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 March twenty twenty four and that we think
Speaker 1: will impact companies across a number of different sectors. My
Speaker 1: name's Eliot Stein. I'm a senior litigation analyst covering litigation
Speaker 1: in the financial sector, and I'll be your host for
Speaker 1: today March first, twenty twenty four. If you have any
Speaker 1: questions about any of the matters that we'll be talking
Speaker 1: about on this episode, please don't hesitate to reach out
Speaker 1: to us at your convenience with your questions. So we'll
Speaker 1: be discussing a hand and full of sectors and issues today. First,
Speaker 1: our anti trust analyst Jen Ree will discuss the anti
Speaker 1: trust challenges likely to face a pair of recently announced deals,
Speaker 1: the first being the thirty thirty five billion dollars Synopsis
Speaker 1: Ancest deal and the second being the Capital One Discover deal.
Speaker 1: Will then bring in Nathan Dean, our financials policy analyst
Speaker 1: in Washington, DC, who will also talk a little bit
Speaker 1: about the Capital One discovered deal, but from a bank
Speaker 1: regulator perspective, and he'll also talk about the SEC's climate
Speaker 1: disclosure rule, which looks like it'll be finalized in the
Speaker 1: coming week. Sticking with DC will then bring in our
Speaker 1: health care policy analyst Dwane Wright to discuss health insurer
Speaker 1: earnings and the potential impact of the twenty twenty four
Speaker 1: elections on the drug pricing provisions of the Inflation Reduction Act.
Speaker 1: After that, Justin Terteresi, who covers consumer and industrialiityation and policy,
Speaker 1: we'll talk about two major proposed rules expected in March
Speaker 1: by the EPA addressing pfast substances, or forever chemicals as
Speaker 1: they're commonly known. After that, Matt Schettenhelm, our TMT litigation
Speaker 1: and policy analysts, will discuss a March first hearing in
Speaker 1: Meta's lawsuit challenging the FTC's plan to tough in terms
Speaker 1: of the social media giant's five billion dollar settlement from
Speaker 1: twenty twenty concerning privacy violations. Last, but not least, I'll
Speaker 1: discuss upcoming appeal oral arguments. On March thirteenth, in a
Speaker 1: terror finance case by US service members against three banks
Speaker 1: Donska Bank, Deutsche Bank and Standard Chartered. All of this research,
Speaker 1: of course, is available on the Bloomberg terminal at big
Speaker 1: and just a quick word about Bloomberg Intelligence for those
Speaker 1: who are unfamiliar. We are the investment research platform on
Speaker 1: the Bloomberg terminal, providing in depth research on industries, companies,
Speaker 1: and markets and over and key data from bi analysts
Speaker 1: in their given industries. All right, So with all that
Speaker 1: out of the way, let's get started with the content. Jen,
Speaker 1: Let's bring you in and talk about anticipated antitrust scrutiny
Speaker 1: of a pair of thirty five billion dollar deals. The
Speaker 1: first is the Synopsis app Ancest deal in the semiconductor
Speaker 1: design software space, and the second is Capital One Discover.
Speaker 1: So on Synopsis and the answers, you've said the deal
Speaker 1: may be subject to an in depth antitrust investigation this
Speaker 1: month in March, but you aren't sure entirely about the timing.
Speaker 1: Do you want to come in and tell us where
Speaker 1: that stands?
Speaker 2: Sure? Absolutely so, you know, I think it's important. I
Speaker 2: kind of think about these deals in two phases. Will
Speaker 2: they get in depth scrutiny? And then at the end,
Speaker 2: what is going to happen. Will they get challenged? And
Speaker 2: the reason that in depth scrutiny is important is because
Speaker 2: deals either get cleared in thirty days or they get
Speaker 2: cleared in a year, and there's really no in between.
Speaker 2: So the in depth scrutiny basically triggers you into that
Speaker 2: year timing, which has implications for the deal.
Speaker 1: You know, it.
Speaker 2: Increases risk that the deal will get done and it
Speaker 2: has some implications for the seller. So this one, we
Speaker 2: do think probably has already gotten into in depth scrutiny.
Speaker 2: They signed on January fifteenth, and they agreed to notify
Speaker 2: the regulators or anti trust enforcers i should say, of
Speaker 2: their deal on January twenty ninth. Now they haven't notified
Speaker 2: the public as to whether they did that or not.
Speaker 2: That that's confidential information, they have no obligation to do so.
Speaker 2: But at this point I think they probably have filed
Speaker 2: even if that January twenty ninth date slipped, And once
Speaker 2: they do file, then the FTC has thirty days which
Speaker 2: is probably expired or is about to expire, and that
Speaker 2: would be when the in depth investigation gets launched. And
Speaker 2: we think this will be the Federal Trade Commission because
Speaker 2: it is in the semiconductor area, and that's an area
Speaker 2: where the FTC has some expertise and experience.
Speaker 1: And can you give us a summary of the deal
Speaker 1: and why you think it'll be reviewed so carefully by
Speaker 1: the STC?
Speaker 3: Sure?
Speaker 2: I mean, these companies are not the kind of companies
Speaker 2: you hear about every day in the news, so I
Speaker 2: think for sure, let me talk a little bit about
Speaker 2: what they do. Synopsis is actually one of the largest
Speaker 2: competitors in an area that's called electronic design automation tools.
