Speaker 1: Hello, and welcome to the Votes and Verdicts podcast, hosted
Speaker 1: by the Litigation and policy team at Bloomberg Intelligence, the
Speaker 1: investment research platform of Bloomberg LP. This podcast series examines
Speaker 1: the intersection of business policy and law, and today we'll
Speaker 1: be looking at the litigation and policy catalysts that we're
Speaker 1: watching in June and that we think.
Speaker 2: Will impact companies across a number of different sectors.
Speaker 1: My name is Elliot Stein. I'm a senior litigation analyst
Speaker 1: covering litigation in the financial sector, and I'll be your
Speaker 1: host for today June second, twenty twenty three. If you
Speaker 1: have any questions about any of the matters that we'll
Speaker 1: be talking about today, please don't hesitate to reach out
Speaker 1: to us at your convenience with questions. We're going to
Speaker 1: be talking about a handful of sectors today. First, ding right,
Speaker 1: our senior healthcare policy analyst, will give us his post
Speaker 1: mortem on the debt ceiling drama, and he'll also talk
Speaker 1: about Medicaid renewals and what it means for health insurers.
Speaker 1: Matt Schuttenhelm, who covers TMT policy and litigation, will give
Speaker 1: us his thoughts on what AI regulation might look like
Speaker 1: in the US. And in Europe, and he'll also talk
Speaker 1: about an underappreciated potential legal threat to Uber and Lyft
Speaker 1: in California. After that, Holly from who covers consumer and
Speaker 1: industrial policy and litigation, will give us a preview of
Speaker 1: p FASK of a p FASK contamination Bell Weather trial
Speaker 1: against three M that starts on June fifth, and she'll
Speaker 1: also discuss an upcoming appeals.
Speaker 2: Court argument in buyer roundup litigation.
Speaker 1: After that, genre our antitrust litigation grew, we'll talk about
Speaker 1: the FTC likely beginning formal review of the Pfizer's Siegen deal,
Speaker 1: and an antitrust class action against Apple over the company's
Speaker 1: app store practices. Nathan Dean, our senior financials policy analyst,
Speaker 1: will then analyze and discuss in the anticipated proposal by
Speaker 1: financial regulators in the US to restrict banker bonuses. And
Speaker 1: I'll wrap up today's episode with some discussion of President
Speaker 1: Biden's student loan cancellation plan, which I expect the Supreme
Speaker 1: Court will strike down sometime in June. All of this
Speaker 1: research is available on the Bloomberg terminal under big and
Speaker 1: just a quick word about Bloomberg Intelligence for those who
Speaker 1: don't know. We are the investment research platform on the
Speaker 1: Bloomberg terminal, providing in depth research on industries, companies, and
Speaker 1: markets and delivering key data frombi analysts in their given industries.
Speaker 1: So with that, let's get started with the content and
Speaker 1: let's bring you in, Dwayne, to talk about the debt ceilings.
Speaker 1: Sounds like we're basically at the finish line, just waiting
Speaker 1: for President Biden to sign it.
Speaker 2: And at this point and by the time people listen
Speaker 2: to this and may already be signed, you've.
Speaker 1: Been on top of the story for weeks, if not
Speaker 1: months now, and it sounds like it turned.
Speaker 2: Out basically exactly as you predicted.
Speaker 1: So maybe you know, come in, give us your post
Speaker 1: mortem thoughts on the deal and if there's anything in
Speaker 1: it that surprised you. And then I know you also
Speaker 1: want to talk about Medicaid renewals and how that might
Speaker 1: affect health insurers.
