June 6, 2025 • 25 mins
The June 3 lifting of Wells Fargo’s asset cap imposed by the Federal Reserve in 2018 was among the key catalysts Bloomberg Intelligence analysts examined this week. BI’s litigation and policy team also discussed Michelle Bowman’s confirmation as Fed vice chair of supervision and what it means for deregulatory efforts for banks like JPMorgan and others. We also discussed closing arguments in the Justice Department’s antitrust case against Google over search, and the possible remedies the company might face, as well as the TikTok ban and what might happen as President Donald Trump’s order putting the ban on hold expires June 19. Last, we discussed FCC Commissioner Nathan Simington’s resignation and what it means for deregulatory efforts that might affect broadcasters like Nexstar, Sinclair, Tegna and Fox.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
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 indices,
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
(00:58):
analyst with Bloomberg Intelligence litigation in the financials sector. I'm
delighted today as always, to be joined by a handful
of my colleagues here at Bloomberg Intelligence. Just as a reminder,
you can find all of our research on the Bloomberg
terminal at BI go, and you can find all of
our litigation and policy coverage on our dashboard BI laws go.
(01:22):
If you are a subscriber to the Bloomberg terminal. Today
is June sixth. Then we always like to timestamp these
episodes because things move quickly. Just last week, as we
were talking about some of the litigation around tariffs, we
got a decision from one of the appellate courts as
we were talking about those cases. So it's eleven five
(01:45):
am on June sixth, which is a Friday. Why don't
we start with Wells Fargo. Alison Williams, let's bring you
in here. Allison is our chief banks analyst at Bloomberg Intelligence.
She's been covering Wells Fargo through its saga of the
asset cap that the Federal Reserve placed on it in
(02:07):
twenty eighteen. Alison, you and I and Nathan too, who
will talk to you later. We've been talking about Wells
Fargo for a while, the asset cap. I was thinking
about it, and I remember when the asset cap was imposed.
It was February second, it was a Friday, it was
after market hours. I remember exactly where I was when
(02:27):
I read it because it was unprecedented. The regulator had
gone to that extreme of a measure to penalize a bank.
And I remember you, me and Nathan, we all were emailing,
you know, all weekend about it. This week, obviously, the
Federal Reserve lifted that asset cap finally after seven little
(02:47):
over seven years, But why don't you come in and
sort of tell us, you know, talk to us about
what it meant for Wells to be under that asset cap,
how it sort of navigated, did the cap, you know,
where was it hurt and how was it able to
sort of mitigate maybe some of the impact.
Speaker 2 (03:06):
I think to your point, the keyword really was unprecedented,
and that is what made it so difficult for management
and for investors. If you recall in the early days,
it was, oh, it's gonna cost x amount, you know,
a few months. Oh maybe it's a few months more
than that. And here we are over seven years later,
(03:28):
and really we see three main takeaways from the removal
of the cap. First, the key benefit is a structural
one in that the bank has operating flexibility going forward
to invest in business opportunities as they arise. And that
may sound vague, but it's really important. We think that
the key cost to Wells Fargo of the as a
(03:50):
cap over the duration was really the opportunity costs during
the pandemic of not being able to expand the liability
side of the balance sheet and grow core deposits. With
the surge and fiscal stimulus, that opportunity to gain core
customers market share is something that Wells missed out on
and cannot be recovered. Second, there are two key growth
(04:14):
opportunities for Wells Fargo where the bank historically has been
under indexed to its largest peers and the bank has
been investing under CEO Charlie Sharf. And these include card
where the bank has made good strides, as well as
the trading business and so in particular the prime brokerage business,
and that is a very balance sheet intensive business. It's
(04:37):
a very strong environment right now for trading in particular,
and so we do see that as an opportunity now
that the cap has lifted, for the bank to be
investing in not just for the moment but over the
long term. Finally, the ability of management to shift its
(04:57):
focus towards a growth mindset from the asset cap restraint
as the key priority really should not be underestimated. Really,
since Charlie took over, the number one focus of this
bank has been to get that removed. There's been a
lot of investment in that area. You know, I think
(05:18):
that a lot of those investments, you know, will will
pay off over time. And the bank has made significant
progress and improving its core cost structural profitability and now
removing some of these legal costs and regulatory costs I
think are key. So both you know, the intangible of
management being able to focus on some of the opportunities
(05:40):
I discussed, as well as not having these costs I
think are the key benefits going for.
Speaker 1 (05:44):
Yeah, and that's a good point. I was just reading that,
you know, one of its final steps was getting like
third party monitor to sign off on all the changes
that it made. And I think that third party review
alone costs like one hundred million dollars, which you know,
just goes to your point of at least on some
of the tangible things. You know, they're not gonna have
to pay a lot of these costs, regulatory and compliance
(06:07):
costs associated with trying to get rid of the cap.
So it's gonna be gonna be really interesting to see
what they do next. And all right, so Alison, thank
you for a long time listen our first time panelist.
We appreciate your insights. As always, you know, you have
a lot of things going on, so we'll let you go,
but we're gonna stick with the Federal Reserve and bring
in Nathan. Nathan Dean is our chief policy analyst down
(06:32):
in Washington, d C. So Nathan sticking with the FED.
Michelle Bowman was confirmed two days ago as FED Vice
Chair of Supervision. Why don't you come in tell us
more about you know what that means, especially in terms
of deregulation efforts as it pertains to banks.
