of our broadcast ownership rules in place,
and in some cases, we're even going to tighten those rules.
And so what's at issue here is a challenge to
that decision by the Biden.
Speaker 3 (05:16):
FCC to keep the rules.
Speaker 2 (05:18):
But what's really fascinating about it is is that the
broadcasters aren't just asking this court to strike down that
order keeping the rules. They're asking the court to go
further and just wipe the rules off the books entirely,
these long standing rules. That's an unusual request, not something
that a court of appeals would typically do. But the
(05:39):
FCC's response to it was was pretty weak in my view.
And the key thing to know here is that this
is a very favorable court for the industry. The case
will be heard by three Republican appointed judges. Again, this
is at the Eighth Circuit Court of Appeals in Saint Louis.
And so my question isn't whether the FCC will lose.
(06:01):
I think it will lose. The question is how badly
will it lose? And so you know, I put it
about an eighty percent chance of an FCC loss, but
a forty percent chance of sort of that drastic remedy
that the industry is seeking, that these rules just get
stricken from the books entirely. And so that's a real
possibility here. So and the reason that matters is timing.
(06:24):
If the court keeps the rules on the books, the
Trump FCC, I do think, is going to work to
tear those rules down, to take them down, but that
has to go through the Administrative Procedure Act, and so
that takes six to nine months in a rule making.
If the court rules in this case to wipe the
rules off the books, that could expedite the deregulation. So again,
(06:45):
hearing March nineteenth, we'll get a chance to look at
how these three judges are thinking about this case. They'll
issue a decision three to six months later. I think
it should go well for the industry. The only question
is how well with that. I'll toss it back to you.
Speaker 3 (07:01):
Great.
Speaker 1 (07:01):
Thanks a lot, Matt. We'll definitely look forward to seeing
your updates after the hearing. All right, Holly from Let's
bring you in to talk about Abbott and Recorts meet
Johnson Unit. Those companies are facing lawsuits alleging that their
pre term infant formulas caused necritizing enterra colitis. Can you
tell us more about that litigation and what you're watching
(07:24):
for this March twenty fourth, Here into bar.
Speaker 4 (07:26):
Experts, Thanks Elliott, Abbot and recorts meet Johnson, having sued
over one thousand buy over one thousand plaintiffs alleging preterm
infant formula causes necrotizing intro colitis, which is an intestinal disease.
Speaker 5 (07:40):
It's very serious, it could be to lifelong complications. Plaintiffs
counsel at a hearing suggested that there could ultimately be
ten thousand cases filed, so the motions coming up are
very important. There have been three verdicts so far, all
from state court. Two were for plainus and collectively they
totaled over a halfn billion dollars, and there was also
one defense for an We estimate about half of the
(08:02):
cases so far have been filed in federal court. Where
as you mentioned, we were waiting hearings on bidstabur or
plaintiff's experts. Those hearings are set to take place March
twenty fourth. If those motions are granted, federal cases likely
get dismissed because plaintiffs cannot prove their case without an expert.
We've said we think plaintiffs will have a harder time
in federal court admitting experts. From what we've read in
(08:24):
the briefing, it looks like plainiffs experts will have weaknesses,
primarily because they cannot identify the dose required to cause
a problem, and one causation expert relies on animal studies
rather than human studies, which are known to be you know,
have a less evidentiary persuasion than human studies. Still, the
(08:45):
briefing is incomplete, but we expect we may get a
better idea of what the judge is thinking at the
hearing in March, and we expect a decision on that
motion before the first trial, which is set for May.
And with that, I'll turn it back to you, Elliott.
Speaker 1 (09:01):
Great, Thanks Oli. All right, Jenrie, let's bring you into
talk antitrust Epic Games versus Apple. I know, from what
you've told me before, the judge previously found that Apple's
app store rules violated California law. But it sounds like
maybe Apple is in violation of an injunction related to that.
Why don't you come in remind us what the case
(09:22):
is about, what type of sanctions Apple might face if
the court finds it is indeed in violation of an injunction.