Speaker 3: Yeah, so thanks Elliott, very glad. This is almost behind us,
Speaker 3: just waiting for the President to sign, which I assume
Speaker 3: they'll do so over the weekend. Overall, let's say that
Speaker 3: bill is largely in line with expectations we knew going
Speaker 3: into this exercise that I mean, death ceiling bill was
Speaker 3: unlikely and was merely a negotiating tactic by the administration
Speaker 3: when near the Republican House. Past bill was unlikely given
Speaker 3: the deep cuts to discretionary spending provisions relating to Medicaid
Speaker 3: work requirements and some other things. We also knew at
Speaker 3: some point there'd be a partisan fight about spending or
Speaker 3: specifically tied to the annual appropriations process, So it was
Speaker 3: either when we look at the spending it was either
Speaker 3: now as part of the debt ceiling debate or later
Speaker 3: as part of an appropriations fight. So the spending cut
Speaker 3: is probably something Democrats would have agreed to anyway, and
Speaker 3: by doing so now as part of the debt ceiling fight,
Speaker 3: they were able to blend some of the impact on
Speaker 3: the discretionary program side, which Republicans targeted by throwing in
Speaker 3: some IRS funding that was included in the Inflation Reduction
Speaker 3: Act that probably might not have been on the table
Speaker 3: if we were going through the normal appropriations routes. The
Speaker 3: spending caps for two years are largely in line with
Speaker 3: previous budget battles. You recall that in twenty eleven, after
Speaker 3: the last major debt crisis, there was a deal, or
Speaker 3: at least because Congress can come up with spending cuts.
Speaker 3: There was a deal to cap spending for ten years,
Speaker 3: but Congress the preceding congresses later broke those caps through
Speaker 3: two year spending deals that ultimately blunted the impact of savings.
Speaker 3: And as much as it ties the hands of Congress
Speaker 3: and buying for the next one year and a half,
Speaker 3: it gives the next president in the next Congress ability
Speaker 3: to determine their own spending levels. So Republicans would say
Speaker 3: that's good for them because if Trump wins, then they
Speaker 3: can do what they want or Trump or another Republican,
Speaker 3: and the same goes for Democrats. I will say, though,
Speaker 3: that it was surprised that the automatic CR is in
Speaker 3: this bill, which basically says if there isn't a fiscal
Speaker 3: year funding agreement by October first, essentially we roll over
Speaker 3: the spending levels from the preceding year. It seems like
Speaker 3: both sides didn't have the stomach to go through another
Speaker 3: budget battle so soon, and so setting a CR if
Speaker 3: the funding bills aren't passed by the beginning of the
Speaker 3: fiscal year just says we're not dealing with any budget
Speaker 3: fights for the remainder of this Congress. Now there will
Speaker 3: honestly be fights over the cuts to the different appropriations bills,
Speaker 3: but they'll at least figure those out. Have a lot
Speaker 3: of time to figure that out, so I think generally
Speaker 3: there's relief that it's done and we can focus on
Speaker 3: other issues. But I think there's a reality that this
Speaker 3: bill doesn't change the overall fiscal dynamics for the country
Speaker 3: because Medicare, social Security weren't touched. The doors open to
Speaker 3: supplemental bills for defense and other spending that will likely
Speaker 3: drive down the overall savings from the bill, which CBO
Speaker 3: scored at one and a half trillion over ten years.
Speaker 3: Now in terms of some of those other policy areas
Speaker 3: that we will be looking at, wanted to talk about
Speaker 3: Medicaid renewals because that's a pretty big deal right now,
Speaker 3: and just the five second background, The COVID funding bills
Speaker 3: from twenty twenty pretty much allowed states to pause their
Speaker 3: Medicaid eligibility processes in exchange for getting some increased federal
Speaker 3: funding for their healthcare programs. That process, or that's moratorium
Speaker 3: ended this year, so states have started to re up
Speaker 3: their renewal process and management. Commentary going into this had
Speaker 3: been very nervous given the potential for a lot of
Speaker 3: medicaiding rollies to roll off of their health plans this year,
Speaker 3: but first quarter commentary suggests that the plans are a
Speaker 3: bit more positive in terms of the outlook for the
Speaker 3: near term, as redeterminations are going to be spread out
Speaker 3: over a twelve month period, so less of a headwind
Speaker 3: in twenty twenty three, slightly more of a headwind than
Speaker 3: twenty twenty four. But this was all predicated on in
Speaker 3: losing coverage and picking up other types of insurance like
Speaker 3: ESI employer sponsored insurance or Obamacare, and also predicated on
Speaker 3: state administrative processes limiting the number of people getting kicked
Speaker 3: off who would otherwise be eligible for Medicaid. And this
Speaker 3: process started in April and May with about nineteen states
Speaker 3: so far, and the evidence is mixed, some higher than
Speaker 3: expected terminations, some roughly in line. And as an example,
Speaker 3: there's evidence from one state where eighty percent of the
Speaker 3: people who lost coverage were dropped due to administrative reasons,
Speaker 3: not because they're not eligible, And so why do you
Speaker 3: help plans care about this? This impacts their top line.