Speaker 2: These are for semiconductor makers, and these are tools that
Speaker 2: the semiconductor makers use to design the chips themselves. So
Speaker 2: the customers here are really big companies like Intel and
Speaker 2: Taiwan Semiconductor, and Synopsis has really only two main competitors,
Speaker 2: which are Siemens and Cadence. Now antsis competes in a
Speaker 2: little bit of a different space. I should say. It
Speaker 2: does overlap very very slightly on the tool side of
Speaker 2: the design side, but not very much. Its main product
Speaker 2: is software for evaluating the larger electronic systems where the
Speaker 2: chips are going to end up. So it's basically simulation
Speaker 2: software that the companies, the chip makers can use to
Speaker 2: evaluate how the chips are going to perform under different environments. So,
Speaker 2: as you can understand here, they have a lot of
Speaker 2: the same customers and so ansis just sort of sits
Speaker 2: a bit downstream in the supply chain in a manner
Speaker 2: of speaking from where Synopsis is, and so they relate
Speaker 2: to each other in that sense, even though they're not
Speaker 2: They really only compete slightly on the more upstream piece,
Speaker 2: in the design piece, And I think that that's an
Speaker 2: intricate relationship. And whenever there's an intricate relationship like that,
Speaker 2: the FTC is going to want to look into it,
Speaker 2: because what they're going to worry about here is the
Speaker 2: fact that this is a highly technical market, a highly
Speaker 2: technical industry in which there has always been open standards
Speaker 2: because these technologies have to work together. The chip makers
Speaker 2: need the design tool and the simulation tool that work together,
Speaker 2: and the industry has always worked that way. But once
Speaker 2: Synopsis owns answers, the question would be, will it now
Speaker 2: have the incentive to try to block out other competitors
Speaker 2: in both areas because they could make more money that way, obviously,
Speaker 2: and they could do it by tying the products together
Speaker 2: either contractually or even and technically so that the chip
Speaker 2: customers can't really mix and match anymore. It's a vertical
Speaker 2: issue essentially of foreclosure. And I think that the FTC
Speaker 2: is going to want to dig into this to understand
Speaker 2: this technology to begin with, and then understand what how
Speaker 2: Synopsis incentives may change once they own this further downstream entity.
Speaker 1: And what do you think the STC does at the
Speaker 1: end of this review.
Speaker 4: Do you think they'll challenge the deal and if.
Speaker 1: So, what does the timing look like for that?
Speaker 2: You know, I think there are a lot of really
Speaker 2: good arguments here, and I see this deal getting done
Speaker 2: because I think on the horizontal overlap side, it's a
Speaker 2: very tiny overlap that can be fixed with a very
Speaker 2: small divestiture, well within the extent to which Synopsis agreed
Speaker 2: within the purchase agreement to sell off assets. But I
Speaker 2: think what helps here is that the companies have been
Speaker 2: partnering for years, presumably without any anti competitive impact, so
Speaker 2: that helps. And we also view the buyers as the
Speaker 2: customers as power buyers, and that means they have some
Speaker 2: ability to supplin any efforts to limit them. They can
Speaker 2: threaten to switch to other companies, they can threaten to
Speaker 2: take the work in house, which some of them actually
Speaker 2: have the capability to do that. And I think the
Speaker 2: really big thing here is that innovation is really needed
Speaker 2: in the chip area to support the AI trend. That's
Speaker 2: a big deal, and chips have to be more sophisticated
Speaker 2: to support it. And these companies say together they'll be
Speaker 2: able to conduct the research and innovate in a manner
Speaker 2: that'll support these more sophisticated chips in a way that
Speaker 2: neither one of them could do on their own. And
Speaker 2: that's pretty pro competitive. So I do think this deal
Speaker 2: will make it through one way or another. They would
Speaker 2: have to sue to try to block the companies from closing,
Speaker 2: and that would hit in about a year from now
Speaker 2: and probably take about five months before there was some
Speaker 2: sort of an outcome.
Speaker 1: And so that just suddresses the US. What about other
Speaker 1: jurisdictions around the world. Where else might the deal be
Speaker 1: subject to review and where might it run into trouble.
Speaker 2: We think it may be subject to review in the
Speaker 2: EU and UK and China. It's not entirely clear. We're
Speaker 2: not learned about China or the EU. We are a
Speaker 2: little concerned about the UK. I know it's unusual to
Speaker 2: say we're not concerned about China, because China has had
Speaker 2: a history of holding up deals involving American companies in
Speaker 2: this industry. But here we think China is actually lacking
Speaker 2: an infrastructure in this kind of software that's needed for
Speaker 2: the design of chips, and they need these companies more
Speaker 2: than these companies need China, And in that case, it's
Speaker 2: much more likely that the regulator there would clear the
Speaker 2: deal with some behavioral concessions that are good for Chinese
Speaker 2: companies rather than blocking it out right now. The UK
Speaker 2: is just really a wildcard, and they were really tough
Speaker 2: on Microsoft Activision. They didn't mind standing out from the
Speaker 2: rest of the global regulators that cleared it all except
Speaker 2: for the US, and also aren't very happy about the
Speaker 2: idea of a behavioral remedy, which obviously is something that
Speaker 2: could work here because the companies could just promise to
Speaker 2: maintain open standards. So I think that the UK is
Speaker 2: a while card, and if they have to review, which
Speaker 2: is unclear yet, that would be the one area where
Speaker 2: I would worry a little bit.
Speaker 1: Super interesting, Okay, let let's turn to another big deal
Speaker 1: that was recently announced, Capital One, and discover what are
Speaker 1: your thoughts about antitrust scrutiny of that deal?
Speaker 2: You know, this is really tough. It's one of the
Speaker 2: first deals that's come along that sits exactly in an
Speaker 2: industry that the agencies are, you know, really unhappy about
Speaker 2: the level of consolidation that's already taken place, and unhappy
Speaker 2: about the way merger enforcement has taken place in the
Speaker 2: last several years. So they're trying to tighten it up.