Speaker 3 (06:55):
Yeah, you know, and it's really good timing. And when
we were recording this podcast because Governor Vice Chairbowman, I'm
gonna have to get used to saying vice Chairbowman. Now.
Vice Chairbowman just gave a speech just this morning and
it was her first primary speech where she lays out
a lot of things, and so just to give you
some bullet summaries that I was just some of the
highlights is that she said that the Enhanced Supplementary Leverage
(07:18):
Ratio proposal, the leverage ratio is coming in the near future.
I'll explain that in a minute. The Fed's going to
be hosting a conference in July with both academics and
members from the banking community to discuss the future of capital.
Changes to the examination process are coming, potentially even including
changes to the camel's rating. So if you're in the
compliance or risk space and you're dealing with your FED
(07:41):
banking examiners, there may be some changes to the book
that they're going to use in terms of how they
deal with you. Tailoring. She also mentioned when the tailoring,
this is something that she's been talking about quite a
bit of tailoring regulations, and that goes all the way
back to this bill.
Speaker 1 (07:57):
S.
Speaker 3 (07:57):
Twenty one fifty five from twenty eighteen. But she actually
said in this speech tailoring within categories. And what she
means here is a category one, category two, category three.
So if you think of a regional bank, you know
she's even talking about tailoring within these categories. And so
that's that's something new that we really haven't seen before,
and it hasn't really been fleshed out. So just I'm
(08:18):
putting my spidery sense on that one. So that's something
I'm going to be looking for. She commented that another
stress test proposal is coming, that the FED is going
to produce a report on all unnecessary and outdated regulations,
and she called for new streamline bank line, streamlined bank
application processes. Now, what do we think the Fed's going
to do now? Well, you know, there's really two proposals
(08:39):
that I think are the top priority for the FED.
The first is that leverage ratio. I think, because they
are moving this quickly, that we are going to see
a return of the twenty eighteen proposal, which dropped the
leverage ratio for Allison's banks from five percent to three
percent plus fifty percent JESUB surcharge buffer. The big question
is for Ira Jersey, our chief right strategist, is whether
(08:59):
It's treasuries will be exempted for the denominator. I think,
as of right now, they are included in that proposal.
I think that proposal could be as soon as July,
and then we're also going to see a second stress
testing proposal. There's one that's come out already that's a
little bit more technical, it didn't really have all that
much of an impact, but there's a much more transparent
proposal coming out in terms of stress testing. Is the
FED thinks that they're going to get this done by
(09:21):
September thirtieth, meaning the proposal will be out and then
we'll have to go through the rule making process, and
a lot of this will be finalized in twenty twenty six.
The next tier is going to be more things like
the stress capital buffer, the GCIM surcharge, and more likely
than not the BOSLE three endgame, which we still think
as of right now, if it's reproposed, will come out
in a capital neutral mindset. But again, this conference in
(09:44):
July could change how the FED is thinking. But ultimately
here deregulation is coming for the banks. It's going to
be fairly positive for the banks. But we just again
tell our clients that this rulemaking process there's no metric
wand and when the FED or the FDIC of the
Office come controllier the currency puts these proposals out, you're
looking at nine to twelve months eighteen months until these
(10:05):
things are finalized. It's not going to move all that quick.
Speaker 1 (10:08):
And we can plug a webinar that we're going to
be doing in a couple of weeks led by our
colleague Arnold Kakuda on some of the stress test changes
that are coming, I believe, and you know it's interesting
there was a lawsuit by the Bank Policy Institute against
the FED to try to push some of the stress
test changes, and they just dropped that lawsuit a couple
(10:29):
of weeks ago because they enter the Bank Policy Institute
anticipates that the FED is going to issue this proposal
that you talked about Nathan before September thirtieth.
Speaker 3 (10:39):
Yeah, and the last thing I would just say is
just remember nothing gets done unless Chairman Powell is the
one that ultimately decides. You know, the chaired is the
one who sets the agenda. And so if we ever
get into a situation where Vice Chair Bowman decides if
she wants to push forward the rule and Chair Pollow disagrees,
there's no vote. So all these changes are going to
be made with Chair Powell's approval. Just something to keep
(11:01):
in mind.
Speaker 1 (11:01):
And I'm guessing neither one of them is going to
be receptive to Senator Elizabeth Warren's request to reinstate the
Wells Fargo acid gap.
Speaker 3 (11:08):
Yes, and the Federal Reserve will not be handing over
its records. It's last five years worth of Wells Fargo.
Speaker 1 (11:14):
Oh that's the other thing she's asking for, right, Yeah,
all right, good stuff, Nathan. Thanks, all right, jen Ree,
let's bring you in. Let's move from financials to tech.
We'll talk some tech antitrust. You have been following the
Justice Department's monopolization case against Google oversearched very closely over
however long it's been, I think a couple of years now.
(11:35):
They lost on liability. Just this week there were, or
last week there were closing arguments in the remedies phase.
Your headline following that was Google's risk of forced chrome
sale rises yet remains improbable. So that gives us a
flavor what you're thinking. But why don't you come in
and maybe give us some more details?
Speaker 4 (11:55):
Sure, thanks Elliott. Yeah, you know, those closing arguments were
really interesting because I think oftentimes with closing arguments after
a trial, it's kind of a rehashing of everything that
we heard in trial for those that followed the trial.