Speaker 3: There's an expectation of who's going to remain eligible for
Speaker 3: Medicaid and who's going to shift over from Medicaid to
Speaker 3: other plans. If we see higher than expected disenrollment and
Speaker 3: lower than expected enrollment and other types of coverage, that's
Speaker 3: going to I have a pretty significant impact in terms
Speaker 3: of the near term outlook for these health plans. So
Speaker 3: it's too soon to say ultimately what the impact is
Speaker 3: going to be. We'll be keeping an eye on this
Speaker 3: as twenty two states began the process June first, and
Speaker 3: I think we'll be listening for some management commentary from
Speaker 3: their second second quarter earnings to provide some clues on
Speaker 3: whether their first quarter outlook has been changed by some
Speaker 3: of the activity on the ground so far. So we'll
Speaker 3: have a lot more to say about this as the
Speaker 3: process unfolds over the coming months. And with that, I'll
Speaker 3: turn it back to you.
Speaker 2: Elliott, Great, thanks a lot.
Speaker 1: Dwaine, all right, Matt, let's bring you in to talk
Speaker 1: about artificial intelligence. It seems like every other headline these
Speaker 1: days has.
Speaker 2: To do with AI, and I think my favorite.
Speaker 1: Story from this past week was about the lawyer who
Speaker 1: used AI to write illegal brief and the brief wound
Speaker 1: up containing citations to cases that were totally made up
Speaker 1: by the AI machine.
Speaker 2: But you've been looking into what a regulatory framework might
Speaker 2: look like for.
Speaker 1: AI, so you know, come in and tell us your
Speaker 1: thoughts on that, and then also tell us about this
Speaker 1: case in California, UH involving uber and list and why
Speaker 1: you think there might be an underappreciated risk.
Speaker 4: Yeah, absolutely, Elliott thinks. So, yeah, yeah. Tamlin, Basin and
Speaker 4: I took an early look at what the regulatory risk
Speaker 4: facing artificial intelligence might look like, with Tamlin focusing on
Speaker 4: the EU, while I looked at the United States and
Speaker 4: on the on the EU side, it's there that we
Speaker 4: expect concrete developments. First. Tamlin outlines how the the AI
Speaker 4: Act in development there contemplates that that high risk systems
Speaker 4: would need to undergo an assessment and be registered before
Speaker 4: they're released. And he believed is that that sort of
Speaker 4: the heavy handed approach that the EU is taken to
Speaker 4: tech regulation could be replicated there. But but these obligations
Speaker 4: aren't likely to hit until late twenty twenty five, and
Speaker 4: he points out that that they're you know, it's early
Speaker 4: days still, and this is still in facing considerable negotiation
Speaker 4: and and so and I took a look on the
Speaker 4: US side on the Senate here held its first major
Speaker 4: hearing on a AI regulation last month, and what stood
Speaker 4: out was really the surprising level of optimism, the bipartisan
Speaker 4: optimism for regulating AI. But but again, I'm I'm pretty
Speaker 4: skeptical that that optimism will translate to actual material limits
Speaker 4: in the US anytime soon. Given how quickly this technology
Speaker 4: is developing and how fast moving it is, Congress itself
Speaker 4: doesn't have any chance to keep up with regulating it.
Speaker 4: The only logical approach would be to create a new
Speaker 4: federal agency to track it and to constantly modify its
Speaker 4: regulations to address it. But the political hurdles to do
Speaker 4: that I think are substantial. So for the near term,
Speaker 4: I think it's it should be good news for companies
Speaker 4: looking to develop this technology in the US. I don't
Speaker 4: really see concrete material regulation getting through the system anytime soon.
Speaker 4: And as you said, one other thing I wanted to
Speaker 4: touch on quickly in terms of a June catalyst for investors,
Speaker 4: and particularly for investors in Lyft. This impacts all gig
Speaker 4: economy companies, but particularly those that are have a big
Speaker 4: focus in California. It's a big deal. And Lift is
Speaker 4: a company like that, and I think the market could
Speaker 4: be underappreciating what a sig significant risk this could be
Speaker 4: to the company. The issue concerned how the company's drivers
Speaker 4: are classified, whether they're employees or contractors. And three years ago,
Speaker 4: in twenty twenty, California voters passed an initiative. There was
Speaker 4: a big win for Lyft it said the company's drivers
Speaker 4: are contractors. But quietly, a case challenging that that ballot
Speaker 4: initiative has been making its way through the California court
Speaker 4: system with sort of mixed results, and we're sort of
Speaker 4: at a showdown point for that case. The data circle
Speaker 4: on your calendar here is June fifteenth. Possible that slips
Speaker 4: to June twenty second, but that's the day that the
Speaker 4: California Supreme Court is due to tell us whether it's
Speaker 4: going to take up this case. That court denies ninety
Speaker 4: five percent of petitions of cases.