Speaker 2: They're trying to look at many more implications of banking
Speaker 2: deals than they have in the past, but they're also
Speaker 2: have a deal in front of them. So basically there's
Speaker 2: an anti consolidation sentiment in financial markets and banking, and
Speaker 2: particularly by the Department of Justice. I know Nathan will
Speaker 2: talk about the banking regulators. So you have a deal
Speaker 2: that sits right in that in that juncture, and you'd
Speaker 2: think knee jerk reaction would be that they're just going
Speaker 2: to want to block it. They're going to want to
Speaker 2: stop the consolidation of two huge credit card issuers. But
Speaker 2: it also has massive pro competitive efficiencies potentially, And that's
Speaker 2: an interesting situation because there has been unhappiness in the
Speaker 2: antitrust world with the Visa, MasterCard, credit card Network doopoly
Speaker 2: for many, many, many many years. I mean as long
Speaker 2: as I can remember, those two companies have either face
Speaker 2: litigations or allegations at least that they violate the antitrust laws,
Speaker 2: and not very much can be done about it. So
Speaker 2: the regulator here I should say enforcer, because the DOJ
Speaker 2: is not a regulator. It's an enforcer. But we'll have
Speaker 2: the last say, Nathan will talk about the banking regulators
Speaker 2: that will also have to approve this deal. There are
Speaker 2: many levels of approval it's going to need. But even
Speaker 2: if the banking regulators approve, the Department of Justice can
Speaker 2: still sue to block it. And I think it's really
Speaker 2: going to come down to how they look at the
Speaker 2: credit card issuing markets and how they weigh the pro
Speaker 2: competitive aspects of the deal against potential for harm. And
Speaker 2: I think where the deal could run into trouble is
Speaker 2: if the Department of Justice defines very narrow markets and
Speaker 2: credit card issuing. Rather than looking at all the credit
Speaker 2: card issuers out there that exist, which is a pretty
Speaker 2: competitive market, they could look at a smaller segment and
Speaker 2: they could say, look Capital One and discover tend to
Speaker 2: issue more credit to underserved populations, new credit card owners,
Speaker 2: subprime customers, and those that keep a revolving balance, and
Speaker 2: those are the customers that'll be harmed because they'll have
Speaker 2: fewer options, and with fewer options come increase costs, and
Speaker 2: if they look at the market that way, it may
Speaker 2: be hard to argue that the prove pro competitive benefits
Speaker 2: outweigh that harm. So I think this is going to
Speaker 2: get in depth review. It's going to take again, probably
Speaker 2: about a year. And the other wrench that you have
Speaker 2: to throw in there is that by the time a
Speaker 2: decision is made, we could have an entirely different administration
Speaker 2: and we could have different decision makers at the DOJ,
Speaker 2: and obviously that can have an impact here too.
Speaker 1: Super interesting and a lot of moving parts for sure.
Speaker 1: All right, thanks Jen, Nathan, let's bring you in. Let's
Speaker 1: stay on Capital one Discover. You know, Jen talked about
Speaker 1: antitrust review of the deal, but as she said, since
Speaker 1: this is a merger of you know, two banks, we
Speaker 1: also have to consider the potential bank regulators as well.
Speaker 1: So Nathan, come in. How should we think about you know,
Speaker 1: the bank regulatory review and do you think the FED
Speaker 1: and the OCC will approve this merger or not.
Speaker 3: So I think that what will happen is is that
Speaker 3: we're cautiously optimistic that the FED and the OCC will
Speaker 3: approve this merger. But along the timeline that Jen just mentioned,
Speaker 3: this will certainly take a year, you know. I know
Speaker 3: Capital One said that they were hoping for approval and
Speaker 3: closing at the end of twenty twenty four. I don't
Speaker 3: think that's feasible one way or the other. It's going
Speaker 3: to be twenty twenty five at the earliest. But the
Speaker 3: way that we're looking at this is that the OCC
Speaker 3: in particular has five reasons why they should be looking
Speaker 3: at bank mergers under the Bank Merger Act, and that's
Speaker 3: the impact of the community, systemic risk concerns, competition and
Speaker 3: competitive concerns, Can this new antity combat anti money laundering?
Speaker 3: And what are the managerial resources of this combined entity. Now,
Speaker 3: if you look at all those five factors, the last
Speaker 3: two the AML and the managerial resources, I think you
Speaker 3: can set those aside. So let's focus on the community,
Speaker 3: the systemic risk, and the competition. Now, when it comes
Speaker 3: to systemic risk, the OCC will even see in their principles,
Speaker 3: and we have additional research out on the terminal about
Speaker 3: this that the occ will even say that if you
Speaker 3: are known as a globally systemic Important Bank ADJESIP, so
Speaker 3: you are a Bank of America at JP Morgan or
Speaker 3: a city group, they are not going to approve a
Speaker 3: merger unless it's an emergency situation like we saw at
Speaker 3: the beginning of twenty twenty three. So in this case, though,
Speaker 3: if you take the assets of Capital One and you
Speaker 3: combine it with the assets of Discover, you get around
Speaker 3: six hundred and sixty billion, which puts it on par
Speaker 3: with US Bank and just up just north of PNC Financial.
Speaker 3: But you certainly aren't approaching that threshold of seven hundred
Speaker 3: and fifty billion dollars where the regulators would begin to
Speaker 3: get a little concern. So I don't think the systemic
Speaker 3: risk concern is all that valid, and so we can
Speaker 3: take that factor and put it into the column of
Speaker 3: being cautiously optimistic. Let's talk about competition. Jen mentioned how
Speaker 3: these are two credit card issuers coming together and it's
Speaker 3: going to increase competition against the Visa and MasterCard. For example,
Speaker 3: Senator Durbin has a bill out there called the Credit
Speaker 3: Card Competition Act, in which he is trying to increase
Speaker 3: competition for Visa MasterCard with the idea that it would
Speaker 3: lower fees. Now if Capital One were to utilize discovers network,
Speaker 3: and as of right now, we think based off of
Speaker 3: their plans and statements, they'll utilize Discover's network for debit cards.