But what was interesting about this one is that the
judge was really active and asked a lot of questions
about everything. And when I say about everything, the Department
(12:17):
of Justice has proposed how they think Google should be
punished or disciplined after being found liable for illegal monopoly maintenance,
and then Google as has said no, no, you know
that's way overkilled. Here's what should happen. So the judge
was looking at both of those proposals, and I think
going in part of the DOJ's proposal was to divest Chrome,
(12:38):
and going in that the really broad consensus was very
unlikely to happen. If you look at the liability decision here,
Google was found to illegally maintain its monopoly by virtue
of agreements it had with Apple, with Mozilla, with original
equipment manufacturers, and with telecoms that really kind of took
(12:59):
up all the Internet access points with Google Search other
than those controlled by Microsoft. And this blocked out Being,
and it blocked out duc dot Go and any other
search engine rival. It didn't allow them this scale they
needed to grow and compete. And so usually when in
the US, when there is a legal monopolization, what the
remedy is supposed to do is to terminate the defendant's
(13:22):
unlawful conduct. Means, get rid of all these agreements, prevent
its recurrent and then re establish the opportunity for competition
in the affected market. And if you look at those things,
divesting Chrome doesn't really go in there. It doesn't really fit.
But here's the thing at the closing arguments that judge said,
you know, all of these proposed remedies are very complicated.
(13:45):
Dooj wants me to force Google to share its data
and share it search, index and syndicate search and cut
these agreements, and there are privacy problems and it's technically difficult.
Maybe divesting Chrome is the most elegant and least speculative option.
And I think that's where a lot of us kind
of eyebrow raise and became very surprised, because if he's
(14:06):
thinking that way, he's not wrong that these remedies are
very complicated. But if he's thinking that way, it just
seems to be a greater likelihood. But I continue to
go back to the fact that he doesn't want to
be overruled, that he's been aligning himself with the precedent
in his circuit, which comes from a two thousand and
one decision against Microsoft from monopolization, and that if you
(14:27):
look at that decision, the Chrome divestitor doesn't really fit,
it doesn't really align with it. And I think he'd
be reversed on appeal, and I don't think that he
does want to. And that's why Elliott, I'm still leaning
toward no Chrome divestiture here despite what the judge said, And.
Speaker 1 (14:41):
So what do you think he I mean, you talked
about some of the other possibilities. What do you think
he goes with.
Speaker 4 (14:47):
I think it's going to be somewhere in between the
two proposals, and it's going to be data sharing, even
though that's complicated. There will be a technical committee and
the technical committee can work on that. So some sharing
of Google Search index that's like sort of a list
of all the URLs that Google Search is pulling information from.
Speaker 1 (15:06):
Sharing with competitors with.
Speaker 4 (15:08):
Rival so ab duc ducgo and bing and any other
new search engine that wants to start. Now, it's interesting
you asked that because that was a big issue at trial.
Who are general search competitors? Does that include open AI?
Does it include perplexity? You know AI chatbots. I'll call
the product we use as consumers that are using AI
(15:28):
a generative AI product. We're using a chatbot. They are
adjacent to search, and they get grounded with search. In
other words, to try to stop the hallucinating that the
AI chatbots can do, they align with search to verify
their results and if they can't answer, they'd go right
to search through a general search engine. So they all
have general search engines behind them.
Speaker 1 (15:49):
That's so interesting. I mean, but that seems so complicated
because like the list of people that'd have to share
with could change over time, how long would that share
and have to last?
Speaker 4 (15:58):
Well, all of those were questions. So wants ten years?
Google says three years. I suspect the judge again will
come somewhere in the middle. He acknowledged that even since
this started, everything's changed in this area. EDDIEQ from Apple
testified on the stand during the remedies hearing that already
Apple in Safari is seeing fewer searches and more use
(16:21):
of open a Chat GPT. So that suggests that people
are already moving over from general search to using AI
chatbots and everything has changed, and the judge acknowledged that too.
I don't think it'll be ten years, elliot. I think
it'll be much shorter, maybe three to five something like that.
And at the end of the day, I don't believe
the judge will force Google to share this data with
(16:43):
the AI entities. I think it'll just be the true
general search engines like Duck Duco and being. There's another
one called Brave, and if some other one wants to
start up that company too. I do think there will
be a lot of data sharing, and I think Google
will have to you would be prohibited from entering these
agreements and paying companies for default or for pre installation.
(17:06):
And that's really important. And the reason is because Google
modeled internally that the impact of the loss of default
position could cost it twenty eight to thirty two billion
dollars a year. And by the way, it hurts Apple
and Mozilla a lot, mostly Apple, which was getting paid
twenty billion a year probably more by now by Google
to set Google Search as the default behind Safari. So
(17:28):
Apple could be hurt by this, Mozilla could be hurt,
Mozilla testified that they'd be hurt, and the judges grappling
with those issues as well.
Speaker 1 (17:36):
That's so interesting. And so as an iPhone user, I mean,
I could still use Google Search, so I just have to
opt into it rather than have it be my default.
Speaker 4 (17:43):
I guess unless Apple continues to set it as the default,
you know, without getting paid, without getting paid, which very
well might happen.
Speaker 1 (17:51):
Interesting, And so you also mentioned you know, possible appeals.
I'm guessing I'm guessing Google either way, no matter what
the remedy is, will appeal the liability and then depending
on the remedy. Either side might appeal.
Speaker 4 (18:06):
Yeah, I think Google will probably appeal both. The judge
said he'll decide in August, and he's been really good
to keeping to these deadlines that he's announced, and I
think after that Google will appeal, and I think they'll
seek a stay of the remedies pending the appeal, which
I tend to think they'll get. Put about a sixty
five to seventy percent chance on them getting that. So
these remedies probably still won't be implemented for another couple
(18:26):
of years.