Speaker 2: It's asked to take.
Speaker 4: I think that the risk here is much higher. I
Speaker 4: think investors should be thinking more of forty percent risk
Speaker 4: that the court takes the case, and then that would
Speaker 4: be bad news for LIFT. That would significantly raise its
Speaker 4: risk because it won at the latest stage of the case.
Speaker 4: And so the fact that the California Supreme Court would
Speaker 4: be taking. It would signal considerable risk that they might
Speaker 4: be looking to change the result and potentially strike down
Speaker 4: that voter initiative. Now, I think LIFT can actually prevail,
Speaker 4: So you know, I want a caution not to overreact
Speaker 4: if that happens on June fifteenth or June twenty second,
Speaker 4: But it could be a considerable risk if the court
Speaker 4: decides to take the case. With that, let me toss
Speaker 4: it back to you, Elliott.
Speaker 1: Great, Thanks Matt. All Right, Holly, let's bring you in
Speaker 1: to talk mass TOWRT litigation. First, in three MP fast litigation,
Speaker 1: it sounds like we're reaching a critical milestone with a
Speaker 1: bell Weathered jury trial starting June fifth, and you've written
Speaker 1: that you think three M is a heavy underdog in that,
Speaker 1: and then you're also going to be watching an appeals
Speaker 1: court oral argument in buy er roundup litigation. So maybe
Speaker 1: come in tell us about both those cases and what
Speaker 1: you're going to be watching for.
Speaker 5: Yep, thanks Elliott. So three M faces the first test
Speaker 5: trial in thousands of cases alleging p FAS contamination from
Speaker 5: fire fighting film. That case is scheduled to go to
Speaker 5: trial June fifth, before the South Carolina Federal Court judge
Speaker 5: presiding over the multi district litigation. It's expected to last
Speaker 5: five to six weeks and we expect a verdict by
Speaker 5: late July. The plaintiff is the City of Stuart, which
Speaker 5: alleges contamination from a fire rescue training facility and seeks
Speaker 5: one hundred and five million. We've said this case could settle,
Speaker 5: but if it doesn't, we expect causation will be relatively
Speaker 5: easy to show and the issues will center more on
Speaker 5: what the correct measure of damages are. We expect more
Speaker 5: bell Weather trials and two h including the selection of
Speaker 5: personal injury cases for trial. And so there's been big
Speaker 5: news this morning, and there was big news yesterday. There
Speaker 5: was one hundred million dollars settlement announced related to City
Speaker 5: of Rome's lawsuit against three M DuPont and others. And
Speaker 5: Dupon and Comores announced a one point two billion dollars
Speaker 5: settlement with what are authorities this morning they announced it.
Speaker 5: We said that, you know, we don't think that's the
Speaker 5: final tally because they're likely will be holdouts and there
Speaker 5: are significant lawsuits remaining, particularly in North Carolina. We haven't
Speaker 5: changed our estimate for three M based on this reported deal,
Speaker 5: we said three M could pay thirty to forty billion
Speaker 5: total for pfast lawsuits. In litigation against fire over weed
Speaker 5: killer roundup, Buyer faces a crucial hearing before the Eleventh
Speaker 5: Circuit Court of Appeals on June thirteenth. Buyer still faces
Speaker 5: about forty thousand lawsuits over claims the weed killer causes cancer.
Speaker 5: Buyer has argued failure to warren claims are barred or
Speaker 5: preempted by federal law, and twenty twenty two, Buyer lost
Speaker 5: its petition to this US Supreme Court to review a
Speaker 5: Ninth Circuit Court of Appeals rolling finding cleans were not preempted.