Speaker 3: Their credit cards will probably remain on a Visa and
Speaker 3: MasterCard network for now, but over the long term, if
Speaker 3: that Discovered network has utilized more, theoretically Visa and MasterCard
Speaker 3: could see more competition. But also remember the OCC is
Speaker 3: a bank regulator, They're not really focused on credit card
Speaker 3: competition per se. So again I think cautiously optimistic the
Speaker 3: competitive nature could be put in the factor of the approval.
Speaker 3: And finally, it comes down to community impact and this
Speaker 3: has probably been the number one, if not number two,
Speaker 3: factor that the OCC and FED have been looking at
Speaker 3: over the last few years when it comes to bank
Speaker 3: mergers is what's the impact on the community. And specifically
Speaker 3: here they're looking at things called Camel's ratings. They're looking
Speaker 3: at Community Reinvestment Act ratings. These are all ratings that
Speaker 3: are behind closed doors. We never see these in the
Speaker 3: public arena, but you know, the OCC will in particular
Speaker 3: be looking at Capital One and saying, Okay, we see
Speaker 3: that you want to do this. What does this mean
Speaker 3: for individuals on the South side of Chicago? What does
Speaker 3: this mean for individuals in California? And they will go
Speaker 3: sometimes they go neighborhood by neighborhood and they say, what
Speaker 3: does this mean for those individuals here? Will they be
Speaker 3: harmed by this merger? And so you know, I have
Speaker 3: to give Capital One the benefit of the doubt here.
Speaker 3: The Capital One when they were announcing this has done
Speaker 3: a lot of that due diligence. So that, in a nutshell,
Speaker 3: is why we are very conscious, are cautiously optimistic that
Speaker 3: this approval will go forward. In twenty twenty five.
Speaker 1: You mentioned Senator Durbin's Credit Card Competition Act, which you know,
Speaker 1: I think aims to bring more competition to Visa MasterCard.
Speaker 1: What impact do you think this deal will have on
Speaker 1: that proposed legislation? So, yeah, go ahead.
Speaker 3: Oh no, it's a great question because you know, Senator
Speaker 3: Durman has already come out and said, look, this isn't
Speaker 3: gonna this isn't changing my thinking. You know, Senator Elizabeth
Speaker 3: Warren has made statements that this merger should not go ahead,
Speaker 3: and the regulator should block that. So we anticipate Senator
Speaker 3: Durbin to continue to pursue his path with this bill.
Speaker 3: And in fact, on April ninth, there's going to be
Speaker 3: hearing with the CEOs of Visa, MasterCard and American Airlines.
Speaker 3: In United Airlines, they're drawn into this because they have
Speaker 3: said that if this bill were to go forward, mileage
Speaker 3: programs with the credit cards would essentially cease to exist.
Speaker 3: And so Senator durban is saying, come to the hill
Speaker 3: and tell me that in person. But we have always
Speaker 3: had a thirty to forty percent chance that this bill
Speaker 3: would succeed, despite the fact it does have some bipartisan support.
Speaker 3: But ultimately you're pitting the financial services industry versus the
Speaker 3: credit card industry, versus the consumer advocates versus the airlines.
Speaker 3: And there are just so many different bits and pieces here.
Speaker 3: And I think that the threat that those credit card
Speaker 3: airline programs could get cut is enough that will keep
Speaker 3: enough policy makers on the sidelines for the rest of
Speaker 3: the year. But certainly it's going to bring a lot
Speaker 3: more attention to it.
Speaker 1: Great, all right, let's shift gears just a little bit.
Speaker 1: It sounds like the SCC is finally after two years,
Speaker 1: going to finalize its climate disclosure rule looks like March sixth.
Speaker 1: What are your thoughts on that?
Speaker 3: Yeah, so you know, this rule has been one of
Speaker 3: I think the highest certainly one of the more controversial
Speaker 3: rules that the SEC has put out. And what this
Speaker 3: rule requires is if you are one of sixty nine
Speaker 3: hundred public filers in the United States plus some non
Speaker 3: US filers that are here, then you would have to
Speaker 3: disclose your emissions and climate change risk. This wouldn't go
Speaker 3: from scope one, scope to and what are known as
Speaker 3: Scope three all types of emissions data. Scope three is
Speaker 3: emissions data for your supply chain and your customers. So
Speaker 3: if you're a bank and you have customers that you're financing,
Speaker 3: you would have to get their emissions data to go
Speaker 3: along with this. You know, we've heard anecdotally some conglomerates saying, look,
Speaker 3: I have fifteen thousand suppliers. Are you telling me that
Speaker 3: I have to get all the emissions data for that?
Speaker 3: And under Scope three the answer would be yes. So, however,
Speaker 3: the SEC is going to finalize sm March sixth, and
Speaker 3: according to the Bloomberg Law and some of the news reports,
Speaker 3: we've seen Scope three has been pulled out. This was
Speaker 3: actually challenge for Chairman Genzler to get approved because on
Speaker 3: one hand, and I think Elliott's going to talk about
Speaker 3: this after this, whatever they decide, there's going to be
Speaker 3: a court reaction to this. Somebody potentially could sue on this,
Speaker 3: and so you have to create a rule that potentially
Speaker 3: could be somewhat more advisable to the industry and advisable
Speaker 3: to the courts. But on the other hand, you have
Speaker 3: Senator Elizabeth Warren and some of the progressives on Capitol
Speaker 3: Hill concerned that this rule won't go far enough. All
Speaker 3: you have to do is look at the SEC meeting
Speaker 3: log from this week and there have been individuals from
Speaker 3: Senator Warren, Senator Van Hollands, Senator Tina Smith, I mean
Speaker 3: Maxine Waters from the House of Representatives. They've all been
Speaker 3: over at the SEC, probably concerned that the Scope three
Speaker 3: measure is going to be cut. Now, other provisions that
Speaker 3: we've heard that potentially could be on the chopping block
Speaker 3: is the mandatory reporting for Scope one at Scope two. Now, look,
Speaker 3: you already have to report if your climate change risk
Speaker 3: is material, but if this becomes more of a disclosure rule.