Speaker 1 (18:27):
Right, Okay, And you said August for a decision, Yes,
anytime in August. He just give some time in August
as a time in August.
Speaker 4 (18:34):
But the liability decision was also announced in August, and
it was at the end of the month, so I
think at the end of August.
Speaker 1 (18:40):
Just when everyone's on vacation. Yes, all right, Well you
enjoy reading it on the beach hopefully, right? All right, Jen,
good stuff? Thanks? All right, Matt, let's bring you in first,
so we'll stick with tech. Let's talk TikTok because the
enforcement of the TikTok ban has been put on hold
(19:00):
or you know, was put on hold. For several months
when Trump came in, but that that hold expires on
June nineteenth, Right, So in theory, if nothing happens, the
band should go into effect. But I'm guessing you don't
think that's likely to happen.
Speaker 5 (19:17):
Well, yeah, that you know, it's a strange world where
we're living in right now, where we have a law
on the books that bans TikTok and and subjects companies
that carry TikTok in their app stores or in their
internet you know, delivery services to massive liability. But despite that,
(19:39):
President Trump has said, don't worry about it. He's done
two executive orders now that said we, you know, the
law is enforced by the Department of Justice, and we
the Department of Justice, are not going to act on
this law. And even more than that, President Trump has
(19:59):
has old his Attorney General to write the companies who
are potentially subject to this liability letter saying not just
that we're not going to enforce it, but you are
not violating the law. And so they are writing that
informal letters. I don't know how they get to that factually,
because the law says what the law says. But this
is where we are, and and so with with we're
(20:22):
coming up to the next round of this, as you
said in mid June. But you know, is it going
to be any different this time than the last two.
It's hard to see that it will.
Speaker 1 (20:34):
Uh.
Speaker 6 (20:34):
And you're not seeing a lot of pushback.
Speaker 5 (20:37):
From members of Congress or from you know, or any
sort of movement in court to challenge what's happening here.
I think eventually you got to think that's going to happen.
You know, there's an interest from TikTok's competitors to enforce
this band at some point, you would think, but maybe
(20:58):
this isn't the time. And so it feels most likely
that what you're you're going to see here is again
kicking of the can down the road.
Speaker 1 (21:07):
Yep, that sounds right. So expect probably another some sort
of EO and extension of the previous CEO on June
eighteenth or June nineteenth, for that's another three months or something.
Speaker 5 (21:19):
Very likely, very likely, and until you hear hear more pushback,
I think President Trump can keep doing that and they'll
they'll likely try to keep working out a deal with
with with China and TikTok that and maybe work that
into those negotiations. But it wouldn't surprise me if we
if we see a lot of can kicking down the road.
But at some points, look, a law is the law,
(21:41):
and massive liability is massive liability.
Speaker 6 (21:44):
At some points this could get interesting, right right.
Speaker 1 (21:48):
So the other interesting thing that happened a couple of
days ago you flagged for me was that an FCC commissioner,
and Nathan Simonton resigned unexpectedly, right, You weren't expecting it. It
seemed abrupt. Any idea why he resigned.
Speaker 5 (22:06):
Don't know, don't have any visibility into his reasoning. It
really was a surprise because we were looking at the
potential the Democrat. One of the Democrat commissioners, Jeffrey Starks,
had said he was departing on today, June sixth, So
that was going to give the Republicans a majority for
(22:27):
the first time at the FCC, and that lets them
start to advance some of their priorities. But then suddenly
one of the Republicans says, nope, I'm out too.
Speaker 6 (22:38):
So Simington just sort of out of nowhere. I think
there had been.
Speaker 5 (22:42):
Rumors that he was going to leave, but I don't
think anyone expected it to be this abrupt and so
whether that was due to you know, personal reasons or
job reasons or relationship reasons, we don't know. But all
we know is that as of today, we have a
commission that is one to one, one Republican to one Democrat,
(23:04):
and so we're the Senate is very close to confirming
Trump's other Republican nominee, Olivia Trustee. So this probably speeds
that up, and once the FC once Congress, once the
Senate sorry approves her, the FCC can can start moving ahead.
Speaker 1 (23:22):
Yeah, any thoughts on what this means for the regulatory
efforts there.
Speaker 5 (23:26):
Yeah, so it probably I think it's a modest slowdown.
It makes you know the FCC is likely to act
on these things, and it's monthly meetings, and the next
opportunity was the end of June is the next FCC meeting.
That's the one that we were thinking they might start
these rulemakings to deregulate for broadcasters. Big opportunity here for
(23:46):
companies like next Star and Tegna and Sinclair. I think
this is if the Senate acts quickly, maybe June is
still on the table. All all Carr would have to
do is get it. You'd have to release the agenda
seven days before that meeting at the end of June,
so there's still a little room to do that. More likely,
(24:07):
I think we're looking now at July or August to
start the wheels turning on that. But I wouldn't overreact
to this. I think the Republicans are going to get
a majority at the FCC sooner rather than later. And
I still think this is going to be a priority.
This just might slow it down by a little bit
at the front end.
Speaker 1 (24:27):
Got it all right, good stuff. I think we're gonna
leave it there, let everyone get on with their weekend soon,
so we will wrap up this episode of Votes and Verdicts.