Speaker 6 (09:28):
Yeah, thanks Elliott. So really, honestly, this is a continuing
saga of a matter that should have concluded a long
time ago, because Epic Games originally sued Apple in August
of twenty twenty, and the litigation completed in total January
of last year, when the Supreme Court refused to hear
appeals by both companies, Epic and Apple of a Ninth
Circuit ruling. So finally, Apple's reckoning on this is kind
(09:52):
of coming and I think soon in the next couple months.
And honestly, it could cost the company billions of dollars
in app store revenue. So as a recap because it
has been a winding road. When Epics sued Apple back
in August of twenty twenty, it was about rules for
its app store and iOS. Generally, Apple operates as a
walled garden, and what that means is that it generally
(10:13):
maintains control of any apps that you can download on
its mobile devices. So the app store, you know, as
we know, whoever has an Apple phone is the only
distribution point for apps that you might want. And if
you make any app purchases that takes place in the
App Store and always flows through Apple's own payment processing systems. Now,
Epic is a really big digital gaming company, and it
(10:35):
wanted its own storefront on Apple devices. Google too, but
that's a whole different litigation. And it wanted the ability
to use its own payment processors for purchases of its
games in the app Store. Now, this is not just
because it wants to sell apps and make some money
doing that, but it also didn't want to pay Apple's fees,
and those fees are pretty high. So for transactions in
(10:55):
the app Store, they are fifteen percent and thirty percent,
depending on the size of the developer, whether they're under
a million in revenue per year or over. So when
it sued Apple from anopolization, it claimed that it was
unlawfully monopolizing the distribution of apps on iOS devices and
the payment for apps. Now, oddly, because I just set
a reckonings coming for Apple, Epic did lose on all
(11:17):
of its anti trust claims, and that's mostly because the
judge disagreed with the way Epic defined the market In antitrust,
this can often be the downfall of plaintiffs. It's really
kind of a dispositive issue. Epic kind of said, Apple
doesn't compete with any other entity, but the judge said, well,
it's really a mobile digital gaming market where Apple does
(11:38):
compete with others and doesn't have monopoly power. But the
thing is that judge did find that one of Apple's
rules violated a California's state law prohibiting unfair business practices,
and these are Apple's anti steering rules. These prevent developers
from communicating with users within the app in the app store.
So if the developer, let's say, offer that app for
(11:58):
a lower price on its own way website, they can't
communicate that to a user within the app, as that
user may be opening the app for the first time.
So she ordered Apple to drop the rules and then
also to allow developers to communicate within the app to
users and to include a link so a user could
click that link to take them out of the app
store into the web, and they could pay for the
(12:19):
purchase in the web if they wanted to. Apple had
to comply. Once the Supreme Court ruled in January of
twenty twenty four, I guess I should say refuse to
hear the appeal, and it said it had done so.
In March of last year, but Epic challenged its compliance
and asked the court to find Apple in contempt. And
that's because as part of its compliance, what Apple did,
(12:40):
which is that it charged developers twelve percent and twenty
seven percent as opposed to the fifteen percent and thirty
percent for any purchases that started in the app store
but then ultimately were made on the web. Now here's
the thing. Developers have to pay at least three percent
or more for payment processing in their own website, so
this didn't change their costs and it essentially disincentivized any
(13:02):
developer from actually taking up this option of including this link.
So there were hearings on epics challenge last May last
year and also this week. The judge is expecting post
heering briefing on both sets of hearings by March seventh,
and she has said she's going to rule very quickly
after that, So in my mind, I think that's going
to be about a month. She is visibly angry with Apple,
(13:25):
so I think not only is she going to find
the company in contempt civil contempt, I think there will
be ramifications for the injunction and compliance with the injunction.
Now a contemporarily might just mean a fine, which I
don't think will be material to Apple. But where they're
going to end up here is that they're going to
have to charge much lower fees or no fees at
(13:46):
all for these purchases that are linked out of the
app store. Apple makes billions of dollars in App store revenue,
and the majority of that comes from the twenty to
thirty biggest apps. Those are the ones that can easily
set up payment within their own websites and use this
linking out option. And Apple's own finance department has modeled
the impact on Apple of a lower fee or even
(14:07):
no fee. Now, those figures were kept confidential in the hearings,
but what was clear is that it could be in
the multimillions, if not billions of dollars if they have
to drastically lower that fee. So, like I said, the
judge is going to decide soon within a month. I
think after that it's just going to just give Apple
whatever time it technically it needs to make the technological
(14:28):
changes to implement whatever it needs to implement here. And
so that means very likely this year, and that is it.