Speaker 3: We had originally anticipate or estimated eighteen point four billion
Speaker 3: dollars in costs over six years, if that is the
Speaker 3: key scope three comes out, this mandatory reporting comes out,
Speaker 3: and so forth, the rule is going to be substantially
Speaker 3: weaker than what it was proposed, and those cost estimates
Speaker 3: will certainly come down as well.
Speaker 1: That's great, And yeah, I mean you alluded to, you know,
Speaker 1: anticipate anticipated litigation, and you know, certainly my view that
Speaker 1: once the SEC finalizes this rule, we'll see in industry
Speaker 1: groups come in and to challenge it. You know, the
Speaker 1: question I get a lot is what type of arguments
Speaker 1: might we see challenging the rule? And I think, you know,
Speaker 1: there was a recent lawsuit filed in California challenging California's
Speaker 1: climate Disclose your laws, and you know, I think that
Speaker 1: lawsuit gives us a bit of a preview of some
Speaker 1: of the arguments that we would see challenging an SEC
Speaker 1: rule as well. One argument is the First Amendment challenge
Speaker 1: arguing you know, it would be that arguing that the
Speaker 1: SEC can't compel speech that goes beyond non controversial factual
Speaker 1: disclosures that are material to investors. A second argument would
Speaker 1: likely be that the rule is really a pretext for
Speaker 1: regulating climate change, which is really more in the in
Speaker 1: the EPA's purview and goes beyond the SEC's authority, which
Speaker 1: would make it a violation of the Administrative Procedures Act.
Speaker 1: I'd also expect to see arguments at the costs of
Speaker 1: complying with the rule at weigh the benefits. But you know,
Speaker 1: a lot, of course depends on what the final rule
Speaker 1: actually says. But given the composition of many of the
Speaker 1: federal appeals courts currently, like the Fifth Circuit and the
Speaker 1: Eighth Circuit, and of course the Supreme Court, you know,
Speaker 1: I'd expect that certainly some if not many, of these
Speaker 1: arguments will be received favorably by the conservative judges on
Speaker 1: those courts. But stay tuned. Will of course have to
Speaker 1: reassess once the rule is finalized, and we'll have to
Speaker 1: reassess again once lawsuits are filed. So you know, we'll
Speaker 1: circle back on those things after the rule comes out.
Speaker 1: All right, Dwayne, why don't we bring you in. We'll
Speaker 1: stick with DC policy talk, but we'll move to the
Speaker 1: healthcare sector. I know you followed health insurance earnings pretty
Speaker 1: closely do you want to come in and give us
Speaker 1: your takeaways, including you know what red flags stood out
Speaker 1: to you and also what positives came out of learnings.
Speaker 5: Sure, thanks, Elliott. So the big message coming out of earnings,
Speaker 5: and we can tie this to policy, is medical costs
Speaker 5: during the final quarter of twenty twenty three and even
Speaker 5: leading up to the final quarter of twenty twenty three,
Speaker 5: we're quite high and higher than expected. And the outlook
Speaker 5: for twenty twenty four is that we may see some
Speaker 5: more of this aim without a clear sense of when
Speaker 5: those cost pressures could be alleviated. This is on top
Speaker 5: of some of the regulatory changes the Biden administration has
Speaker 5: imposed starting this year, where they're taking out some codes
Speaker 5: that could lead to potential upcoding and over billing in
Speaker 5: the Medicare Advantage program. So all of this has the
Speaker 5: impact of putting some downward pressure on earnings earnings outlook
Speaker 5: for twenty twenty four, and it makes the annual update
Speaker 5: for MA plans that much more important now. Granted, enrollment
Speaker 5: and the Medicare Advantage program continues to rise, albeit at
Speaker 5: the mid single digits versus the high single digits, but
Speaker 5: there is some more pressure on some of these plans
Speaker 5: due to lower rate environment as well as some regulatory changes.
Speaker 5: So a couple weeks ago, the administration proposed a cut
Speaker 5: in m A payment rates of zero point one point
Speaker 5: six percent. That may not seem like a lot, but
Speaker 5: when you factor in some of the issues I mentioned before,
Speaker 5: it does have an impact on plans. Now, granted, this
Speaker 5: proposal was based off of some out of dates information
Speaker 5: that didn't include your end higher utilization. So a positive
Speaker 5: update is likely and we'll see that by April first.
Speaker 5: But the big question is whether it will be enough
Speaker 5: to cover the increasing costs. So what might this mean
Speaker 5: for plans and ultimately patients. So for the companies they
Speaker 5: are going to put in an effort to maintain or
Speaker 5: grow margins. We could see some higher premiums. It's worth
Speaker 5: noting that close to seventy percent MAA beneficiaries are in
Speaker 5: zero premium plans, so that could change. We could see
Speaker 5: some higher cost sharing, some reduced benefits, and this could
Speaker 5: lead to a bit of an October surprise where seniors
Speaker 5: have see their options for Medicare advantage for twenty twenty
Speaker 5: five and maybe they see those higher premiums, some benefits removed,
Speaker 5: and they're not too happy, so it bears watching to
Speaker 5: see what this rates. Final rates announcement by April first
Speaker 5: means for plans moving forward, which we'll know for sure
Speaker 5: by around October. But it wasn't all doom and gloom.
Speaker 5: There were some positives. Now there is a Medicaid retermination
Speaker 5: process that started in April at the end of the
Speaker 5: public health emergency. This is where plans started to disenroll
Speaker 5: people who were no longer eligible because they couldn't do
Speaker 5: so during the pandemic. While the top line numbers of
Speaker 5: who's being or how many people are being dis enrolled
Speaker 5: is quite high, you got to keep in mind that
Speaker 5: a lot of the plans anticipated this. So, for example,
Speaker 5: Sentem projected a one point nine million million member dip
Speaker 5: and enrollment, and that is large because they saw their
Speaker 5: membership roles, especially in the Medicaid program grow. Based on
Speaker 5: the earnings calls from the last quarter, their projection seemed
Speaker 5: to be holding firm. So while that number seems like
Speaker 5: a lot, it was projected. The entire process seems to
Speaker 5: be going fairly well for insures, so no surprises there.
