May 30, 2025 • 33 mins
Court rulings on May 28 and 29 deeming unlawful US tariffs on China, Canada and Mexico and reciprocal tariffs — with ramifications for retailers like Nike, automakers such as Ford, tech companies including Apple, and other sectors — are among the key catalysts Bloomberg Intelligence litigation and policy analysts are watching this week. The team also discussed President Donald Trump’s social-media posts about Fannie Mae and Freddie Mac and the complexities of exiting conservatorship and government ownership. Finally, they examined the FTC dropping its price discrimination case against PepsiCo.
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Episode Transcript
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Speaker 1 (00:15):
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 on the Bloomberg Terminal.
Bloomberg Intelligence has five hundred analysts and strategists working across
the globe and focused on all major markets. Our coverage
includes over two thousand equities and credits, and we have
(00:36):
outlooks on more than ninety industries and one hundred market industries,
currencies and commodities. This podcast series examines the intersection of
business policy and law, and today is our weekly check
in on the litigation and policy catalysts that we're watching
and that we think will impact companies across a number
of different sectors. My name is Elliott Stein. I'm an
(00:57):
analyst with Bloomberg Intelligence covering litigate in the financial sector,
and I'm delighted today as always to be joined by
a handful of my colleagues who cover litigation and policy.
And as always, you can find all of our research
on the Bloomberg terminal at BI go and more specifically
on our dashboard BI laws Go. Today is May twenty ninth,
(01:20):
twenty twenty five. It's a little after three pm, and
we always timestamp these episodes because things move very quickly. Indeed,
just last week after we recorded this episode, there was
a rule in by the Supreme Court about a matter
that we had discussed concerning whether President Trump would be
(01:41):
able to fire members of the Federal Reserve Board. We're
following a lot of cases concerning that issue, including cases
involving the National Labor Relations Board and the Merit Systems
Protection Board, and I spoke last week had those cases
could have a bearing on whether the President could fire
FED ward members and how the logic of the ruins
(02:03):
so far suggested that the President would be able to.
And then later that evening, the Supreme Court issued in
order that suggested the FED is different, or the Supreme
Court views the FED as different from other agencies, suggesting
that the President might not be able to fire members
of the Federal Reserve Board so easily. But with that said,
(02:27):
things continued to move very quickly, and just last night
we had a ruling from the Court of International Trade
essentially striking down some of the Trump administration's tariffs that
it has imposed, specifically the Liberation Day tarriffs from April second,
also called reciprocal tariffs, and then other tariffs at the
(02:50):
administration imposed related to fentanyl and border issues, and those
were tariffs on China, Canada, and Mexico. My colleague, Holly Frome,
let's bring you in. You've been following the many cases
challenging the Trump administration tariffs. You're all over these cases.
(03:12):
Why don't you come in give us a rundown of
what the ruling last night said?
Speaker 2 (03:19):
Thanks Elliott.
Speaker 3 (03:20):
So, the court said that the President exceeded his statutory
authority because the International Emergency Economic Powers Act, which is
what he used, doesn't give him power to impose the
tariffs for trade deficits.
Speaker 2 (03:39):
They said that, based on.
Speaker 3 (03:40):
The legislative history and amendments to precursor statutes, he can
only use Section one twenty two of the Trade Act,
which is a more limited statute. It allows fifteen percent
tariffs on imports for one hundred and fifty days to
address balance of payments deficits, which the court found trade
deficit is. And with respect to the tariffs on China, Canada,
(04:05):
Mexico related to fentanyl, they said that the terroriffs did
not quote deal with the Emergency sided. So that's part
of the statute AYIPA says that the president can regulate imports,
but uh to deal with an unusual extraordinary threat, and
the court found that these tariffs don't do that. One
(04:26):
of the reasons is they said the president just the
administration justified the terriffs because they say they deal with
it because it pressures the countries to change their policies
to address, you know, the crisis fentanyl and unlawful migration.
And the court said, if we found that a pressure
(04:48):
on countries deal with certain issues, then then every tariff
would be authorized.
Speaker 2 (04:56):
Everything would deal with the emergency.
Speaker 3 (05:00):
So that's why they found those were unlawful too.
Speaker 1 (05:03):
And what's your take on that case? I mean obvious
on that decision. Obviously, the Trump administration has already filed
its appeal. It's asking at this point, it's asking both
the Court of International Trade and the Federal Circuit, which
is the appellate court overseeing that court, to put a
stay on the rule in while the appeal plays out.
What do you think their chances are on appeal.
Speaker 2 (05:25):
I think that it will be affirmed.
Speaker 4 (05:26):
I don't.
Speaker 3 (05:27):
I think it will be affirmed on other grounds, but
I think it will be affirm because of that, I
think the courts won't grant stays. If they do grant stays,
I think it's an indication that they could that they'll reverse.
But because I think that they're going to affirm, I
think that they're gonna they're not going to grant to stay.
Speaker 1 (05:47):
Well, I was gonna say, what are the other grounds
you mentioned that you think they will a firm on
other grounds? What are you thinking there?
Speaker 3 (05:52):
So I think they're going to say the President exceeded
his authority when he imposed the tariffs, because I think
they're going to say the trade deficit is not an
unusual extraordinary threat, rather than saying that he must use
Section one twenty two. I don't think they're gonna say
that every time there's a trade, but no trade deficit
could ever constitute an unusual extraordinary.
Speaker 2 (06:14):
Threat under eat EP.
Speaker 3 (06:15):
I don't think they want to limit him that way,
but I do think that they'll say this case doesn't
arise to that level. And then with regard to the
ruling on the Fentanel teriffs, I don't think that the
Supreme Court is gonna want but the lower courts oponning
on what deals with an emergency and what doesn't. But
I think that the way that that could be addressed
(06:39):
is by saying that if these stats this statute allowed
for terroriffs, it would have said so. So basically, I
think that a like a major questions doctrine argument could prevail.
So the major questions doctrine says that if you're going
to if Congress is going to delegate power that has
(07:00):
such wh that gives the present power to post something
that has such wide impact on the economy, then they're
going to have to speak clearly. And I think that
they're going to say that this doesn't speak clearly enough
on the teriff issue.
Speaker 1 (07:13):
Got it. So we had that rulined yesterday, and I mean,
what's sort of interesting about that ruling and correct me
if I'm wrong. Two things. One, the Court of International
Trade is saying it had jurisdiction over these cases. And two,
it suggests that AIPA can be used in some circumstances
(07:33):
to impose tariffs, just not the way the Trump administration
was doing it, and not with respect to trade deficits.
But then we had a ruin today from the Federal
District Court in Washington, d C. Judge Contreras in a
different case that sort of took an opposite view, I guess,
and said that the Court of International Trade didn't have
(07:57):
exclusive jurisdiction over that case, and that's why he kept
the case. And he ruled in a way that suggested
AEPA could never be used for tariffs. Is that right?
Speaker 2 (08:07):
I think?
Speaker 4 (08:08):
So.
Speaker 3 (08:08):
He said that AIPA it doesn't grant the president power
to impose tariffs. There's a bunch of other statutes that
are very very clearly allow the president to impose tariffs.
Speaker 2 (08:19):
And if.
Speaker 3 (08:22):
If Congress meant to allow him to impose terraf via AEPA,
they would have said so like they do with Section
one twenty two of the Trade Act, for Section three
oh one or the Trade Acts, or Section two thirty
two of the Trade Expansion Act, all of which specifically
refer to, you know, levying duties or tariffs. So use
those words, and this this one never used those words.