Back to you, elliott O.
Speaker 1 (14:37):
Thanks Jen All right, justin let's bring you in to
talk some Elon, Musk and Ai, because I mean, how
can we have an episode that doesn't touch on either
of those things, much less both. At the same time,
you're following this case where Musk and his company Xai
are trying to stop Sam Altman from converting open Ai
(14:59):
from a non time to a for profit. Hopefully I
have that all right, But why don't you come in
and make sure I have that right and get us
up to speed on the case and why it's important
for investors exactly.
Speaker 3 (15:10):
I know that that's really right, And you know, Matt
and I have been taking a look at this case here.
It's everybody's favorite subjects I think rolled into one litigation
at least at the moment, we've got Elon and Musk
on one side, Sam Altman on the other, and we're
really looking at Ai and the development of both of
their companies moving forward here from a competitive standpoint. If
this one seems a little bit haywire, that's because it
(15:31):
really is. So we're looking here at the third amendic
complaint now in a lawsuit. The last two were withdrawn
by Musk and Xai before a court could even rule
on the dismissal for the case. So we're really getting
our first look here as to whether or not there's
anything to the allegations that have been brought by Musk.
And here this is where the case gets a little crazy.
There are twenty six distinct, distinct counts claims in this
(15:54):
case alone, so really every corner of the law that
you could think of is involved with this litigation. Really,
looking back to my own first year of law school here,
I can't tell you how many different classes have really
come into play, but trying to understand what's happening with
the litigation here moving forward, the case appears personal in
several different ways. It's really aimed at slowing the growth
(16:14):
of a open AI, we think, but it does purport
to open a space to more AI competitors for consumer
facing aspects of AI and how it develops moving forward. So,
originally the case was just Elon Musk and XAI versus
Sam Altman and open AI on a series of claims
that stemmed from Musk's original fifty million dollar donation to
(16:35):
open AI that was made several years ago. Other claims
in the lawsuit now are really the standing comes in
on the grounds of Xai being a competitor of open ai.
And the chief issue here is really Musks asked to
block open ai from becoming a for profit entity on
grounds that that would violate open AI's nonprofit charter, which
generally says that it's supposed to exist for the greater
(16:56):
good of humanity. So Musk's claim was relation to that,
is that to convert to a for profit status, it'd
be a breach of treedable trust under California state of law. Now,
whether Mosk has any standing to bring that particular claim,
that is in and of itself a whole issue that
is about to be the subject of ongoing motion to
dismiss briefing in the case. The case has also got
(17:17):
claims related to breaches of fiduciary duty, breaches of contract,
reco violations, you name it. It is here in this
litigation every last kind of claim you could think of
in a business context. The most recent complaint added Microsoft
and Microsoft's Cena Templeton along with ried Hoffman, has defended
in the case, and this is really on the basis
of Microsoft's fourteen billion dollar investment into open Ai and
(17:40):
their partnership that involves exchange of technology is back and
forth between each other to develop their consumer facing products.
So that's really caused us to take note now that
there's Microsoft involved in the case. It continues to be
organized in chief open AI as a nonprofit entity, but
there's several arms of the organization that are LLC's and
also named as defendants in the litigation. I kind of
(18:02):
piggyback in what Jen was saying just now about Epic vehple.
The same judge hearing that case is hearing this litigation.
She's very steep in technological issues, very steep in edge
a dress law, which we'll get to in a minute,
and the original hearing she had on a preliminary injunction
related to some of these claims. She expressed her to state,
I think at the litigants involved in the litigation, she said, quote,
(18:23):
I've got billionaires versus billionaires involved in this litigation. She
couldn't believe that there was no contract in place for
a fifty million dollar donation that Mosk made to open AI.
Just really critical of this whole situation before her in
the courtroom. And what we have here is there's a
practice around a preliminary injunction and emotion to dismiss happening
at the very same time, we think there's an eighty
(18:44):
percent chance that preliminary injunction fails on the grounds that
the accounts that were included as part of that motion,
there's really not a showing of a reparable harm here
that would meet that standard for issuing a preliminary injunction.