Speaker 5: What's helping here is that the af Portable Care Act
Speaker 5: or Obamacare enrollment is filling in the gaps. We saw
Speaker 5: enrollment search to twenty one million, sentien at least the
Speaker 5: way given their footprint in almost thirty states. Now this
Speaker 5: is all helped by and again the Medicaid redeterminations, with
Speaker 5: some of those members going into an ACA plan. They're
Speaker 5: also helped by the enhanced premiums that were included in
Speaker 5: the ACA. Now, the challenge and the risk for some
Speaker 5: of these companies, as much as they talk about the
Speaker 5: tailwind from the ACA, is that the enhanced subsidies which
Speaker 5: are driving enrollments could disappear by year end twenty twenty five.
Speaker 5: In these subsidies provide no low cost premens for people
Speaker 5: below a certain income of about fifty six thousand a year,
Speaker 5: but also caps spending at eight point five percent of income.
Speaker 5: So this could set up a huge cliff for health
Speaker 5: insurance if they're not renewed. Now, for contexts, they were
Speaker 5: scored at roughly twenty billion per year a couple of
Speaker 5: years ago. It's probably higher now given the higher enrollment.
Speaker 5: So the election outcome could determine what happens to these subsidies.
Speaker 5: A second Biden term will likely mean some extension and
Speaker 5: maybe even making them permanent, though there will be a
Speaker 5: cost aspect to it. A Trump administration might mean they
Speaker 5: go away because he does not like the ACA or Obamacare,
Speaker 5: and as he would say it, and he wants to
Speaker 5: repeal it. I would keep an eye on what happens
Speaker 5: with the fight over the tax cuts or the expiring
Speaker 5: tax cuts. This is probably where we see this address.
Speaker 5: So some early positives for insures, but there's a potential
Speaker 5: cliff coming up over the coming year. I'll turn it
Speaker 5: back to you, Elliott.
Speaker 1: Yeah, but you know, speaking of the elections in November,
Speaker 1: can you also tell us about the impact that the
Speaker 1: elections might have on the drug pricing provisions of the
Speaker 1: IRA the Inflation Reduction Act. How do you see the
Speaker 1: elections affecting those provisions? Would the Trump administration try to
Speaker 1: repeal them to be status quo with Biden wins? Yeah.
Speaker 5: So for some context, Trump is not a fan of
Speaker 5: pharmaceutical industry. As a candidate in twenty sixteen, he did
Speaker 5: support negotiating lower drug prices. He opposed it when in
Speaker 5: office and after House Democrats had passed their own bill,
Speaker 5: but during his four years in office, he proposed capping
Speaker 5: high costs part B drugs based on International price, an
Speaker 5: international price referencing scheme that actually did not get implemented,
Speaker 5: largely because it was towards the end of his term.
Speaker 5: He also put in motion an effort to import drugs
Speaker 5: from Canada, which we're now seeing play out through the
Speaker 5: Biden administration. So with that said, again, it's not like
Speaker 5: he's that friendly to industry, but the IRA does have
Speaker 5: some mechanisms that are pretty much automatic in terms of drugs,
Speaker 5: the number of drugs that have to be selected for
Speaker 5: price cuts, and the bare minimum in terms of price
Speaker 5: cuts for those drugs. So could a President Trump then
Speaker 5: say he's a master negotiator, He'll pursue deep discounts below
Speaker 5: the bare minimum, or will he just do the bare minimum?
Speaker 5: Biden is probably just going to be the status quo
Speaker 5: in terms of how that's implemented. Now, there are some
Speaker 5: flexibilities that we could see play out under a Trump administration.
Speaker 5: In one area is on a generic competition and how
Speaker 5: drugs are either included in the negotiating scheme or removed. Specifically,
Speaker 5: around what constitutes a generic, what is significant or sufficient
Speaker 5: generic marketing and competition, the BUYD administration has created a
Speaker 5: pretty high threshold for what is generic competition and manufacturers
Speaker 5: and generic manufacturer would say it's too high and not
Speaker 5: even in statute in terms of their interpretation. So we
Speaker 5: could see the Trump administration reverse set which would make
Speaker 5: it easier for some of the higher cost brand drugs
Speaker 5: to not make it onto the list, or to create
Speaker 5: a pathway where it's easier to get off the list
Speaker 5: and for generics to be considered competition. So I think
Speaker 5: absent repeal, which I don't think is likely, largely because
Speaker 5: I don't think the votes will be there, and there's
Speaker 5: the provisions are actually popular, I think we'll likely see
Speaker 5: at least under Trumpe administration some regulatory flexibility for branded
Speaker 5: generic manufacturers playing out great.
Speaker 1: Thanks Dwayne, It's gonna be really interesting to watch. All right,
Speaker 1: let's shift gears just a little bit and bringing Justin Taresi,
Speaker 1: who cover his consumer and industrial litigation and policy for US. Justin,
Speaker 1: you believe the EPA is set to finalize too pretty
Speaker 1: big proposed rules on p FASS substances, or forever chemicals
Speaker 1: as they are known, in the coming months. The first,
Speaker 1: I think, would designate certain p fasts as hazardous under
Speaker 1: the federal super Fund loss CIRCLA, and the second I
Speaker 1: think would place maximum contaminant levels of certain p fas
Speaker 1: chemicals that are allowable in the nation's drinking water. You
Speaker 1: want to come in tell us more about these rules
Speaker 1: and whether you think there will be litigation challenging them.