(08:43):
So he says AIPA doesn't grant the power to tariff
at all, and so for that reason he said that
the International Trade.
Speaker 2 (08:52):
Court does not have jurisdiction. The District Court does.
Speaker 3 (08:57):
And what the International Trade Court was saying is that
any time a president.
Speaker 2 (09:08):
Takes action to impose tariffs.
Speaker 3 (09:11):
He uh, that action constitutes a law providing for teriffs,
which I think is a little bit circular, but that's
why they said that they had jurisdiction right.
Speaker 1 (09:24):
And and you know, we just time stamped this episode.
And funnily enough, we're getting red headlines now across the
terminal saying that the Federal Circuit is reinstating the tariffs
during the appeal because it needs time to consider the
filing the court filings in the Yeah, so that's why
(09:47):
we time stamp things. I'm gonna let you go now, Holly,
so you can go see what the Federal Circuit did
and you can update your research notes in the meantime. Yeah,
let's let's bring you in. Actually, you know, one thing
we didn't talk about, Holly, is sort of the other
statutes that the Trump administration could use if it winds
(10:12):
up losing on appeal. So, I don't know if you
want to just talk about could talk quickly about some
of the other some of the other statutes it could
use to impose terrorists.
Speaker 3 (10:21):
Yeah, so Section one twenty two is the one that
the US the International Trade Court kept referring to to
address trade imbalances. And so I think that they're pretty
much saying that you know that that you know in
certain circumstances which they haven't reviewed because it's not before them,
but that could be used to impose terror the reciprocal terroriffs,
(10:43):
things like that.
Speaker 2 (10:44):
And then section.
Speaker 3 (10:47):
Three thirty eight is another statute he could use, which,
by the way that one twenty two does allows terrorists
by proclamation. Section three thirty eight says that he can
impose terrorists by proc also when to address countries not
honoring trade agreements. And there are other statutes he can use,
(11:07):
but those require agency investigations, so that means it could
take more time, right.
Speaker 1 (11:13):
Like two thirty two and three oh one. Two thirty
two concerning national security issues and three oh one is
unfair trade practices, right right, okay, all right, all right
with that, Holly, I'm going to let you go so
you can go update your decks. Nathan Dean, let's bring
you in. Nathan covers a lot of different policy issues
in Washington, and he's been tracking the one big Beautiful
(11:36):
Bill and that's and how that's playing out in Congress.
So I guess, you know, I guess the question that
I know you've been getting that I've been getting from
colleagues and clients alike, is well, can Congress do anything
about this? It can you know, if the administration loses
in court, can Congress somehow add tariffs to the One
Big Beautiful Bill?
Speaker 5 (11:56):
So Congress can do a lot of things towards tariffs.
Congress is not going to do anything on tariffs. What
I mean by that is is that you know, Congress
historically has had the power of tariffs, but they've delegated
to the president over the last you know, fifty to
sixty seventy years. And even though we saw bipartisan bill
earlier this year that would try and claw back that authority. Look,
(12:17):
if you talk to the members of the Republican Party
up on Capitol Hill, I think most of them, while
publicly are agreeing with the presidents, they may have a
little bit different mindset when they privately think about tariffs,
just due to the popularity of tariffs in the United States.
But I will say is it's not going to reach
the point where they are actually going to change their behavior.
(12:37):
They are going to defer to the President when it
comes to tariffs. Now, how does this work with the
One Big Beautiful Bill? Well, tariffs are not part of
the One Big Beautiful Bill. They're not part of the record.
Speaker 3 (12:48):
You know.
Speaker 5 (12:48):
Obviously, tariffs are something that Republicans have in the back
of their mind in order to help pay for this,
but it's an indirect, indirect payment, it's not a direct payment.
So if you're looking at this through the eyes of
the bird rule or through the reconciliation process, and you're like, right,
this bill is going to cost five trillion dollars, we
got to come up with offsetting, you know, to pay
for it.
Speaker 4 (13:08):
Tariffs isn't part of this discussion.
Speaker 5 (13:10):
So I don't think the tariff debate, you know, really
impacts the One Big Beautiful Bill.
Speaker 4 (13:16):
I think even.
Speaker 5 (13:16):
If President Trump had zero let's just say that all
the tariffs are zeroed out and we're not going to
collect any more money on tariffs. I still the Republicans
are going to vote for this bill just because they
view it as a separate thing.
Speaker 2 (13:29):
You know.
Speaker 5 (13:29):
The One Big Beautiful Bill extends the Trump are text
cuts to twenty seventeen.
Speaker 4 (13:33):
That's the number one goal.
Speaker 5 (13:34):
The second one goal, the second part goal is this
additional one point five trillion and no taxes on tips,
no taxes on some security, no taxes on overtime, and
then they got to figure out how to pay for
it in terms of Medicaid cuts, Inflation Reduction Act cuts,
and STAB cuts. But you know, right now, Congress is
off this week, the Senate comes back next week. Senate
staffers have been reportably looking at what is going to
(13:58):
fly via the Bird rule or not. This is a
little wonky, but there are certain things you can't do
via reconciliation, like you can't increase the minimum wage to
fifteen dollars an hour. The Democrats tried this during the
Inflation Reduction Act that violated the Bird rule, and as
a result, that had to come out. So right now
the Senate staffers are having informal discussions with the Senate
(14:19):
Parliamentarian on what needs to come out. But that's really
not going to impact the tax side, or the Inflation
Reduction Act side, or the Medicare side, Medicaid side. And
I think we'll start to see the Senate come together
next week, and we're telling our clients, look, if all
things go well and the Senate gets their ducts in
a row, they can have you know, they can have
(14:40):
the vote on this within the next, say two weeks,
call it the second week of June. More likely it
would be the end of June or beginning of July.
Speaker 1 (14:48):
With the goal of having it all wrapped up by
July fourth.
Speaker 5 (14:52):
I mean, I think the Senate will eventually get there.
I think the well, the specifics aren't there yet. I
think we are going to see a significantly scaled back
version of the House Bill. Medicaid work requirements scaled back
a little bit, Inflation Reduction Act portions.
Speaker 4 (15:08):
Scaled back a little bit.
Speaker 5 (15:09):
In fact, Tesla just put out a post on X
earlier today talking about how the clean energy tax credits
were fremely important to their company, and too the you know,
economy in writ large. So there's a lot of lot
being going on right now. But stay tuned. We'll probably
have more information for you, probably in about ten days.
I think that's when the leaks will start and we'll
(15:29):
start to get a little bit more specificity of what
the Setate is thinking.
Speaker 1 (15:34):
Okay, great, all right, thanks Nathan. All right, why don't
we bring in Ben Elliott, who covers Fanny May and
Freddie Mack and you know, up until this tariffs really
and I think a lot of the big news in
the past week or so was President Trump's truth social
posts about Fanny May and Freddie Mack. Last week he
(15:55):
posted that you know, he really wants to take them public.
Forget it's exact word, and I think bring them public
was what he said. And then this week he talked
about how they would be an implied guarantee, which raises
you know, I pose this question to Ben. I was like,
if someone says it's an implied guarantee, does that make
(16:16):
it explicit? But maybe talk about why the implied guarantee
versus the explicit guarantee matters. And then, I mean, more broadly,
also talk about I mean, you've written a lot about
how challenging and complicated it will be to release these
companies from conservatorship and essentially unwind treasuries ownership. And then also,
(16:41):
you know, have some sort of public offering.