Musk is saying, Look, if you allow this entity to
convert to a for profit status, it's going to be
too difficult to unwind that later on. If you don't
issue preliminary injunction as to interlocked boards of directors, then
(19:07):
that's a problem for later on too. But at the moment,
there's no interlocking of the boards. And the last thing
that Musk is really accusing here under the preliminary injunction
bucket is that there's this fund no competitors edict that
basically claiming that open Ai and Sam Altman told folks
who were investing in open Ai as part of a
funding round that they couldn't invest in Xai or other competitors,
(19:28):
and that's proceeding under this group boycott theory of anti
dress law. We'll get to that why that's a little
bit of a weak argument a second, but I think
more importantly for the complaint itself and the preliminary injunction asks,
there's really no evidence outside of just anecdotes in the
media that these kinds of prohibitations were made on folks
looking to invest in both open ai and Xai. So
(19:51):
you know, again, Judge very skeptical of that claim. We
think there's a seventy percent chance that the antitrust claims
in the case are tossed as part of the dismissed
but it does appear, based on our judges comments, at
least some of these claims are going to make their
way through to discovery and possibly on to trial. The
one that really stood out as having an issue in
the judge based on the judge's comments, was this issue
(20:13):
of interlocked boards. Right, You've got Microsoft, who claims to
be a competitor with consumer facing AI products, you know,
with open Ai. But there are folks for Microsoft and
out Temple To namely in the past, who served in
an advisory function as an kind of an overseer on
the board of directors and open Ai. The judge had
had an issue with that, even though that's not in
place anymore. Saw some problems with how that was kind
(20:36):
of shape and how that rolls out from a competition standpoint,
So we could see that Clayton that claim continuing on
pass emotion to dismiss. Now, though the amended complaint doesn't
really outline monetary damages that are sought, we think the
real risk here probably stems to threats to Microsoft's partnership
with and its investment in open Ai, including that effort
to halt that conversion from open Ai to afford profitity
(20:58):
and what we think, you know, also what be an
issue here is alleged favorable pricing terms between the duo.
Open ais technology is said to be behind many of
Microsoft's new product launches, which could increase cloud revenue by
five to seven billion dollars in the next year for Microsoft,
outside of its cloud offerings like Microsoft three sixty five
Copilot could bring in another one to two billion in
sales during that span the next coming year. So not
(21:20):
small change from Microsoft here with relation to its partnership
with OpenAI. But really we think the risk here for
this partnership comes from other sources. The FTC completed a
six p study related to these Ai partnership situations just
before Lena Khan left in January. Whether the new FTC
will continue to be involved in competition issues related to
(21:41):
this partnership, that remains to be seen. We're all kind
of scratching our heads still as to what new leadership
at the FTC will do. We also note there are
already discussions underway with the California Attorney General's Office and
the Delaware Attorney General's Office taking interest in this particular case.
We think development's happening there from an enforcement perspective could
have a greater impact than what a few sure of
this partnership looks like versus this actual litigation between Musk
(22:04):
and allmen. And lastly, just kind of zeroing in here
on those those anti trust issues again, you know, the
pricing issues between the two. The judge was very skeptical
as to whether those could continue. And with relation again
to that fund of competitor's edicts where XAI is saying, look,
this isn't fair, we can't we can't be funded, you know,
if folks are banned from funding us if they participate
(22:25):
in open AI. The judges again to point out that
XAI is raised successfully billions and billions of dollars as
parts of funding arounds, we're on our way I think
to a seventy five dollars billion dollar there's discussions on
our way to a seventy five billion dollar valuation at XAI.
If that were the case that folks couldn't invest in XAI,
I think she kind of indicate already at the preliminary
injunction phase that it's hard to believe that that such
(22:47):
an edict could be in place with the amount of
funding that's actually happening. There, so a lot going on.
We think of ruling on that preliminary injunction is luckily
to deep be denied sometime in March, and a ruling
on the motion dismiss we're expecting that other than a
second or third order this year.
Speaker 1 (23:01):
BAK to you, Elliott, great, thanks justin. All right, let's
move on to healthcare, Dwayne. Let's bring you in. Lots
of talk, lots of drama with the budget negotiations going
on in DC. You've written that Humana and United Health
and other Medicare advantage plans could see over ten billion
dollars in cuts as early as twenty twenty seven. Why
(23:23):
don't you come in tell us more about that and
how you think that might play out.