Speaker 5: But Bayer has been pursuing another appeal over similar issues
Speaker 5: in the Eleventh Circuit Court of Appeals. The original Eleventh
Speaker 5: Circuit Appeals panel before which Buyer argued this rejected Buyer's
Speaker 5: argument in July twenty twenty two, but Buyer files a
Speaker 5: petition for the full panel to hear its appeal. What's
Speaker 5: called a petition for on bank review, and that was granted.
Speaker 5: And what's remarkable about that is those reviews are rarely
Speaker 5: granted and require a majority of judges on the panel
Speaker 5: to vote in favor of granting it oral arguments before
Speaker 5: the full panels to be held June thirteenth. That was
Speaker 5: the important hearing we spoke about earlier, and we think,
Speaker 5: based on Buyers securing a full panel to review its case,
Speaker 5: it has enough votes to win the appeal, and if
Speaker 5: it wins at the Eleventh Circuit, that creates a circuit
Speaker 5: split with the Ninth Circuit. A circuit split would make
Speaker 5: it likelier that the Supreme Court reviews Buyer's case if
Speaker 5: it petitions the Supreme Court for again for review, and
Speaker 5: in the meantime, Buyer has also also has another appeal
Speaker 5: pending in the Third Circuit Court of Appeals. With that,
Speaker 5: i'll turn it back to you, Elliott.
Speaker 1: Great, Thanks Holly. All right, Jen Ree, let's bring you
Speaker 1: in to talk antitrust. Never a dull moment in antitrust.
Speaker 1: In the anti trust world these days, it seems like,
Speaker 1: you know, every day there's like major headlines that you
Speaker 1: have to react to. But you wrote that you think
Speaker 1: the FTC will begin anti trust review of the Peiser
Speaker 1: Siegen deal, you know, in mid June, and then you're
Speaker 1: also going to be watching hearing where Apple is trying
Speaker 1: to block class certification and litigation by customers.
Speaker 2: Complaining about Apple's app store.
Speaker 1: So come in and tell us about both those cases.
Speaker 6: Sure, thanks, Elliott. Right, So, starting with the Peiser siege
Speaker 6: and deal, we absolutely expect the FTC to start an
Speaker 6: in depth investigation with this acquisition. The companies had agreed
Speaker 6: to the deal in March for forty three billion dollars
Speaker 6: and they filed it with the FTC on May twelfth,
Speaker 6: and that May twelfth date triggered a thirty day on
Speaker 6: sort of pre look by the FDC, and after the
Speaker 6: thirty days expire, so sometime in mid June, they'll launch
Speaker 6: what are called issue what are called second requests, which
Speaker 6: launches the investigation. And what this really means is that
Speaker 6: the timeline for the deal gets extended by at least
Speaker 6: eight months, and probably in this case a little bit
Speaker 6: longer than that. And news often of an in depth
Speaker 6: investigation when it becomes public, has a tendency to negatively
Speaker 6: impact the stock of the seller Siege in here, but
Speaker 6: it may not in this case, because I think it's
Speaker 6: pretty widely expected that the FDC is going to take
Speaker 6: a hard look, and even if it does it, it
Speaker 6: usually bounces back because it is anticipated that a review
Speaker 6: is going to be opened up. Now, the thing here
Speaker 6: on the ultimate outcome is really uncertain. We have an
Speaker 6: FTC today that's highly sensitive to any kind of consolidation
Speaker 6: at all in the pharma and biotech spaces. So in
Speaker 6: an effort to try to curb and slow that consolidation,
Speaker 6: they're taking novel approaches to these deals and adopting brand
Speaker 6: new theories of harm. So it's very difficult to anticipate
Speaker 6: what they're going to do. Because this pisor Sigen deal
Speaker 6: from an antitrust perspective, in my view, looks quite clean.
Speaker 6: And do you consider how these deals historically have been analyzed,
Speaker 6: which is looking at sort of drug by drug competitive
Speaker 6: overlaps between the companies. Now, the two had one potential
Speaker 6: competitive overlap, but that has been eliminated because it was
Speaker 6: a Pfizer drug that it shared with Merk and it
Speaker 6: seeded all the rights to that drug to work, So
Speaker 6: it kind of eliminated that one overlap. And you would
Speaker 6: expect this to get clearance, but we saw that the
Speaker 6: FTC just challenged a different deal, am Gen's potential acquisition
Speaker 6: of Horizon, both biotech companies, to try to stop that deal,
Speaker 6: and in that case, the companies also didn't have any
Speaker 6: competitive overlap, so the same thing could happen with Pfizer
Speaker 6: and Cigen, But again it's eight months or more down
Speaker 6: the road from now. Now turned into a whole different
Speaker 6: matter Apple and its app store, Apple and Google as well,
Speaker 6: but I'm focusing today on an Apple case. It's been
Speaker 6: under threat for years now by anti trust legal challenges
Speaker 6: that come from various plaintiffs and plaintiffs groups, and so
Speaker 6: far Apple has mostly been successful in warding off outcomes
Speaker 6: that would significantly dent the revenues that obtains through its
Speaker 6: app store, through the sales of apps and in app purchases.