As always, we thank you for listening, and if you
have any questions, you know we always say if you
have any questions about anything we've talked about on this episode,
BI analysts are available to discuss your questions. You can
(24:50):
reach us by email in sant Bloomberg, or just pick
up the phone and give us a call. As a reminder,
you can find all of our research on the Bloomberg
terminal at BIG or on our litigation and policy dashboard
at bispace laws Go. Thanks again 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 indices,
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
(00:58):
analyst with Bloomberg Intelligence litigation in the financials sector. I'm
delighted today as always, to be joined by a handful
of my colleagues here at Bloomberg Intelligence. Just as a reminder,
you can find all of our research on the Bloomberg
terminal at BI go, and you can find all of
our litigation and policy coverage on our dashboard BI laws go.
(01:22):
If you are a subscriber to the Bloomberg terminal. Today
is June sixth. Then we always like to timestamp these
episodes because things move quickly. Just last week, as we
were talking about some of the litigation around tariffs, we
got a decision from one of the appellate courts as
we were talking about those cases. So it's eleven five
(01:45):
am on June sixth, which is a Friday. Why don't
we start with Wells Fargo. Alison Williams, let's bring you
in here. Allison is our chief banks analyst at Bloomberg Intelligence.
She's been covering Wells Fargo through its saga of the
asset cap that the Federal Reserve placed on it in
(02:07):
twenty eighteen. Alison, you and I and Nathan too, who
will talk to you later. We've been talking about Wells
Fargo for a while, the asset cap. I was thinking
about it, and I remember when the asset cap was imposed.
It was February second, it was a Friday, it was
after market hours. I remember exactly where I was when
(02:27):
I read it because it was unprecedented. The regulator had
gone to that extreme of a measure to penalize a bank.
And I remember you, me and Nathan, we all were emailing,
you know, all weekend about it. This week, obviously, the
Federal Reserve lifted that asset cap finally after seven little
(02:47):
over seven years, But why don't you come in and
sort of tell us, you know, talk to us about
what it meant for Wells to be under that asset cap,
how it sort of navigated, did the cap, you know,
where was it hurt and how was it able to
sort of mitigate maybe some of the impact.
Speaker 2 (03:06):
I think to your point, the keyword really was unprecedented,
and that is what made it so difficult for management
and for investors. If you recall in the early days,
it was, oh, it's gonna cost x amount, you know,
a few months. Oh maybe it's a few months more
than that. And here we are over seven years later,
(03:28):
and really we see three main takeaways from the removal
of the cap. First, the key benefit is a structural
one in that the bank has operating flexibility going forward
to invest in business opportunities as they arise. And that
may sound vague, but it's really important. We think that
the key cost to Wells Fargo of the as a
(03:50):
cap over the duration was really the opportunity costs during
the pandemic of not being able to expand the liability
side of the balance sheet and grow core deposits. With
the surge and fiscal stimulus, that opportunity to gain core
customers market share is something that Wells missed out on
and cannot be recovered. Second, there are two key growth
(04:14):
opportunities for Wells Fargo where the bank historically has been
under indexed to its largest peers and the bank has
been investing under CEO Charlie Sharf. And these include card
where the bank has made good strides, as well as
the trading business and so in particular the prime brokerage business,
and that is a very balance sheet intensive business. It's
(04:37):
a very strong environment right now for trading in particular,
and so we do see that as an opportunity now
that the cap has lifted, for the bank to be
investing in not just for the moment but over the
long term. Finally, the ability of management to shift its
(04:57):
focus towards a growth mindset from the asset cap restraint
as the key priority really should not be underestimated. Really,
since Charlie took over, the number one focus of this
bank has been to get that removed. There's been a
lot of investment in that area. You know, I think
(05:18):
that a lot of those investments, you know, will will
pay off over time. And the bank has made significant
progress and improving its core cost structural profitability and now
removing some of these legal costs and regulatory costs I
think are key. So both you know, the intangible of
management being able to focus on some of the opportunities
(05:40):
I discussed, as well as not having these costs I
think are the key benefits going for.
Speaker 1 (05:44):
Yeah, and that's a good point. I was just reading that,
you know, one of its final steps was getting like
third party monitor to sign off on all the changes
that it made. And I think that third party review
alone costs like one hundred million dollars, which you know,
just goes to your point of at least on some
of the tangible things. You know, they're not gonna have
to pay a lot of these costs, regulatory and compliance
(06:07):
costs associated with trying to get rid of the cap.
So it's gonna be gonna be really interesting to see
what they do next. And all right, so Alison, thank
you for a long time listen our first time panelist.
We appreciate your insights. As always, you know, you have
a lot of things going on, so we'll let you go,
but we're gonna stick with the Federal Reserve and bring
in Nathan. Nathan Dean is our chief policy analyst down
(06:32):
in Washington, d C. So Nathan sticking with the FED.
Michelle Bowman was confirmed two days ago as FED Vice
Chair of Supervision. Why don't you come in tell us
more about you know what that means, especially in terms
of deregulation efforts as it pertains to banks.
Speaker 3 (06:55):
Yeah, you know, and it's really good timing. And when
we were recording this podcast because Governor Vice Chairbowman, I'm
gonna have to get used to saying vice Chairbowman. Now.
Vice Chairbowman just gave a speech just this morning and
it was her first primary speech where she lays out
a lot of things, and so just to give you
some bullet summaries that I was just some of the
highlights is that she said that the Enhanced Supplementary Leverage
(07:18):
Ratio proposal, the leverage ratio is coming in the near future.