Speaker 7 (23:28):
Thanks Elliott, So I would say at this point, you know,
a maid's not on the table in terms of potential cuts.
The focus has been on Medicaid, but when you hear
stories about the DOJ and Senator Grassley looking into billing
practices for these companies, specifically targeting United Health, it does
(23:54):
make me wonder if the door does become a bit
more open to Medicare cuts, especially given the pushback we've
seen from Republicans about potential Medicaid cuts. And so maybe
to take a small step back to provide some background,
private health plans in Medicare get extra payment for beneficiaries
that are above average in terms of their risk profile.
(24:18):
In other words, they're less healthy than your average Medicare beneficiary.
And the goal is twofold one to ensure that these
plans don't market to a select group of patients that
are healthier, and to ensure that every beneficiary does have
access to these plans. And then also these insurers are
(24:42):
adequately compensated for treatment. But there's evidence that these plans
upcode or and or search for more diagnoses codes to
get more revenue. But there's a lack of evidence of
corresponding care. Now, the underlying law already recognizes this and
(25:06):
accounts for this so called upcoding by shaving off about
five point nine percent six percent of payments to health plans,
and this is called the coding intensity adjustment. There have
been calls for this to go higher, and that's largely
based on evidence from the Office of the Inspector General, lawsuits,
(25:29):
whistleblower lawsuits, and other events that have focused the spotlight
or shined the spotlight on these billing practices. Now, in
most cases where health plans have been dinged for this,
they've settled out the court. The cost of business of
doing this or the punishment was not all that high
(25:52):
given the amount of money that they bring in. But
I think we need to look at the Grassly Letter,
the dog investigation in a different light now because, as
I mentioned earlier, Republicans are trying to pass a reconciliation
bill that may look for offsets to offset tax cuts
(26:14):
or new spending if they can't get all of that
from certain programs like Medicaid or from hospitals. And one
could make the argument that Medicare advantage could be on
the table. Given some concerns here. Now, let's put this
in perspective though, when you had mentioned the potential ten
(26:34):
billion dollars in cuts, when you go over ten years,
that's probably about one hundred and forty hundred and fifty billion,
depending on when you start it. Medicare payment for private
health plans by twenty thirty three will be about one
trillion dollars. It's about half of all Medicare spending. So
(26:55):
it's a bit of a drop in the bucket for
some of these companies and for this sector as a whole.
But for the purposes of meeting revenue targets or saving targets,
this could be a place to go with these billing
concerns as an excuse. Now it's early innings. We still
need the House and Senate to agree on a budget
and then to find the underlying cuts, So stay tuned
(27:19):
for some potential clarity on where they'll go overall and
how this may or may not impact Medicare advantage. And
with that, I'll turn it back to you.
Speaker 1 (27:29):
Great, thanks a lot, Dwayne. All Right, let's stick with
d C, but let's move over to the financial sector. Nathan.
Let's bring you in to talk a little bit more
about reconciliation. Dwayne touched on it, but what are you
looking at in terms of the financial sector? And also,
(27:50):
I know FED shared your own Powell testified before Congress,
I don't know last week of the week before. Wanted
to remind us what he said, in particular the future
of bank capital rules.
Speaker 8 (28:02):
Yeah, so let's start with the Federal Reserve first. I mean,
so today we're recording this on February twenty eighth. This
is also the date that Michael Barr, who is the
FED Vice Chair for Supervision, is going to leave that post. Now,
he's going to remain as a board governor, but he's
not going to be the FED Vice chair anymore. And
that position is the one who really drives the regulatory
agenda now. Dream Powell testified to Senate Banking and House
(28:24):
Financial Services. He essentially said a couple of things. He
said first that this position, the FED Vice chair position,
does bring a little bit more political instability to the FED.
And that's certainly interesting because our working theory at this
point is because Michael Barr is staying on the FED
board but not leaving. President Trump's replacements or potential replacements
(28:46):
that he could pick is fairly fairly limited. I mean,
there is some thought out there that FED Governor Michelle
Bowman could be the next Vice Chair of Supervision. But
our take is is that we think that this position
is essentially going to be left open for a while.