Speaker 6: The particular suit I'm talking about today is a consumer
Speaker 6: action in which a group of consumers are trying to
Speaker 6: get class status right now, and they're seeking about ten billion,
Speaker 6: or at least up to ten billion in damages for
Speaker 6: what they say are alleged overpayments on apps and in
Speaker 6: app purchases that the developers passed on the big fee
Speaker 6: Apple charges developers to the consumers. Now, ten billion is
Speaker 6: a lot, but we think Apple could probably settle for
Speaker 6: under five hundred million even if the consumers actually win
Speaker 6: class status, because after that they have a lot of
Speaker 6: hurdles down the road to actually prove their claims to
Speaker 6: prove liability under federal landing trust laws, given past rulings
Speaker 6: by the same judge and basically identical cases that we're
Speaker 6: ahead of this one and brought by different plaintiffs. So
Speaker 6: the hearing on class status is in June. We expect
Speaker 6: a decision in the second half. And I should note
Speaker 6: that these consumers were already denied their efforts to certify
Speaker 6: a class in the first quarter of twenty twenty two,
Speaker 6: but they'll judge is letting them try again, and we
Speaker 6: think they probably cured the deficiencies that killed them the
Speaker 6: first time, and that they'll be able to move forward.
Speaker 6: If they don't get class status, the case will probably
Speaker 6: just fall apart. If they get class datus, which is
Speaker 6: more likely, we think the cases will probably settle in
Speaker 6: twenty twenty four. So with that, back to you, Elliott.
Speaker 1: Great, thanks a lot.
Speaker 2: Jen.
Speaker 1: All right, Nathan, let's bring you in to talk financials policy.
Speaker 1: Banker bonuses in particular. It's always a topic that garners
Speaker 1: a lot of interest from Bloomberg terminal clients for reasons
Speaker 1: that I think are obvious and it sounds like US
Speaker 1: regulators are signaling that they'll be proposing a rule to
Speaker 1: restrict banker bonuses. So maybe come in and tell us
Speaker 1: your thoughts on that.
Speaker 7: Yeah, you know, if there's way to get great readership
Speaker 7: on the Bloomberg terminal, it's to have a headline with
Speaker 7: bankers bonuses and restrictions. And so what I want to
Speaker 7: do is tell a story of why this is actually
Speaker 7: coming about. So if you go back to Dodd Frank,
Speaker 7: you know, signed into law July twenty ten, there was
Speaker 7: a provision in there that says that the six US regulators,
Speaker 7: so this is the Federal Reserve, the SEC, the National
Speaker 7: Credit Union FAHFA, OCC, and the FDIC have to come
Speaker 7: together and create a proposal restricting banker bonuses. And the
Speaker 7: Dodd Frank Act required that this thing would have to
Speaker 7: be put in place by July twenty first, twenty eleven,
Speaker 7: so this is one year. Well, the first draft of
Speaker 7: the proposal came out in April twenty eleven, and then
Speaker 7: the regulators sit on it, and they sat on it
Speaker 7: for five years. The second draft of the proposal came
Speaker 7: out in twenty sixteen, and again they sat on it,
Speaker 7: and here we are in twenty twenty three and we
Speaker 7: have no proposal. Now, the regulators had always wanted to,
Speaker 7: at least a democratic or the Obama era regulators and
Speaker 7: the Biden era regulators had always wanted to go back
Speaker 7: and try and get this completed. And the reason why
Speaker 7: they hadn't is you have six regulatory agencies. It's not
Speaker 7: easy to write a five hundred and six hundred page
Speaker 7: rule and get this over the finish line. However, now
Speaker 7: we have recent bank failures of Silicon Valley Bank, Signature Bank,
Speaker 7: and First Republic, and that has given political cover to
Speaker 7: these agencies to go forth and talk about trying to
Speaker 7: dust this rule off. Now the twenty sixteen rule, and
Speaker 7: I should note that what we anticipate coming out later
Speaker 7: this year is another proposal. It's not a finalized but
Speaker 7: it may use the twenty sixteen proposal as a base.