Speaker 6: Yeah, sure, Elliott, So really quickly here. I think forever
Speaker 6: chemicals in many ways are becoming the forever issue with
Speaker 6: federal policy coming out of the EPA right now. But
Speaker 6: both of these rules that you mentioned are really running behind.
Speaker 6: They've been delayed a series of times. Both were really
Speaker 6: first put on the table back in twenty twenty one,
Speaker 6: and for whatever reason, we've really seen flowing in their
Speaker 6: progression to finalization. The first rule involving maximum contaminant levels
Speaker 6: or MCLs and drinking water, it's being promulgated under the
Speaker 6: Safe Drinking Water Act, And what the EPA is proposing
Speaker 6: right now is reduction all the way down to four
Speaker 6: parts per trillion for two specific p fat chemicals and
Speaker 6: drinking water. There's six total in the rule itself, but
Speaker 6: for the two that are most studied at this particular
Speaker 6: point in time, they're proposing this four parts per trillion
Speaker 6: maximum level and drinking water. This is a dramatic decline
Speaker 6: from the seventy parts pertrillion that's allowed up to seventy
Speaker 6: parts petrillion that's allowed currently for these particular chemicals. So
Speaker 6: what's going to happen here is if this becomes a
Speaker 6: final rule, public water authorities or water authorities in general,
Speaker 6: are really going to have to reduce the levels of
Speaker 6: these p fasts in their drinking water to the proposed
Speaker 6: standards or the finalized standards. They're also going to have
Speaker 6: to monitor for these fast chemicals, and importantly to possible
Speaker 6: litigation down the road, they're going to have to notify
Speaker 6: the public of levels of of p fasts that are
Speaker 6: in drinking water if they exceed those that are in
Speaker 6: the rule. If you can imagine the rules really not
Speaker 6: without controversy. There's a lot of folks out there who
Speaker 6: are expressing their concern over the costs that are going
Speaker 6: to be involved with complying with this rule. So we're
Speaker 6: seeing the main opposition right now coming from drinking water
Speaker 6: associations like the American water Works Association and local government
Speaker 6: associations that own these kinds of water providers, mainly the
Speaker 6: National Association of Counties, the US Conference of Mayors, those
Speaker 6: kind of small local government groups that have their voices
Speaker 6: on the ground in Washington. But the EPA is saying
Speaker 6: that the rules total analyze costs from their perspective, is
Speaker 6: going to be about seven hundred and seventy million to
Speaker 6: one point two billion dollars a year. But the A
Speaker 6: double the American water Works Association commissioned to study, and
Speaker 6: they're saying that the proposed standards could exceed two and
Speaker 6: a half to three point two billion dollars a year,
Speaker 6: with a total of forty billion dollars in capital costs
Speaker 6: just to get infrastructure where it needs to be to
Speaker 6: comply with these regulations. There's some funding that we're seeing
Speaker 6: coming down the road as a result of settlements with
Speaker 6: three m DuPont Comores and others with water authorities, but
Speaker 6: that funding's capped at about fourteen billion dollars, assuming that
Speaker 6: those settlements are finally approved and folks participate. The bipart
Speaker 6: is an infrastructure law, allotted about ten billion dollars more
Speaker 6: for these kind of water system upgrades that are going
Speaker 6: to be necessary to meet the drinking water standards. But
Speaker 6: you know, assuming that that forty billion and capital cost
Speaker 6: number is correct, or you know what we haven't even
Speaker 6: tested for yet. Those sources of funding really aren't going
Speaker 6: to be enough to cover the true cost of what's
Speaker 6: involved with the rule here. And I think a lot
Speaker 6: of that has to do with the delay that's involved.
Speaker 6: There's been one hundred and twenty two thousand comments made
Speaker 6: on the proposed rules. The EPA has to sift through
Speaker 6: all of those before it comes out with its final determination.
Speaker 6: I think it's really just demonstrative of the amount of
Speaker 6: interest that's involved here. And you know, as far as
Speaker 6: the actual implementation timeline, what's been proposed is three years
Speaker 6: from finalization for these water providers to get up to
Speaker 6: date and to comply with the MCLs as they're proposed.
Speaker 6: Whether or not that changes, or perhaps we see that
Speaker 6: stretched out a little bit in a final rule based
Speaker 6: on comments. You know, maybe the point the four parts
Speaker 6: per trillion level is phased in a bit more than
Speaker 6: we're seeing in the proposed rule. We're not really sure,
Speaker 6: but the delay has been pretty extensive here. There have
Speaker 6: been certain points where the EPA said these would be
Speaker 6: finalized by the end of twenty twenty three, then the
Speaker 6: end of February of this year. We're now into March,
Speaker 6: so we're really thinking this is probably imminate. The administration
Speaker 6: is going to want time to defend these rules, assuming
Speaker 6: they'll be challenged. But that's what's happening on the drinking
Speaker 6: waterfront with the CIRCLA rule or the federal Superfund law.
Speaker 6: What's happening there is that again, these these two p
Speaker 6: fast chemicals, the two that are most widely studied, they're
Speaker 6: being proposed to be added to the super fun rule.
Speaker 6: So what that means is that, you know, for private,
Speaker 6: private property owners who might own a contaminated site, they're
Speaker 6: going to have to take steps to remediate those sites
Speaker 6: and take those p fast chemicals away from from the
Speaker 6: soil or wherever whatever else might be contaminated there. So
Speaker 6: this is estimated to cost about twenty two billion dollars
Speaker 6: by the US Chamber of Commerce, or seven hundred to
Speaker 6: eight hundred million dollars annually. So you know, again big
Speaker 6: price tech year, and we're not really sure if that
Speaker 6: if that's going to account for all the contamination that's
Speaker 6: out there. Again, so much testing hasn't happened yet, so
Speaker 6: it's a big question mark as to what these rules
Speaker 6: will actually cost in the end, and the kind of
Speaker 6: sites we're talking about could be factory sites where contamination happened,
Speaker 6: where p fast was used in manufacturing utilities that you know,
Speaker 6: as we previously mentioned water providers. The list kind of
Speaker 6: goes on and on about, you know, the types of
Speaker 6: places that could be facing these possible p FAST contaminations.