I'll explain that in a minute. The Fed's going to
be hosting a conference in July with both academics and
members from the banking community to discuss the future of capital.
Changes to the examination process are coming, potentially even including
changes to the camel's rating. So if you're in the
compliance or risk space and you're dealing with your FED
(07:41):
banking examiners, there may be some changes to the book
that they're going to use in terms of how they
deal with you. Tailoring. She also mentioned when the tailoring,
this is something that she's been talking about quite a
bit of tailoring regulations, and that goes all the way
back to this bill.
Speaker 1 (07:57):
S.
Speaker 3 (07:57):
Twenty one fifty five from twenty eighteen. But she actually
said in this speech tailoring within categories. And what she
means here is a category one, category two, category three.
So if you think of a regional bank, you know
she's even talking about tailoring within these categories. And so
that's that's something new that we really haven't seen before,
and it hasn't really been fleshed out. So just I'm
(08:18):
putting my spidery sense on that one. So that's something
I'm going to be looking for. She commented that another
stress test proposal is coming, that the FED is going
to produce a report on all unnecessary and outdated regulations,
and she called for new streamline bank line, streamlined bank
application processes. Now, what do we think the Fed's going
to do now? Well, you know, there's really two proposals
(08:39):
that I think are the top priority for the FED.
The first is that leverage ratio. I think, because they
are moving this quickly, that we are going to see
a return of the twenty eighteen proposal, which dropped the
leverage ratio for Allison's banks from five percent to three
percent plus fifty percent JESUB surcharge buffer. The big question
is for Ira Jersey, our chief right strategist, is whether
(08:59):
It's treasuries will be exempted for the denominator. I think,
as of right now, they are included in that proposal.
I think that proposal could be as soon as July,
and then we're also going to see a second stress
testing proposal. There's one that's come out already that's a
little bit more technical, it didn't really have all that
much of an impact, but there's a much more transparent
proposal coming out in terms of stress testing. Is the
FED thinks that they're going to get this done by
(09:21):
September thirtieth, meaning the proposal will be out and then
we'll have to go through the rule making process, and
a lot of this will be finalized in twenty twenty six.
The next tier is going to be more things like
the stress capital buffer, the GCIM surcharge, and more likely
than not the BOSLE three endgame, which we still think
as of right now, if it's reproposed, will come out
in a capital neutral mindset. But again, this conference in
(09:44):
July could change how the FED is thinking. But ultimately
here deregulation is coming for the banks. It's going to
be fairly positive for the banks. But we just again
tell our clients that this rulemaking process there's no metric
wand and when the FED or the FDIC of the
Office come controllier the currency puts these proposals out, you're
looking at nine to twelve months eighteen months until these
(10:05):
things are finalized. It's not going to move all that quick.
Speaker 1 (10:08):
And we can plug a webinar that we're going to
be doing in a couple of weeks led by our
colleague Arnold Kakuda on some of the stress test changes
that are coming, I believe, and you know it's interesting
there was a lawsuit by the Bank Policy Institute against
the FED to try to push some of the stress
test changes, and they just dropped that lawsuit a couple
(10:29):
of weeks ago because they enter the Bank Policy Institute
anticipates that the FED is going to issue this proposal
that you talked about Nathan before September thirtieth.
Speaker 3 (10:39):
Yeah, and the last thing I would just say is
just remember nothing gets done unless Chairman Powell is the
one that ultimately decides. You know, the chaired is the
one who sets the agenda. And so if we ever
get into a situation where Vice Chair Bowman decides if
she wants to push forward the rule and Chair Pollow disagrees,
there's no vote. So all these changes are going to
be made with Chair Powell's approval. Just something to keep
(11:01):
in mind.
Speaker 1 (11:01):
And I'm guessing neither one of them is going to
be receptive to Senator Elizabeth Warren's request to reinstate the
Wells Fargo acid gap.
Speaker 3 (11:08):
Yes, and the Federal Reserve will not be handing over
its records. It's last five years worth of Wells Fargo.
Speaker 1 (11:14):
Oh that's the other thing she's asking for, right, Yeah,
all right, good stuff, Nathan. Thanks, all right, jen Ree,
let's bring you in. Let's move from financials to tech.
We'll talk some tech antitrust. You have been following the
Justice Department's monopolization case against Google oversearched very closely over
however long it's been, I think a couple of years now.
(11:35):
They lost on liability. Just this week there were, or
last week there were closing arguments in the remedies phase.
Your headline following that was Google's risk of forced chrome
sale rises yet remains improbable. So that gives us a
flavor what you're thinking. But why don't you come in
and maybe give us some more details?
Speaker 4 (11:55):
Sure, thanks Elliott. Yeah, you know, those closing arguments were
really interesting because I think oftentimes with closing arguments after
a trial, it's kind of a rehashing of everything that
we heard in trial for those that followed the trial.