Speaker 4 (16:44):
Yeah. So look, the President is tweeting, everyone is excited.
I would characterize my overarching takeaway as utter.
Speaker 1 (16:54):
Confusion related to this or generally.
Speaker 4 (16:57):
Interest in general, but specifically related to this. So, in
the wake of the President's tweet, his fhif a director
who is sort of I would call him the second
most important moving piece after the Treasury Secretary, and maybe
the third I guess after the President.
Speaker 1 (17:15):
You wouldn't put in after Bill Actin and John Paulson, Oh.
Speaker 4 (17:18):
Go, well, yeah, most important moving piece in the federal government.
He's been on a bit of a media blitz this week,
and what he has been saying does not really comport
with the sort of optimistic view of retail investors, reflected
in the price action of the common shairs this week,
which have just been on a tear, and not just
(17:40):
the common shares, but also the junior preferreds have been
trading sharply up. And the only sort of sedate market
reaction that we've seen has been in agency mortgage backed securities.
In that market spreads of basically they they tightened a
little bit. They those investors alway like to know that
(18:01):
the government intends to stand behind the securities that they're purchasing.
But it gave up some of that price action later
in the week and now is basically unchained. So so
that's sort of how in order descending order of how
you might rank the sort of sophistication of investors, it
would be common preferred agency nbs and if you sort
(18:23):
of look at that waterfall. The people who are really
sort of in the know about this process are kind
of the least excited about about what's happened, because essentially
nothing has happened. Going back to your question about how
complicated it is, you know, they have a huge process
ahead of them. They have months, maybe years, probably years
if they do it right without any sort of wild
(18:46):
maneuvers in the in the dead of night. And and
so far the groundwork has not been late. F HFA
director Polti has been out this week. He's been asked
some really pretty fundamental questions by various anchor on various
news channels, and I would listen to all of them,
and I haven't heard a single detail come out of
(19:08):
this FAHFA that would suggest they've made any progress relative
to where the first Trump administration left off in twenty
twenty one.
Speaker 1 (19:15):
So what kind of details, what kind of ground where
would you want expect to see, you know, for something
to actually happen.
Speaker 4 (19:23):
So, look, it's called recapitalization for a reason, right, It's
all about capital. The problem is, no one knows how
much capital the companies need. No one knows how much
capital the companies have relative to what.
Speaker 1 (19:35):
They need, what about the capital world that's in effect.
Speaker 4 (19:37):
The capital rule in effect is a Democrat creation who
finally tuned during the Biden administration. And it's very hard
to imagine that the administration would want to move forward
a wholesale with a with a Biden capital rule in place,
And if they do, just on a sort of pro
forma back of the Napkin basis, it would be very
(20:00):
challenging for the companies to exceed, you know, an eight
to ten percent return on equity, which is really not
very attractive relative to like a large bank like a
JP Morgan that can do double digits easily, can get
into the low twenties, and there are plenty of places
to turn thirty forty percent return on equity and financials
depending on sort of where we are in the cycle.
(20:20):
So you're asking simultaneously for investors to bring hundreds of
billions of dollars into these companies at basically the bare
minimum return on equity, while also the government guarantee remains
in question, although now there's a little more confidence that
the President would want to retain some sort of guarantee,
although it's unclear from the president's tweet whether they have
(20:44):
thought out in any detail what that would look like.
Speaker 1 (20:48):
And so I mean this implicit guarantee versus an explicit guarantee.
I mean, talk about why that difference matters and what
an explicit guarantee might look like.
Speaker 4 (20:58):
Yeah, I mean, you can't explicitly have an implicit guarantee
that it's like, it's not logically consistent. So I think
what the President was referring to was that the backstop
that exists today under the preferred stock purchase agreements would
would be sustained once conservatorship ends. However, it's not completely
(21:21):
clear that that is an easy lift. That's a couple
hundred billion dollars of Treasury liquidity, and presumably Treasury would
charge the companies a fee that would be sort of
market based. Right, So this is not capital in the
pure sense of you know, retained earnings. This is just
(21:41):
a promise to provide liquidity, right, So it could be
priced really attractively relative to the risk free rate, which
was year five percent, So you're talking like basis points
of cost to the enterprises, which would you know, it
would be an effect on profitability, but it wouldn't be
a huge one. But the problem there is that that's
(22:03):
a small amount of liquidity left that it wouldn't increase
with inflation or growth in the guarantee book, And sort
of counterintuitively, Freddie Mack has more liquidity left because they
drew less during the period immediately after conservatorship when the
companies were still losing money. So Freddie's smaller, but it's
got more liquidity under the PSPA. Is that just doesn't
(22:24):
make a lot of sense. So I think what you
would see is is is so the agency market has
worked extremely hard in the last two decades to make
the security's uniform to reduce all differences between the enterprises,
and if they were to leave conservatorship and move forward
with unequal or non proportional liquidity backstops from the federal government,
(22:47):
there would immediately become huge differences in the companies and
therefore the securities that they package. And that's going to
be an incredible, I think, obstacle for this gigantic market
of agency mortgage backed security because people who buy them
on a regular basis do so in gigantic quantities, and
now they're going to have to analyze eat new issuance
(23:11):
and how much is coming from Fanny and how much
is coming from Freddy and what the difference in potential
credit risk could be, so that that path forward It
sounds really simple, right, well, just keep it the way
it is. But the way it is I don't think
will work once the fiction of conservatorship ends.
Speaker 1 (23:28):
And then what about treasuries ownership? They have the senior
preferred they have warrants. Yes, thoughts on how to unwind
all day.
Speaker 4 (23:37):
I mean, if you look at the companies now right,
they're trading at like something like one hundred billion combined
market cap implied by the current common chairs, the companies
owe Treasury hundreds of billions of dollars in terms of
the liquidation preference in this or just the stated value
of the senior preferreds. There's another thirty billion in junior
(24:00):
preferred debt outstanding. And then and then the Treasury has
has warrants which is sort of like a right to
purchase the common shares up to eighty percent technically seventy
nine point nine percent of the common shares. So the
price you see when you look at Fanning, a pretty
common trading basically has nothing to do with the price
(24:23):
that will be the correct price after conservatship, because no
one knows what the share account will look like, and
in any reasonable scenario on the existing common would be
massively diluted. You know, I Treasury really wants to be
paid back the liquidation preference and see perfer stock, then
that implies basically no value for the existing common and
(24:44):
yet it's trading at finished trading at like ten dollars
a share today.
Speaker 1 (24:48):
So what are you looking for and next and sort
of what's your overall timeline?
Speaker 4 (24:53):
I'm looking for any Just give me any detail.
Speaker 1 (24:57):
You're a simple man, simple requests all.
Speaker 4 (25:00):
What I really what I'd like to see is Treasure
Secretary bestent way in on this. In the wake of
the President's tweet, we haven't heard much from him, and
I would like to see the two of them Best
and Poltie agree on a path forward and just provide,
you know, one of the broadest contours of a plan.
(25:23):
I think that the really the key moving part here
is when and if Treasury decides to write down some
of the value of its senior preferred chairs. They can
do that before any of the technicalities have to occur.