Speaker 7: What it would do is for banks that are above
Speaker 7: fifty billion in assets, it would defer amounts over a
Speaker 7: certain time and a certain percentage. So if you're a
Speaker 7: named executive for one of the big banks, your deferral
Speaker 7: amount is essentially sixty percent of your bonus's to be
Speaker 7: deferred for four years and then there is another long
Speaker 7: term bonus requirement that's sixty percent over two years. Now
Speaker 7: if you're a significant risk taker. And the way that
Speaker 7: it worked there is if you were a trader who
Speaker 7: had the ability to trade or expose more than point
Speaker 7: five percent of a bank's capital, or you received a
Speaker 7: third of the total compensation from incentives, then your deferral
Speaker 7: amount was fifty percent over four or two years, depending
Speaker 7: on how the bonus structure is. Now, that's what we're
Speaker 7: working off of right now. The reason why we think
Speaker 7: this is going to come out in later this year
Speaker 7: is that the FDIC chairman and the vice chair from
Speaker 7: the Federal Reserve, this is Martin Gruenberg and Michael Barr,
Speaker 7: had both said that because of these recent regulatory bank failures,
Speaker 7: we should dust this off as a way to combat
Speaker 7: bad behavior. Martin Gruenberg actually said earlier this week that
Speaker 7: he anticipates this proposal coming out in four q Now
Speaker 7: there's two things with that. One, you need six agents
Speaker 7: to sign off. Like I said before, it's not easy
Speaker 7: to do that, because it's easy to do this in principle.
Speaker 7: But each agency has its own jurisdiction, its own authority,
Speaker 7: its own clients, when I say clients, I mean the
Speaker 7: areas that they oversee, and so you know it's not
Speaker 7: going to be easy for them to do that. Secondly,
Speaker 7: by putting out a proposal, let's just say in November
Speaker 7: December of this year, it is going to be extremely
Speaker 7: difficult to get this done before the twenty twenty four
Speaker 7: presidential election. You know, the quickest I've ever seen a
Speaker 7: proposal go from proposal to finalization is about nine months,
Speaker 7: and generally they don't propose things and finalize things within
Speaker 7: like the two months prior to the election. So if
Speaker 7: they were to do this certainly would be up for
Speaker 7: review by Congress if Republicans win the White House to presidency,
Speaker 7: the House and the Senate via the Congressional Review Act.
Speaker 7: So this is more likely, in my opinion, of proposal
Speaker 7: that's coming out with the idea that we get finalized
Speaker 7: if Biden wins a second term. Now, the last thing
Speaker 7: I want to say about the proposal is obviously you know,
Speaker 7: this is something that the bankers aren't going to like,
Speaker 7: but it is something that non bank financials like hedge
Speaker 7: funds are going to like because this doesn't apply to them.
Speaker 7: So if you're a banker, and you're sitting in Wall
Speaker 7: Street at the moment and the bank comes to you
Speaker 7: and says, right, fifty percent of your bonus is now
Speaker 7: going to defer four years if you take the train
Speaker 7: up to Connecticut and you go to a hedge fund
Speaker 7: that doesn't exist. So one of the aspects of this
Speaker 7: is that we do think that these large banks are
Speaker 7: going to have to pay more for talent, and they're
Speaker 7: also going to have to try and stave off talent
Speaker 7: fleeing for non banks that aren't impacted by that role.
Speaker 7: But again, we'll find out more later this year if
Speaker 7: and when this proposal comes out, and Elliott, I'll turn
Speaker 7: it back to you.
Speaker 2: Great, Thanks Nathan, that's super interesting. Okay.
Speaker 1: Last, and I guess not least, I will talk about
Speaker 1: President Biden's student loan cancelation plan, which I expect the
Speaker 1: Supreme Court will strike down sometime this month. Just as
Speaker 1: a quick reminder, back in August, the administration announced a
Speaker 1: plan to forgive about five hundred billion dollars in student
Speaker 1: loans held by the federal government. Multiple lawsuits soon followed.