But what was interesting about this one is that the
judge was really active and asked a lot of questions
about everything. And when I say about everything, the Department
(12:17):
of Justice has proposed how they think Google should be
punished or disciplined after being found liable for illegal monopoly maintenance,
and then Google as has said no, no, you know
that's way overkilled. Here's what should happen. So the judge
was looking at both of those proposals, and I think
going in part of the DOJ's proposal was to divest Chrome,
(12:38):
and going in that the really broad consensus was very
unlikely to happen. If you look at the liability decision here,
Google was found to illegally maintain its monopoly by virtue
of agreements it had with Apple, with Mozilla, with original
equipment manufacturers, and with telecoms that really kind of took
(12:59):
up all the Internet access points with Google Search other
than those controlled by Microsoft. And this blocked out Being,
and it blocked out duc dot Go and any other
search engine rival. It didn't allow them this scale they
needed to grow and compete. And so usually when in
the US, when there is a legal monopolization, what the
remedy is supposed to do is to terminate the defendant's
(13:22):
unlawful conduct. Means, get rid of all these agreements, prevent
its recurrent and then re establish the opportunity for competition
in the affected market. And if you look at those things,
divesting Chrome doesn't really go in there. It doesn't really fit.
But here's the thing at the closing arguments that judge said,
you know, all of these proposed remedies are very complicated.
(13:45):
Dooj wants me to force Google to share its data
and share it search, index and syndicate search and cut
these agreements, and there are privacy problems and it's technically difficult.
Maybe divesting Chrome is the most elegant and least speculative option.
And I think that's where a lot of us kind
of eyebrow raise and became very surprised, because if he's
(14:06):
thinking that way, he's not wrong that these remedies are
very complicated. But if he's thinking that way, it just
seems to be a greater likelihood. But I continue to
go back to the fact that he doesn't want to
be overruled, that he's been aligning himself with the precedent
in his circuit, which comes from a two thousand and
one decision against Microsoft from monopolization, and that if you
(14:27):
look at that decision, the Chrome divestitor doesn't really fit,
it doesn't really align with it. And I think he'd
be reversed on appeal, and I don't think that he
does want to. And that's why Elliott, I'm still leaning
toward no Chrome divestiture here despite what the judge said, And.
Speaker 1 (14:41):
So what do you think he I mean, you talked
about some of the other possibilities. What do you think
he goes with.
Speaker 4 (14:47):
I think it's going to be somewhere in between the
two proposals, and it's going to be data sharing, even
though that's complicated. There will be a technical committee and
the technical committee can work on that. So some sharing
of Google Search index that's like sort of a list
of all the URLs that Google Search is pulling information from.
Speaker 1 (15:06):
Sharing with competitors with.
Speaker 4 (15:08):
Rival so ab duc ducgo and bing and any other
new search engine that wants to start. Now, it's interesting
you asked that because that was a big issue at trial.
Who are general search competitors? Does that include open AI?
Does it include perplexity? You know AI chatbots. I'll call
the product we use as consumers that are using AI
(15:28):
a generative AI product. We're using a chatbot. They are
adjacent to search, and they get grounded with search. In
other words, to try to stop the hallucinating that the
AI chatbots can do, they align with search to verify
their results and if they can't answer, they'd go right
to search through a general search engine. So they all
have general search engines behind them.
Speaker 1 (15:49):
That's so interesting. I mean, but that seems so complicated
because like the list of people that'd have to share
with could change over time, how long would that share
and have to last?
Speaker 4 (15:58):
Well, all of those were questions. So wants ten years?
Google says three years. I suspect the judge again will
come somewhere in the middle. He acknowledged that even since
this started, everything's changed in this area. EDDIEQ from Apple
testified on the stand during the remedies hearing that already
Apple in Safari is seeing fewer searches and more use
(16:21):
of open a Chat GPT. So that suggests that people
are already moving over from general search to using AI
chatbots and everything has changed, and the judge acknowledged that too.
I don't think it'll be ten years, elliot. I think
it'll be much shorter, maybe three to five something like that.
And at the end of the day, I don't believe
the judge will force Google to share this data with
(16:43):
the AI entities. I think it'll just be the true
general search engines like Duck Duco and being. There's another
one called Brave, and if some other one wants to
start up that company too. I do think there will
be a lot of data sharing, and I think Google
will have to you would be prohibited from entering these
agreements and paying companies for default or for pre installation.
(17:06):
And that's really important. And the reason is because Google
modeled internally that the impact of the loss of default
position could cost it twenty eight to thirty two billion
dollars a year. And by the way, it hurts Apple
and Mozilla a lot, mostly Apple, which was getting paid
twenty billion a year probably more by now by Google
to set Google Search as the default behind Safari. So
(17:28):
Apple could be hurt by this, Mozilla could be hurt,
Mozilla testified that they'd be hurt, and the judges grappling
with those issues as well.
Speaker 1 (17:36):
That's so interesting. And so as an iPhone user, I mean,
I could still use Google Search, so I just have to
opt into it rather than have it be my default.
Speaker 4 (17:43):
I guess unless Apple continues to set it as the default,
you know, without getting paid, without getting paid, which very
well might happen.
Speaker 1 (17:51):
Interesting, And so you also mentioned you know, possible appeals.
I'm guessing I'm guessing Google either way, no matter what
the remedy is, will appeal the liability and then depending
on the remedy. Either side might appeal.
Speaker 4 (18:06):
Yeah, I think Google will probably appeal both. The judge
said he'll decide in August, and he's been really good
to keeping to these deadlines that he's announced, and I
think after that Google will appeal, and I think they'll
seek a stay of the remedies pending the appeal, which
I tend to think they'll get. Put about a sixty
five to seventy percent chance on them getting that. So
these remedies probably still won't be implemented for another couple
(18:26):
of years.
Speaker 1 (18:27):
Right, Okay, And you said August for a decision, Yes,
anytime in August. He just give some time in August
as a time in August.
Speaker 4 (18:34):
But the liability decision was also announced in August, and
it was at the end of the month, so I
think at the end of August.