They can do that before a capital rule. They can
do that before a capital raise, and and that clears
(25:43):
the deckth and it makes it essentially an eventuality that
the company's exit conservatorship, and it eases a capital raise,
but it also raises the question of did the president
just sign away hundreds of billions of dollars to create
value for wealthy owners? You know, obviously this administration has
(26:04):
has has done things that would be sort of more
anasthma to kind of normal decorum for a politician. But
it's a risk. And then the other risk is once
that happens, how do agency nbs markets react? And as
a result, do mortgage rates rise? And I think that
(26:26):
is a real threat that the President actually is being
very careful to consider.
Speaker 1 (26:31):
Well, sort of writing down it's senior liquid senior preferred shares.
I mean that that would help boost the common shares,
and that would inert to all owners of the common shares,
not just you know, wealthy supporters of the president, but
also other retail owners.
Speaker 4 (26:48):
Right, that's a good point, I mean to the extent
that retail ownership is considerable. And and you know, because
these companies, because the common chairs don't have and voting
right in the enterprises a going concern because they're uh
controlled by the government. Public funds don't have to disclose
(27:10):
their ownership stake, so truly not clear who owns the
common just anecdotal. If you look at X dot com, Uh,
it seems to be a pretty broad swath of retail investors,
you know. But but overall it'll be a small number
of people and a and a small amount of value
relative to the US taxpayer or the US home buyer,
who are the much more important constituencies.
Speaker 1 (27:33):
All right, well, we'll keep tracking a true social to
see what happens next in this saga. All right, thanks Ben?
All right, Justin, Justin Teresi, let's bring you in and
talk about the FTC and PepsiCo. Uh, the FTC dropped
its anti trust case against PepsiCo. Is a price discrimination case.
You want to tell us you know more about the
(27:55):
case and why the FTC dropped it.
Speaker 4 (27:57):
Yeah, definitely.
Speaker 6 (27:58):
Well, this is a really tough act follow We're going
from tariffs and housing to chips and soda here, so
bear with me.
Speaker 1 (28:04):
As we kind of transition. Yeah.
Speaker 6 (28:07):
Absolutely, But I think in many ways with this case
and the importance of it, I think the importance of
the case is more about what it's not going to
be and the implications for what might not follow now
rather than what actually happened in the litigation itself. But
just some background to start. This case has always been
really political. It was filed on the very last day
of Lena Kahn's tenure as chairs of the FTC back
(28:29):
in January. The other two Democrats at the time it
authorized to bring the case along with her. The case
alleges basically that that PepsiCo engages in indirect price discrimination
with larger retailers and at the end of the day,
favors larger retailers with the prices they are charged for
soft drink products versus you know, the smaller bodegas or
mom and pop shops you might go to, you know,
(28:50):
on a street corner or something like that. So and
think of the kind of promotional displays you see in
stores like Walmart or Target. Right where you have the
end caps at the end of an aisle, we're all
all this offt drinks might appear there, dump bins, you know,
talkers on shelves that will convince you to kind of
buy a product while you're sitting there in front of it.
Those are really commonly seen, I think in those larger
retail settings, right, And the allegation made by the FTUC,
(29:13):
and it's very redacted complaint at the time, seems to
be that there were these promotional payments or allowances that
were given from PepsiCo to those retailers to basically support
those kinds of instore promotions that were happening at their locations,
and those weren't being offered at the same way to
those smaller, you know, independent stores that might be selling
the same goods that couldn't offer the kind of discounts
(29:35):
to folks that these larger stores like Walmart perhaps might
have been able to. So that was the chief allegation
of the complaint. But I have to say at the time,
current Chair Ferguson and Commissioner Hoyoch who's still at the FTC,
they had scathing dissents in whether or not to bring
this case, and Chair Ferguson said that it was quote
brought on little more than a hunch. So you can
(29:55):
tell even back in January when the case was brought
that it really had some you know, hurdles I think
to it continuing versus just the substance of the case itself.
But you know, in withdrawing the case. You know, whether
or not it's due to actual resource concerns at the
FTC or the substance of the matter itself. You know,
it really removes this enforcement that we were I think,
(30:15):
you know, imagining we'd see more of under this long
dormant Robinson Patman Act, right, that's kind of been shelved
by enforcement authorities for the last forty fifty sixty years.
It was brought under that statute. A private case is
still continuing but probably doomed in the same much the
same way under the same statute. But you know, whether
a revival of that statute is going to happen now,
that really is the broader I think question here about
(30:38):
crisis discrimination and whether the current FTC is going to
try to use this statute if in a different case,
if not in PepsiCo.
Speaker 1 (30:45):
Well, can you just tell us a little bit more
about the statute?
Speaker 6 (30:48):
Yeah, definitely, so really old statute. There were a lot
of exceptions basically to the statute though, so it's really
hard to enforce because the common thinking behind you is
that you can almost always think of a reason why
it except applies to your case and why the statue
might not be applicable to the to to the business
you're operating. An example be volume discounts, right, which you
could see how that would be an issue here. If
(31:08):
you buy a large amount of a product, it's totally
allowable for that manufacturer to give you a discount base
of volume.
Speaker 4 (31:14):
Right.
Speaker 6 (31:14):
So that's one common discount to this or what common
defense to the statue. Another is functionality discounts. Right, So
if you offered a warehouse a product instead of the manufacturer,
you're kind of saving the money, so that discount could
be passed on to you.
Speaker 4 (31:27):
Right.
Speaker 6 (31:27):
So there's all these different kind of defenses that affirmative
defenses under the statute that usually reckenforcement. But you know,
I think moving forward here and thinking about where this
might apply is still or where we could still see
cases Independent grocers, independent stores have been screaming for years
about issues around this, so it's possible we see a
different kind of action down the road, a different subject.
(31:48):
I think the PepsiCo issue is done and over with
at least for the time being. Surprised if anyone refiles there.
But we were thinking last year when the FTUC put
out a report about PBMs. One of the things that
is cover you know, it can't contain.
Speaker 1 (32:01):
Coverage pharmacy benefit managers.
Speaker 6 (32:04):
Yeah, pharmacy benefit managers, that's right. But one of the
topics that was covered in that report last summer was
was the effect upon that rebates on actual independent pharmacies
right in smaller, more rural areas because these larger healthcare
conflomerants owned stores like CVS or other retailers in a community,
or mail order stores who might be offered a better
(32:24):
price for prescription drugs and those rural pharmacies that many
folks are depending on to survive. So, you know, we
could thought, maybe we see an action brought under Robins
and Patment regarding those particular entities, but we haven't yet,
so we wander still. You know that investigations still ongoing.
Whether or not it turns into another lawsuit from the
STEC or an amended version of its current lawsuit really
(32:46):
remains to be seen. But I think it's still in
the back burner there. You know, Commissioner mat Or had
just came in, he said flat out and his vote
to dismiss this case. Look, the Robits Impatment Act is
still on the books. It's still something we should be enforcing.
So it might not necessarily be the end of enforcement
around it yet, but for the time being, it seems
like this case and the private case it's related to
it around free to laid chip products, it's kind of
(33:07):
game over for those.
Speaker 1 (33:09):
Okay, well, we'll keep watching and you'll let us know
if anything gets revived. All right, great, thanks justin all right,
I think we're gonna leave it there for this episode
of votes and verdicts. As always, thank you for listening.