Speaker 1 (29:00):
Results.
Speaker 8 (29:00):
You know, you may have heard me say this in
other broadcasts, but you know, bank capital and bank regulation
is going to have this great pause of twenty twenty five.
Speaker 2 (29:09):
Now.
Speaker 8 (29:09):
Jerome Paul also said a couple of things in this
hearing that were interesting. First, he reiterated the calls for
the Bosle three endgame to be renewed, reproposed, and finalized. Now,
if this happens, and we think if there's a decent
chance of it happening, it would happen in twenty twenty
six after Jerome Paul leaves. Because remember, in order to
do anything, you really need the Office of the Controur
or the Currency and the FDIC to come on board.
(29:32):
But if the Basil three endgame were to be reproposed,
we think it would be done in a capital neutral layer,
or in capital neutral manner so as to not increase
capital requirements like the proposed nine percent that we were
seeing under the end of the Biden administration. But again,
there's a couple of folks here in Washington that think
that the BOSAL three endgame shouldn't be finalized at all,
and I think that debate is going to have to
(29:53):
take place over the next six to nine months. But
the more interesting thing that Jerome Paul said is he
called for the enhanced supplemental the leverage ratio. This is
a proposal that goes back to twenty sixteen. This takes
what's known as the SLR or the EESLR in case
for the g sibs, the Bank of Americas, the JP
Morgans to the city groups of the world, puts the
American SLR on par with how it's constructed internationally. Now,
(30:16):
this is a proposal that was originally proposed to twenty sixteen,
wasn't done during the Trump administration, wasn't completed during the
Biden administration, and I don't think it's going to be
completed anytime soon this year. But within that proposal, or
within the idea of the SR, relief banks have been
pushing for treasuries and centrally clear deposits to be held
at the FED to be excluded from the SLR. This
(30:37):
happened during COVID times. It was actually a temporary emergency measure,
and State straight Bank of New York and Northern Trust
we're able to permanently get this type of relief through
a bill that passed in twenty eighteen. But the JP
Morgans and the city groups and the Bank of Americas
now want this same relief. I actually think this could happen.
(30:58):
So we have to wait and see what happens with
the OCC in the FDIC, but I could see this
proposal coming out later this year, so stay tuned on that.
I certainly think that was one of the more interesting
pieces that comes up from his testifying now when it
comes to reconciliation. Just to further support what Dwayne was
talking about, I wanted to talk about the Inflation Reduction
Act a little bit because you know, if you haven't
talked to our colleague Andrew Silverman about the tax reform,
(31:20):
you know, to extend the Trump air tax cuts using
the current baseline as policy would cost around four point
five trillion dollars to do that, and as a result,
Republicans are gonna be looking for pay for us, whether
it's Dwayne's Medicare cuts, you know, and other types of aspects.
But there are other things to keep in mind, and
that is the Inflation Reduction Act. Now, the Inflation Reduction Act,
(31:41):
this was passed to via reconciliation under the Biden administration
back in twenty twenty two. It's about four hundred and
thirty three billion dollars in terms of grants, loans, tax incentives.
Now the Trump administration has already frozen the grants. You
know that money has already been frozen. He can do
that via the executive branch. I mean, obviously there's going
to be lawsuits about this, and there are lawsuits about this,
(32:03):
But I want to talk about the congressional aspect because
Republicans have said that they would like to repeal the
ira IS as a way to help pay for these
tax cuts, and our piece that we put out on
the terminal essentially says that we don't think that's going
to happen, at least not in its entirety. The tax
cuts of many of those bush that boost US domestic
energy production, like the forty A five X tax credit
(32:27):
or the forty five C tax credit, A lot of
that has popularity within Republican states, especially Republican states in
the South, there's a lot of non US cap X
that's coming into those states that are building factories, and
you know, seven hundred jobs here, nine hundred jobs there.
And we've already seen statements, including a letter from eighteen
House Republicans to Speaker Mike Johnson saying please don't touch
these tax credits. So you know, as we get into
(32:49):
further debate of reconciliation, we're still just in the early
stages of this, but our message to clients is that
we do think the IRA is going to be tweaked.