Speaker 1 (18:40):
Just when everyone's on vacation. Yes, all right, Well you
enjoy reading it on the beach hopefully, right? All right, Jen,
good stuff? Thanks? All right, Matt, let's bring you in first,
so we'll stick with tech. Let's talk TikTok because the
enforcement of the TikTok ban has been put on hold
(19:00):
or you know, was put on hold. For several months
when Trump came in, but that that hold expires on
June nineteenth, Right, So in theory, if nothing happens, the
band should go into effect. But I'm guessing you don't
think that's likely to happen.
Speaker 5 (19:17):
Well, yeah, that you know, it's a strange world where
we're living in right now, where we have a law
on the books that bans TikTok and and subjects companies
that carry TikTok in their app stores or in their
internet you know, delivery services to massive liability. But despite that,
(19:39):
President Trump has said, don't worry about it. He's done
two executive orders now that said we, you know, the
law is enforced by the Department of Justice, and we
the Department of Justice, are not going to act on
this law. And even more than that, President Trump has
(19:59):
has old his Attorney General to write the companies who
are potentially subject to this liability letter saying not just
that we're not going to enforce it, but you are
not violating the law. And so they are writing that
informal letters. I don't know how they get to that factually,
because the law says what the law says. But this
is where we are, and and so with with we're
(20:22):
coming up to the next round of this, as you
said in mid June. But you know, is it going
to be any different this time than the last two.
It's hard to see that it will.
Speaker 1 (20:34):
Uh.
Speaker 6 (20:34):
And you're not seeing a lot of pushback.
Speaker 5 (20:37):
From members of Congress or from you know, or any
sort of movement in court to challenge what's happening here.
I think eventually you got to think that's going to happen.
You know, there's an interest from TikTok's competitors to enforce
this band at some point, you would think, but maybe
(20:58):
this isn't the time. And so it feels most likely
that what you're you're going to see here is again
kicking of the can down the road.
Speaker 1 (21:07):
Yep, that sounds right. So expect probably another some sort
of EO and extension of the previous CEO on June
eighteenth or June nineteenth, for that's another three months or something.
Speaker 5 (21:19):
Very likely, very likely, and until you hear hear more pushback,
I think President Trump can keep doing that and they'll
they'll likely try to keep working out a deal with
with with China and TikTok that and maybe work that
into those negotiations. But it wouldn't surprise me if we
if we see a lot of can kicking down the road.
But at some points, look, a law is the law,
(21:41):
and massive liability is massive liability.
Speaker 6 (21:44):
At some points this could get interesting, right right.
Speaker 1 (21:48):
So the other interesting thing that happened a couple of
days ago you flagged for me was that an FCC commissioner,
and Nathan Simonton resigned unexpectedly, right, You weren't expecting it. It
seemed abrupt. Any idea why he resigned.
Speaker 5 (22:06):
Don't know, don't have any visibility into his reasoning. It
really was a surprise because we were looking at the
potential the Democrat. One of the Democrat commissioners, Jeffrey Starks,
had said he was departing on today, June sixth, So
that was going to give the Republicans a majority for
(22:27):
the first time at the FCC, and that lets them
start to advance some of their priorities. But then suddenly
one of the Republicans says, nope, I'm out too.
Speaker 6 (22:38):
So Simington just sort of out of nowhere. I think
there had been.
Speaker 5 (22:42):
Rumors that he was going to leave, but I don't
think anyone expected it to be this abrupt and so
whether that was due to you know, personal reasons or
job reasons or relationship reasons, we don't know. But all
we know is that as of today, we have a
commission that is one to one, one Republican to one Democrat,
(23:04):
and so we're the Senate is very close to confirming
Trump's other Republican nominee, Olivia Trustee. So this probably speeds
that up, and once the FC once Congress, once the
Senate sorry approves her, the FCC can can start moving ahead.
Speaker 1 (23:22):
Yeah, any thoughts on what this means for the regulatory
efforts there.
Speaker 5 (23:26):
Yeah, so it probably I think it's a modest slowdown.
It makes you know the FCC is likely to act
on these things, and it's monthly meetings, and the next
opportunity was the end of June is the next FCC meeting.
That's the one that we were thinking they might start
these rulemakings to deregulate for broadcasters. Big opportunity here for
(23:46):
companies like next Star and Tegna and Sinclair. I think
this is if the Senate acts quickly, maybe June is
still on the table. All all Carr would have to
do is get it. You'd have to release the agenda
seven days before that meeting at the end of June,
so there's still a little room to do that. More likely,
(24:07):
I think we're looking now at July or August to
start the wheels turning on that. But I wouldn't overreact
to this. I think the Republicans are going to get
a majority at the FCC sooner rather than later. And
I still think this is going to be a priority.
This just might slow it down by a little bit
at the front end.
Speaker 1 (24:27):
Got it all right, good stuff. I think we're gonna
leave it there, let everyone get on with their weekend soon,
so we will wrap up this episode of Votes and Verdicts.
As always, we thank you for listening, and if you
have any questions, you know we always say if you
have any questions about anything we've talked about on this episode,
BI analysts are available to discuss your questions. You can
(24:50):
reach us by email in sant Bloomberg, or just pick
up the phone and give us a call. As a reminder,
you can find all of our research on the Bloomberg
terminal at BIG or on our litigation and policy dashboard
at bispace laws Go. Thanks again for listening and have
a great day,
Host
Elliott Stein
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