If you have any questions about any of the matters
we discussed on this episode, please don't hesitate to reach
out to us at your convenience with questions, and as
(33:29):
a reminder, you can find all of our research on
the Bloomberg terminal at big or on our litigation and
policy dashboard at BI laws Go. Thank you for listening,
and have a great day.
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 on the Bloomberg Terminal.
Bloomberg Intelligence has five hundred analysts and strategists working across
the globe and focused on all major markets. Our coverage
includes over two thousand equities and credits, and we have
(00:36):
outlooks on more than ninety industries and one hundred market industries,
currencies and commodities. This podcast series examines the intersection of
business policy and law, and today is our weekly check
in on the litigation and policy catalysts that we're watching
and that we think will impact companies across a number
of different sectors. My name is Elliott Stein. I'm an
(00:57):
analyst with Bloomberg Intelligence covering litigate in the financial sector,
and I'm delighted today as always to be joined by
a handful of my colleagues who cover litigation and policy.
And as always, you can find all of our research
on the Bloomberg terminal at BI go and more specifically
on our dashboard BI laws Go. Today is May twenty ninth,
(01:20):
twenty twenty five. It's a little after three pm, and
we always timestamp these episodes because things move very quickly. Indeed,
just last week after we recorded this episode, there was
a rule in by the Supreme Court about a matter
that we had discussed concerning whether President Trump would be
(01:41):
able to fire members of the Federal Reserve Board. We're
following a lot of cases concerning that issue, including cases
involving the National Labor Relations Board and the Merit Systems
Protection Board, and I spoke last week had those cases
could have a bearing on whether the President could fire
FED ward members and how the logic of the ruins
(02:03):
so far suggested that the President would be able to.
And then later that evening, the Supreme Court issued in
order that suggested the FED is different, or the Supreme
Court views the FED as different from other agencies, suggesting
that the President might not be able to fire members
of the Federal Reserve Board so easily. But with that said,
(02:27):
things continued to move very quickly, and just last night
we had a ruling from the Court of International Trade
essentially striking down some of the Trump administration's tariffs that
it has imposed, specifically the Liberation Day tarriffs from April second,
also called reciprocal tariffs, and then other tariffs at the
(02:50):
administration imposed related to fentanyl and border issues, and those
were tariffs on China, Canada, and Mexico. My colleague, Holly Frome,
let's bring you in. You've been following the many cases
challenging the Trump administration tariffs. You're all over these cases.
(03:12):
Why don't you come in give us a rundown of
what the ruling last night said?
Speaker 2 (03:19):
Thanks Elliott.
Speaker 3 (03:20):
So, the court said that the President exceeded his statutory
authority because the International Emergency Economic Powers Act, which is
what he used, doesn't give him power to impose the
tariffs for trade deficits.
Speaker 2 (03:39):
They said that, based on.
Speaker 3 (03:40):
The legislative history and amendments to precursor statutes, he can
only use Section one twenty two of the Trade Act,
which is a more limited statute. It allows fifteen percent
tariffs on imports for one hundred and fifty days to
address balance of payments deficits, which the court found trade
deficit is. And with respect to the tariffs on China, Canada,
(04:05):
Mexico related to fentanyl, they said that the terroriffs did
not quote deal with the Emergency sided. So that's part
of the statute AYIPA says that the president can regulate imports,
but uh to deal with an unusual extraordinary threat, and
the court found that these tariffs don't do that. One
(04:26):
of the reasons is they said the president just the
administration justified the terriffs because they say they deal with
it because it pressures the countries to change their policies
to address, you know, the crisis fentanyl and unlawful migration.
And the court said, if we found that a pressure
(04:48):
on countries deal with certain issues, then then every tariff
would be authorized.
Speaker 2 (04:56):
Everything would deal with the emergency.
Speaker 3 (05:00):
So that's why they found those were unlawful too.
Speaker 1 (05:03):
And what's your take on that case? I mean obvious
on that decision. Obviously, the Trump administration has already filed
its appeal. It's asking at this point, it's asking both
the Court of International Trade and the Federal Circuit, which
is the appellate court overseeing that court, to put a
stay on the rule in while the appeal plays out.
What do you think their chances are on appeal.
Speaker 2 (05:25):
I think that it will be affirmed.
Speaker 4 (05:26):
I don't.
Speaker 3 (05:27):
I think it will be affirmed on other grounds, but
I think it will be affirm because of that, I
think the courts won't grant stays. If they do grant stays,
I think it's an indication that they could that they'll reverse.
But because I think that they're going to affirm, I
think that they're gonna they're not going to grant to stay.
Speaker 1 (05:47):
Well, I was gonna say, what are the other grounds
you mentioned that you think they will a firm on
other grounds? What are you thinking there?
Speaker 3 (05:52):
So I think they're going to say the President exceeded
his authority when he imposed the tariffs, because I think
they're going to say the trade deficit is not an
unusual extraordinary threat, rather than saying that he must use
Section one twenty two. I don't think they're gonna say
that every time there's a trade, but no trade deficit
could ever constitute an unusual extraordinary.
Speaker 2 (06:14):
Threat under eat EP.
Speaker 3 (06:15):
I don't think they want to limit him that way,
but I do think that they'll say this case doesn't
arise to that level. And then with regard to the
ruling on the Fentanel teriffs, I don't think that the
Supreme Court is gonna want but the lower courts oponning
on what deals with an emergency and what doesn't. But
I think that the way that that could be addressed
(06:39):
is by saying that if these stats this statute allowed
for terroriffs, it would have said so. So basically, I
think that a like a major questions doctrine argument could prevail.
So the major questions doctrine says that if you're going
to if Congress is going to delegate power that has
(07:00):
such wh that gives the present power to post something
that has such wide impact on the economy, then they're
going to have to speak clearly. And I think that
they're going to say that this doesn't speak clearly enough
on the teriff issue.
Speaker 1 (07:13):
Got it. So we had that rulined yesterday, and I mean,
what's sort of interesting about that ruling and correct me
if I'm wrong. Two things. One, the Court of International
Trade is saying it had jurisdiction over these cases. And two,
it suggests that AIPA can be used in some circumstances
(07:33):
to impose tariffs, just not the way the Trump administration
was doing it, and not with respect to trade deficits.
But then we had a ruin today from the Federal
District Court in Washington, d C. Judge Contreras in a
different case that sort of took an opposite view, I guess,
and said that the Court of International Trade didn't have
(07:57):
exclusive jurisdiction over that case, and that's why he kept
the case. And he ruled in a way that suggested
AEPA could never be used for tariffs. Is that right?
Speaker 2 (08:07):
I think?
Speaker 4 (08:08):
So.
Speaker 3 (08:08):
He said that AIPA it doesn't grant the president power
to impose tariffs. There's a bunch of other statutes that
are very very clearly allow the president to impose tariffs.
Speaker 2 (08:19):
And if.
Speaker 3 (08:22):
If Congress meant to allow him to impose terraf via AEPA,
they would have said so like they do with Section
one twenty two of the Trade Act, for Section three
oh one or the Trade Acts, or Section two thirty
two of the Trade Expansion Act, all of which specifically
refer to, you know, levying duties or tariffs. So use
those words, and this this one never used those words.
(08:43):
So he says AIPA doesn't grant the power to tariff
at all, and so for that reason he said that
the International Trade.