Things like the electric vehicle tax credit, or the Greenhouse
Gas Fund or the energy efficiency rebates, those could be
on the chopping block, but when it comes to these
tax credits in particular that are key for the solar industry,
we think they're sticking around. So with that, Elliott, I'll
(33:10):
pass it back to you.
Speaker 1 (33:12):
Great, thanks a lot, Nathan. Okay, last, but not least,
I'll jump in here to talk about a couple of
cases I'm watching challenging Biden era financial regulations. One concerns
the CFPB rule that would cost credit card issuers about
ten billion dollars in late fees, and the other is
the SEC's Climate Disclosure Rule, which would require enhanced emissions
(33:33):
disclosures and climate risk disclosures for almost all companies. One
of the major themes that we're tracking is what happens
to all these Biden era rules and regulations and the
lawsuits that were filed challenging them now that Trump's regulators
are in place and no longer support the Biden error rules.
(33:53):
The CFPB credit card fee case and the SEC Climate
Disclosure Rule litigation are just a couple of example of
how that process plays out. In both instances, the rules
are on hold. In the CFPB credit card lakefee case,
the industry groups challenging the rule one a preliminary injunction
in court that put the rule on hold while the
(34:15):
litigation plays out. And in the SEC Climate Disclosure rule case,
the agency itself put the rule on hold after the
litigation was filed so that you could see how the
litigation plays out as well. In the CFIB case, the
court reached just a couple of weeks ago asked the
(34:36):
new CFB leadership to tell the court by March twelfth
how it plans to proceed in that litigation. And in
the SEC case, the new interim leadership at the SEC
issued a statement that it no longer supports the SEC
Climate Disclosure Rule, and it asked the Eighth Circuit or
told the Eighth Circuit that the agency would update the
(34:57):
court by March twenty eighth about how it wants to
proceed in that litigation. Written arguments are done in the
SEC Climate dis Disclosure Rule case, and so we're just
waiting for the Eighth Circuit to schedule argument. And the
SEC basically told the court, Hey, you know, before you
schedule anything, let us tell you how we plan to proceed.
So again, we think both these cases are good examples
(35:19):
where the agency will no longer wish to defend the
Biden era rules in court. But you know, I tend
to think that the industry groups that sued may want
to press on with their litigation because they probably have
pretty strong convictions that they're likely to get good court decisions.
And so in that scenario, if that happens and the
(35:41):
agencies don't want to support the rules anymore, then most
likely third parties, whether they be blue states or progressive
trade groups might intervene in the litigation to defend the rules.
If the Trump administration no longer wants to and If
that happens, we expect both rules to fall in court
on the merits. But again, these are just two examples
(36:02):
that we're watching. Not every case will play out the
same way. In some cases, you know, with some rules
like the cfpp's overdraft rule, you know that's likely to
get struck down by the Congressional Review Act. And then
in other cases, you know, litigation may go on hold
completely and the rule will then get rescinded via the
(36:23):
regulatory process, which.
Speaker 3 (36:25):
Takes some time.
Speaker 1 (36:27):
And just one other thing I'm watching. There's a lot
of cases I'm sure everyone is aware of these, in
which the Trump administration has fired the head of a
federal agency terminated that person, and that fired person then
turns around ensues the administration, challenging the president's authority to
(36:47):
fire them. The agencies so far that are involved in
these cases are the National Labor Relations Board, the Office
of Special Counsel, and the Merit Systems Protection Board. But
I'm really watching these because I'm interested in what these
cases mean for President Trump's ability to fire Federal Reserve
Board members, including fed. Shared's your own Powell, I won't
(37:10):
you know, in the interest of time, I'm not going
to go into detail right now on this episode, but
i have published a note on this on the terminal
a couple of weeks ago, and I'm happy to answer
any questions if any listeners want to reach out. But
with that, we will wrap up this episode of Votes
and Verdicts. As always, thank you for listening. As a reminder,
(37:31):
you can find all of our research on the Bloomberg
Terminal at big and we encourage you to reach out
to us with any questions that you may have, and
we also encourage you to listen to other episodes of
Votes and Verdicts on whatever platform do you like to
get your favorite podcasts. Thanks for listening and have a
Speaker 2 (37:48):
Great day at to
Host
Elliott Stein
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