Speaker 1: Most of those lawsuits were dismissed, but a couple of
Speaker 1: them succeeded and wound up making their way all the
Speaker 1: way to the US Supreme Court, where oral arguments were
Speaker 1: held this past February. One of the lawsuits in the
Speaker 1: Supreme Court was brought by six gop led states, including Missouri,
Speaker 1: and the second lawsuit was brought by a pair of
Speaker 1: individual borrowers. On the merits of the case, I think
Speaker 1: all six Conservative justices will say that the Biden administration
Speaker 1: exceeded its statutory authority. The statute that was invoked to
Speaker 1: propose this plan is called the Heroes Act. It was
Speaker 1: passed shortly after nine to eleven, and the language of
Speaker 1: that statute refers to loan waivers and loan modifications during
Speaker 1: a national emergency, but it doesn't expressly provide for cancelation
Speaker 1: or forgiveness. So I think, based on that language, the
Speaker 1: Conservative justices will invoke the Major Questions doctrine to conclude
Speaker 1: that Congress didn't give the administration power to cancel or
Speaker 1: forgive student debt under this statute. And then on top
Speaker 1: of that, the statute contemplates relief for barrowers whose position
Speaker 1: was worsened by a national emergency, but the Biden plan
Speaker 1: really isn't tailored to such borrowers. Instead, it basically provides
Speaker 1: blanket relief without borrowers having to show that the COVID
Speaker 1: pandemic exacerbated their situation. So I think that's another reason
Speaker 1: the conservative justices will find that the Biden administration exceeded
Speaker 1: its statutory authority. But the more interesting issue in this
Speaker 1: case really has to do with stand and whether the
Speaker 1: plaintiffs in these cases were sufficiently injured to bring their case.
Speaker 1: And I think this issue is actually a much closer call,
Speaker 1: but at the end of the day, I don't think
Speaker 1: it will save the Biden administration's plan. More specifically, I
Speaker 1: think the court will find that the state of Missouri
Speaker 1: is a proper plaintiff, and that's because you know, Missouri
Speaker 1: contends that it's state student loan servicer, which is called MOHILA.
Speaker 1: The Missouri Higher Education Loan Authority would lose about forty
Speaker 1: four million dollars in annual revenue the under the Biden
Speaker 1: administration's plan, because MOHILA services loans that are held by
Speaker 1: the US government.
Speaker 2: And that would be eligible for forgiveness.
Speaker 1: But you know, interestingly enough, MOHILA itself did not sue,
Speaker 1: and that's sort of where the legal issue arises because
Speaker 1: the law generally frowns on third party claims, but I
Speaker 1: think in this case, the conservative justices will give the
Speaker 1: State of Missouri the benefit of the doubt. Because the
Speaker 1: state created Mohila, the state controls Mohila in many ways,
Speaker 1: and I think the court will find that Mohila is
Speaker 1: considered part of the state of Missouri. So, assuming I'm
Speaker 1: right and the Supreme Court winds up striking down the plan,
Speaker 1: one of the biggest beneficiaries will be student loan servicer
Speaker 1: nell Net, since it's one of the few student loan
Speaker 1: servicers that still services federally held loans. Other servicers like
Speaker 1: Navviant and Sally May and Discover primarily service privately held loans,
Speaker 1: so they really wouldn't be harmed by the Biden administration's
Speaker 1: forgiveness plan. And then just lastly, in terms of timing,
Speaker 1: you know, it's really impossible to say exactly which day
Speaker 1: the Supreme Court will rule, but we do expect it
Speaker 1: in June. The Supreme Court usually wraps up its decisions
Speaker 1: by the end of June before for the summer, and
Speaker 1: you know, I don't see any reason that that's going
Speaker 1: to change this year. So you know, stay tuned, we
Speaker 1: should get that decision sometime this month, and with that,
Speaker 1: I think we will wrap up this episode of Votes
Speaker 1: and Verdicts. As always, thank you for listening, and as
Speaker 1: a reminder, you can find all of our research on
Speaker 1: the Bloomberg terminal at Big and we encourage you to
Speaker 1: reach out to us with any questions that you may have,
Speaker 1: and we also encourage you to listen to other episodes
Speaker 1: of Votes and Verdicts on whatever platform you like to
Speaker 1: get your favorite podcasts. So with that, thank you for
Speaker 1: listening and have a great day.