Speaker 2 (08:52):
Court does not have jurisdiction. The District Court does.
Speaker 3 (08:57):
And what the International Trade Court was saying is that
any time a president.
Speaker 2 (09:08):
Takes action to impose tariffs.
Speaker 3 (09:11):
He uh, that action constitutes a law providing for teriffs,
which I think is a little bit circular, but that's
why they said that they had jurisdiction right.
Speaker 1 (09:24):
And and you know, we just time stamped this episode.
And funnily enough, we're getting red headlines now across the
terminal saying that the Federal Circuit is reinstating the tariffs
during the appeal because it needs time to consider the
filing the court filings in the Yeah, so that's why
(09:47):
we time stamp things. I'm gonna let you go now, Holly,
so you can go see what the Federal Circuit did
and you can update your research notes in the meantime. Yeah,
let's let's bring you in. Actually, you know, one thing
we didn't talk about, Holly, is sort of the other
statutes that the Trump administration could use if it winds
(10:12):
up losing on appeal. So, I don't know if you
want to just talk about could talk quickly about some
of the other some of the other statutes it could
use to impose terrorists.
Speaker 3 (10:21):
Yeah, so Section one twenty two is the one that
the US the International Trade Court kept referring to to
address trade imbalances. And so I think that they're pretty
much saying that you know that that you know in
certain circumstances which they haven't reviewed because it's not before them,
but that could be used to impose terror the reciprocal terroriffs,
(10:43):
things like that.
Speaker 2 (10:44):
And then section.
Speaker 3 (10:47):
Three thirty eight is another statute he could use, which,
by the way that one twenty two does allows terrorists
by proclamation. Section three thirty eight says that he can
impose terrorists by proc also when to address countries not
honoring trade agreements. And there are other statutes he can use,
(11:07):
but those require agency investigations, so that means it could
take more time, right.
Speaker 1 (11:13):
Like two thirty two and three oh one. Two thirty
two concerning national security issues and three oh one is
unfair trade practices, right right, okay, all right, all right
with that, Holly, I'm going to let you go so
you can go update your decks. Nathan Dean, let's bring
you in. Nathan covers a lot of different policy issues
in Washington, and he's been tracking the one big Beautiful
(11:36):
Bill and that's and how that's playing out in Congress.
So I guess, you know, I guess the question that
I know you've been getting that I've been getting from
colleagues and clients alike, is well, can Congress do anything
about this? It can you know, if the administration loses
in court, can Congress somehow add tariffs to the One
Big Beautiful Bill?
Speaker 5 (11:56):
So Congress can do a lot of things towards tariffs.
Congress is not going to do anything on tariffs. What
I mean by that is is that you know, Congress
historically has had the power of tariffs, but they've delegated
to the president over the last you know, fifty to
sixty seventy years. And even though we saw bipartisan bill
earlier this year that would try and claw back that authority. Look,
(12:17):
if you talk to the members of the Republican Party
up on Capitol Hill, I think most of them, while
publicly are agreeing with the presidents, they may have a
little bit different mindset when they privately think about tariffs,
just due to the popularity of tariffs in the United States.
But I will say is it's not going to reach
the point where they are actually going to change their behavior.
(12:37):
They are going to defer to the President when it
comes to tariffs. Now, how does this work with the
One Big Beautiful Bill? Well, tariffs are not part of
the One Big Beautiful Bill. They're not part of the record.
Speaker 3 (12:48):
You know.
Speaker 5 (12:48):
Obviously, tariffs are something that Republicans have in the back
of their mind in order to help pay for this,
but it's an indirect, indirect payment, it's not a direct payment.
So if you're looking at this through the eyes of
the bird rule or through the reconciliation process, and you're like, right,
this bill is going to cost five trillion dollars, we
got to come up with offsetting, you know, to pay
for it.
Speaker 4 (13:08):
Tariffs isn't part of this discussion.
Speaker 5 (13:10):
So I don't think the tariff debate, you know, really
impacts the One Big Beautiful Bill.
Speaker 4 (13:16):
I think even.
Speaker 5 (13:16):
If President Trump had zero let's just say that all
the tariffs are zeroed out and we're not going to
collect any more money on tariffs. I still the Republicans
are going to vote for this bill just because they
view it as a separate thing.
Speaker 2 (13:29):
You know.
Speaker 5 (13:29):
The One Big Beautiful Bill extends the Trump are text
cuts to twenty seventeen.
Speaker 4 (13:33):
That's the number one goal.
Speaker 5 (13:34):
The second one goal, the second part goal is this
additional one point five trillion and no taxes on tips,
no taxes on some security, no taxes on overtime, and
then they got to figure out how to pay for
it in terms of Medicaid cuts, Inflation Reduction Act cuts,
and STAB cuts. But you know, right now, Congress is
off this week, the Senate comes back next week. Senate
staffers have been reportably looking at what is going to
(13:58):
fly via the Bird rule or not. This is a
little wonky, but there are certain things you can't do
via reconciliation, like you can't increase the minimum wage to
fifteen dollars an hour. The Democrats tried this during the
Inflation Reduction Act that violated the Bird rule, and as
a result, that had to come out. So right now
the Senate staffers are having informal discussions with the Senate
(14:19):
Parliamentarian on what needs to come out. But that's really
not going to impact the tax side, or the Inflation
Reduction Act side, or the Medicare side, Medicaid side. And
I think we'll start to see the Senate come together
next week, and we're telling our clients, look, if all
things go well and the Senate gets their ducts in
a row, they can have you know, they can have
(14:40):
the vote on this within the next, say two weeks,
call it the second week of June. More likely it
would be the end of June or beginning of July.
Speaker 1 (14:48):
With the goal of having it all wrapped up by
July fourth.
Speaker 5 (14:52):
I mean, I think the Senate will eventually get there.
I think the well, the specifics aren't there yet. I
think we are going to see a significantly scaled back
version of the House Bill. Medicaid work requirements scaled back
a little bit, Inflation Reduction Act portions.
Speaker 4 (15:08):
Scaled back a little bit.
Speaker 5 (15:09):
In fact, Tesla just put out a post on X
earlier today talking about how the clean energy tax credits
were fremely important to their company, and too the you know,
economy in writ large. So there's a lot of lot
being going on right now. But stay tuned. We'll probably
have more information for you, probably in about ten days.
I think that's when the leaks will start and we'll
(15:29):
start to get a little bit more specificity of what
the Setate is thinking.
Speaker 1 (15:34):
Okay, great, all right, thanks Nathan. All right, why don't
we bring in Ben Elliott, who covers Fanny May and
Freddie Mack and you know, up until this tariffs really
and I think a lot of the big news in
the past week or so was President Trump's truth social
posts about Fanny May and Freddie Mack. Last week he
(15:55):
posted that you know, he really wants to take them public.
Forget it's exact word, and I think bring them public
was what he said. And then this week he talked
about how they would be an implied guarantee, which raises
you know, I pose this question to Ben. I was like,
if someone says it's an implied guarantee, does that make
(16:16):
it explicit? But maybe talk about why the implied guarantee
versus the explicit guarantee matters. And then, I mean, more broadly,
also talk about I mean, you've written a lot about
how challenging and complicated it will be to release these
companies from conservatorship and essentially unwind treasuries ownership. And then also,
(16:41):
you know, have some sort of public offering.
Speaker 4 (16:44):
Yeah. So look, the President is tweeting, everyone is excited.
I would characterize my overarching takeaway as utter.
Speaker 1 (16:54):
Confusion related to this or generally.
Speaker 4 (16:57):
Interest in general, but specifically related to this. So, in
the wake of the President's tweet, his fhif a director
who is sort of I would call him the second
most important moving piece after the Treasury Secretary, and maybe
the third I guess after the President.
Speaker 1 (17:15):
You wouldn't put in after Bill Actin and John Paulson, Oh.
Speaker 4 (17:18):
Go, well, yeah, most important moving piece in the federal government.
He's been on a bit of a media blitz this week,
and what he has been saying does not really comport
with the sort of optimistic view of retail investors, reflected
in the price action of the common shairs this week,
which have just been on a tear, and not just
(17:40):
the common shares, but also the junior preferreds have been
trading sharply up. And the only sort of sedate market
reaction that we've seen has been in agency mortgage backed securities.
In that market spreads of basically they they tightened a
little bit. They those investors alway like to know that
(18:01):
the government intends to stand behind the securities that they're purchasing.
But it gave up some of that price action later
in the week and now is basically unchained. So so
that's sort of how in order descending order of how
you might rank the sort of sophistication of investors, it
would be common preferred agency nbs and if you sort
(18:23):
of look at that waterfall. The people who are really
sort of in the know about this process are kind
of the least excited about about what's happened, because essentially
nothing has happened. Going back to your question about how
complicated it is, you know, they have a huge process
ahead of them. They have months, maybe years, probably years
if they do it right without any sort of wild
(18:46):
maneuvers in the in the dead of night. And and
so far the groundwork has not been late. F HFA
director Polti has been out this week. He's been asked
some really pretty fundamental questions by various anchor on various
news channels, and I would listen to all of them,
and I haven't heard a single detail come out of
(19:08):
this FAHFA that would suggest they've made any progress relative
to where the first Trump administration left off in twenty
twenty one.
Speaker 1 (19:15):
So what kind of details, what kind of ground where
would you want expect to see, you know, for something
to actually happen.
Speaker 4 (19:23):
So, look, it's called recapitalization for a reason, right, It's
all about capital. The problem is, no one knows how
much capital the companies need. No one knows how much
capital the companies have relative to what.
Speaker 1 (19:35):
They need, what about the capital world that's in effect.
Speaker 4 (19:37):
The capital rule in effect is a Democrat creation who
finally tuned during the Biden administration. And it's very hard
to imagine that the administration would want to move forward
a wholesale with a with a Biden capital rule in place,
And if they do, just on a sort of pro
forma back of the Napkin basis, it would be very
(20:00):
challenging for the companies to exceed, you know, an eight
to ten percent return on equity, which is really not
very attractive relative to like a large bank like a
JP Morgan that can do double digits easily, can get
into the low twenties, and there are plenty of places
to turn thirty forty percent return on equity and financials
depending on sort of where we are in the cycle.
(20:20):
So you're asking simultaneously for investors to bring hundreds of
billions of dollars into these companies at basically the bare
minimum return on equity, while also the government guarantee remains
in question, although now there's a little more confidence that
the President would want to retain some sort of guarantee,
although it's unclear from the president's tweet whether they have
(20:44):
thought out in any detail what that would look like.
Speaker 1 (20:48):
And so I mean this implicit guarantee versus an explicit guarantee.
I mean, talk about why that difference matters and what
an explicit guarantee might look like.
Speaker 4 (20:58):
Yeah, I mean, you can't explicitly have an implicit guarantee
that it's like, it's not logically consistent. So I think
what the President was referring to was that the backstop
that exists today under the preferred stock purchase agreements would
would be sustained once conservatorship ends. However, it's not completely
(21:21):
clear that that is an easy lift. That's a couple
hundred billion dollars of Treasury liquidity, and presumably Treasury would
charge the companies a fee that would be sort of
market based. Right, So this is not capital in the
pure sense of you know, retained earnings. This is just
(21:41):
a promise to provide liquidity, right, So it could be
priced really attractively relative to the risk free rate, which
was year five percent, So you're talking like basis points
of cost to the enterprises, which would you know, it
would be an effect on profitability, but it wouldn't be
a huge one. But the problem there is that that's
(22:03):
a small amount of liquidity left that it wouldn't increase
with inflation or growth in the guarantee book, And sort
of counterintuitively, Freddie Mack has more liquidity left because they
drew less during the period immediately after conservatorship when the
companies were still losing money. So Freddie's smaller, but it's
got more liquidity under the PSPA. Is that just doesn't
(22:24):
make a lot of sense. So I think what you
would see is is is so the agency market has
worked extremely hard in the last two decades to make
the security's uniform to reduce all differences between the enterprises,
and if they were to leave conservatorship and move forward
with unequal or non proportional liquidity backstops from the federal government,
(22:47):
there would immediately become huge differences in the companies and
therefore the securities that they package. And that's going to
be an incredible, I think, obstacle for this gigantic market
of agency mortgage backed security because people who buy them
on a regular basis do so in gigantic quantities, and
now they're going to have to analyze eat new issuance
(23:11):
and how much is coming from Fanny and how much
is coming from Freddy and what the difference in potential
credit risk could be, so that that path forward It
sounds really simple, right, well, just keep it the way
it is. But the way it is I don't think
will work once the fiction of conservatorship ends.
Speaker 1 (23:28):
And then what about treasuries ownership? They have the senior
preferred they have warrants. Yes, thoughts on how to unwind
all day.
Speaker 4 (23:37):
I mean, if you look at the companies now right,
they're trading at like something like one hundred billion combined
market cap implied by the current common chairs, the companies
owe Treasury hundreds of billions of dollars in terms of
the liquidation preference in this or just the stated value
of the senior preferreds. There's another thirty billion in junior
(24:00):
preferred debt outstanding. And then and then the Treasury has
has warrants which is sort of like a right to
purchase the common shares up to eighty percent technically seventy
nine point nine percent of the common shares. So the
price you see when you look at Fanning, a pretty
common trading basically has nothing to do with the price
(24:23):
that will be the correct price after conservatship, because no
one knows what the share account will look like, and
in any reasonable scenario on the existing common would be
massively diluted. You know, I Treasury really wants to be
paid back the liquidation preference and see perfer stock, then
that implies basically no value for the existing common and
(24:44):
yet it's trading at finished trading at like ten dollars
a share today.
Speaker 1 (24:48):
So what are you looking for and next and sort
of what's your overall timeline?
Speaker 4 (24:53):
I'm looking for any Just give me any detail.
Speaker 1 (24:57):
You're a simple man, simple requests all.
Speaker 4 (25:00):
What I really what I'd like to see is Treasure
Secretary bestent way in on this. In the wake of
the President's tweet, we haven't heard much from him, and
I would like to see the two of them Best
and Poltie agree on a path forward and just provide,
you know, one of the broadest contours of a plan.
(25:23):
I think that the really the key moving part here
is when and if Treasury decides to write down some
of the value of its senior preferred chairs. They can
do that before any of the technicalities have to occur.
They can do that before a capital rule. They can
do that before a capital raise, and and that clears
(25:43):
the deckth and it makes it essentially an eventuality that
the company's exit conservatorship, and it eases a capital raise,
but it also raises the question of did the president
just sign away hundreds of billions of dollars to create
value for wealthy owners? You know, obviously this administration has
(26:04):
has has done things that would be sort of more
anasthma to kind of normal decorum for a politician. But
it's a risk. And then the other risk is once
that happens, how do agency nbs markets react? And as
a result, do mortgage rates rise? And I think that
(26:26):
is a real threat that the President actually is being
very careful to consider.
Speaker 1 (26:31):
Well, sort of writing down it's senior liquid senior preferred shares.
I mean that that would help boost the common shares,
and that would inert to all owners of the common shares,
not just you know, wealthy supporters of the president, but
also other retail owners.
Speaker 4 (26:48):
Right, that's a good point, I mean to the extent
that retail ownership is considerable. And and you know, because
these companies, because the common chairs don't have and voting
right in the enterprises a going concern because they're uh
controlled by the government. Public funds don't have to disclose
(27:10):
their ownership stake, so truly not clear who owns the
common just anecdotal. If you look at X dot com, Uh,
it seems to be a pretty broad swath of retail investors,
you know. But but overall it'll be a small number
of people and a and a small amount of value
relative to the US taxpayer or the US home buyer,
who are the much more important constituencies.
Speaker 1 (27:33):
All right, well, we'll keep tracking a true social to
see what happens next in this saga. All right, thanks Ben?
All right, Justin, Justin Teresi, let's bring you in and
talk about the FTC and PepsiCo. Uh, the FTC dropped
its anti trust case against PepsiCo. Is a price discrimination case.
You want to tell us you know more about the
(27:55):
case and why the FTC dropped it.
Speaker 4 (27:57):
Yeah, definitely.
Speaker 6 (27:58):
Well, this is a really tough act follow We're going
from tariffs and housing to chips and soda here, so
bear with me.
Speaker 1 (28:04):
As we kind of transition. Yeah.
Speaker 6 (28:07):
Absolutely, But I think in many ways with this case
and the importance of it, I think the importance of
the case is more about what it's not going to
be and the implications for what might not follow now
rather than what actually happened in the litigation itself. But
just some background to start. This case has always been
really political. It was filed on the very last day
of Lena Kahn's tenure as chairs of the FTC back
(28:29):
in January. The other two Democrats at the time it
authorized to bring the case along with her. The case
alleges basically that that PepsiCo engages in indirect price discrimination
with larger retailers and at the end of the day,
favors larger retailers with the prices they are charged for
soft drink products versus you know, the smaller bodegas or
mom and pop shops you might go to, you know,
(28:50):
on a street corner or something like that. So and
think of the kind of promotional displays you see in
stores like Walmart or Target. Right where you have the
end caps at the end of an aisle, we're all
all this offt drinks might appear there, dump bins, you know,
talkers on shelves that will convince you to kind of
buy a product while you're sitting there in front of it.
Those are really commonly seen, I think in those larger
retail settings, right, And the allegation made by the FTUC,
(29:13):
and it's very redacted complaint at the time, seems to
be that there were these promotional payments or allowances that
were given from PepsiCo to those retailers to basically support
those kinds of instore promotions that were happening at their locations,
and those weren't being offered at the same way to
those smaller, you know, independent stores that might be selling
the same goods that couldn't offer the kind of discounts
(29:35):
to folks that these larger stores like Walmart perhaps might
have been able to. So that was the chief allegation
of the complaint. But I have to say at the time,
current Chair Ferguson and Commissioner Hoyoch who's still at the FTC,
they had scathing dissents in whether or not to bring
this case, and Chair Ferguson said that it was quote
brought on little more than a hunch. So you can
(29:55):
tell even back in January when the case was brought
that it really had some you know, hurdles I think
to it continuing versus just the substance of the case itself.
But you know, in withdrawing the case. You know, whether
or not it's due to actual resource concerns at the
FTC or the substance of the matter itself. You know,
it really removes this enforcement that we were I think,
(30:15):
you know, imagining we'd see more of under this long
dormant Robinson Patman Act, right, that's kind of been shelved
by enforcement authorities for the last forty fifty sixty years.
It was brought under that statute. A private case is
still continuing but probably doomed in the same much the
same way under the same statute. But you know, whether
a revival of that statute is going to happen now,
that really is the broader I think question here about
(30:38):
crisis discrimination and whether the current FTC is going to
try to use this statute if in a different case,
if not in PepsiCo.
Speaker 1 (30:45):
Well, can you just tell us a little bit more
about the statute?
Speaker 6 (30:48):
Yeah, definitely, so really old statute. There were a lot
of exceptions basically to the statute though, so it's really
hard to enforce because the common thinking behind you is
that you can almost always think of a reason why
it except applies to your case and why the statue
might not be applicable to the to to the business
you're operating. An example be volume discounts, right, which you
could see how that would be an issue here. If
(31:08):
you buy a large amount of a product, it's totally
allowable for that manufacturer to give you a discount base
of volume.
Speaker 4 (31:14):
Right.
Speaker 6 (31:14):
So that's one common discount to this or what common
defense to the statue. Another is functionality discounts. Right, So
if you offered a warehouse a product instead of the manufacturer,
you're kind of saving the money, so that discount could
be passed on to you.
Speaker 4 (31:27):
Right.
Speaker 6 (31:27):
So there's all these different kind of defenses that affirmative
defenses under the statute that usually reckenforcement. But you know,
I think moving forward here and thinking about where this
might apply is still or where we could still see
cases Independent grocers, independent stores have been screaming for years
about issues around this, so it's possible we see a
different kind of action down the road, a different subject.
(31:48):
I think the PepsiCo issue is done and over with
at least for the time being. Surprised if anyone refiles there.
But we were thinking last year when the FTUC put
out a report about PBMs. One of the things that
is cover you know, it can't contain.
Speaker 1 (32:01):
Coverage pharmacy benefit managers.
Speaker 6 (32:04):
Yeah, pharmacy benefit managers, that's right. But one of the
topics that was covered in that report last summer was
was the effect upon that rebates on actual independent pharmacies
right in smaller, more rural areas because these larger healthcare
conflomerants owned stores like CVS or other retailers in a community,
or mail order stores who might be offered a better
(32:24):
price for prescription drugs and those rural pharmacies that many
folks are depending on to survive. So, you know, we
could thought, maybe we see an action brought under Robins
and Patment regarding those particular entities, but we haven't yet,
so we wander still. You know that investigations still ongoing.
Whether or not it turns into another lawsuit from the
STEC or an amended version of its current lawsuit really
(32:46):
remains to be seen. But I think it's still in
the back burner there. You know, Commissioner mat Or had
just came in, he said flat out and his vote
to dismiss this case. Look, the Robits Impatment Act is
still on the books. It's still something we should be enforcing.
So it might not necessarily be the end of enforcement
around it yet, but for the time being, it seems
like this case and the private case it's related to
it around free to laid chip products, it's kind of
(33:07):
game over for those.
Speaker 1 (33:09):
Okay, well, we'll keep watching and you'll let us know
if anything gets revived. All right, great, thanks justin all right,
I think we're gonna leave it there for this episode
of votes and verdicts. As always, thank you for listening.
If you have any questions about any of the matters
we discussed on this episode, please don't hesitate to reach
out to us at your convenience with questions, and as
(33:29):
a reminder, you can find all of our research on
the Bloomberg terminal at big or on our litigation and
policy dashboard at BI laws Go. Thank you for listening,
and have a great day.
Host
Elliott Stein
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