Speaker 6: So that's that's what's happening there. You know, well, you know,
Speaker 6: manufacturers like three M du Pontic Camors, they're not going
Speaker 6: to be automatically liable for cleaning things up under a CIRCLAW.
Speaker 6: You know, they've provided these there's this exception for useful
Speaker 6: goods which p FAST would likely be considered as they
Speaker 6: were provided to these manufacturers at different factory sites by
Speaker 6: by the folks who made p fast. But that's not
Speaker 6: to say that the private property owners involved here they
Speaker 6: might not they might try to sue three M DuPont
Speaker 6: Camors and their peers for contribution related to the cleanup
Speaker 6: costs that are involved. So big questions here with both
Speaker 6: CIRCLA and with the drinking water proposals. Not really certain
Speaker 6: where the final rules are going to end up. But
Speaker 6: what we are certain of is that there will be
Speaker 6: a big price tag involved. And I think related to
Speaker 6: your question too, I think litigation is almost certain around
Speaker 6: this given the you know, the price tags we're mentioning,
Speaker 6: you know, I think a challenge is possible under the
Speaker 6: major Questions doctrine, which has been more fashionable lately with
Speaker 6: challenge eng agency rules. But really I think, you know,
Speaker 6: similar to what you had mentioned earlier with the SEC
Speaker 6: litigation that might be coming up, you know, I think
Speaker 6: what we're going to see here is a challenge based
Speaker 6: around the cost to the rules themselves and do the
Speaker 6: cost outweigh the benefits of the rule, and has the
Speaker 6: EPA properly taken costs into a cap before putting out
Speaker 6: a final rule.
Speaker 1: And so that that sort of covers the regulatory front.
Speaker 1: What about in Congress? Is there any any proposed legislation
Speaker 1: that's been introduced there?
Speaker 6: Yeah, And this is a great question I think really
Speaker 6: goes to the heart of how widespread this p fast
Speaker 6: issue really is. Right, And the reason why I say
Speaker 6: that is that what's been introduced in the House again
Speaker 6: this year after passing previously in twenty two twenty one
Speaker 6: with a democratically controlled houses, the p FAS Action Act,
Speaker 6: So somewhat bipartisan bills introduced by ad Wi Dangle in
Speaker 6: Michigan and Brian Fitzpatrick from Pennsylvania, growing pot sponsorship, definitely
Speaker 6: getting a little bit of traction, but likely not going
Speaker 6: anywhere this year given the makeup of Congress at the moment.
Speaker 6: But what this legislation would do is really, I think,
Speaker 6: in many ways, not only codify the rules that we've
Speaker 6: just discussed that have been proposed, but also I think
Speaker 6: does a lot to increase public awareness of these issues
Speaker 6: by instituting a p fast free labeling program for certain
Speaker 6: consumer products. It also extends the issues of p FAS
Speaker 6: contamination to air pollution. So really some avenues we haven't
Speaker 6: really seen yet. And what's also important to mention here
Speaker 6: is that states are really taking the lead with a
Speaker 6: legislative effort. We're seeing p fas and food packaging banned
Speaker 6: now in some states, states like Minnesota where a lot
Speaker 6: of manufacturing has taken place, have really started banning p
Speaker 6: fas from not only a lot of consumer goods, but
Speaker 6: just you know, they've also been situted some drinking water
Speaker 6: caps as well. So really, I think what we're seeing
Speaker 6: is a movement to a point where if Congress doesn't act,
Speaker 6: the states are kind of doing the legislative job for them,
Speaker 6: And does the federal government ultimately want to be involved
Speaker 6: in what this landscape looks like moving forward.
Speaker 1: That's super interesting. I didn't really think about the states
Speaker 1: as well. All right, Matt, let's bring you in. Let's
Speaker 1: talk some tech specifically, let's talk Meta and here and
Speaker 1: it has today March first, in the company's lawsuit challenging
Speaker 1: the STC's plan to tough in terms of a five
Speaker 1: billion dollar settlement from twenty twenty over privacy violations. You
Speaker 1: want to come in and sort of just give us
Speaker 1: a general sense of what this case is about.
Speaker 4: Yeah, thanks Elliott. Yeah, this is an issue that Metas
Speaker 4: has highlighted pretty prominently in its last two earnings calls
Speaker 4: as a potential risk. As you said, this concerns the
Speaker 4: five billion dollars settlement that Meta entered into in twenty
Speaker 4: twenty after the Cambridge Analytica matter. As part of that settlement,
Speaker 4: there were some conditions attached to it that the FDC
Speaker 4: adopted in a consent decree that basically required Meta to
Speaker 4: go through privacy assessments periodically and the FTC says that
Speaker 4: after the first round of those assessments, META isn't in compliance,
Speaker 4: and so instead of going to bring an enforcement action
Speaker 4: against META, the FTC found this provision in the statutory
Speaker 4: law that gives it power to modify its own orders.
Speaker 4: And so the FTC is moving ahead to change the
Speaker 4: order that adopted the consent decree and to impose new
Speaker 4: conditions on META as part to, you know, in order
Speaker 4: to resolve that. And now META is suing the FDC
Speaker 4: to try to stay it from doing that, and it
Speaker 4: has actions in two courts right now saying one, look,
Speaker 4: only a court can do that, the court that blessed
Speaker 4: the consent degree can do this. And two, FTC, you
Speaker 4: are unconstitutional and you're acting in an unconstitutional way and
Speaker 4: for that reason, you shouldn't be able to do that.
Speaker 4: So metas trying to stop this process before it can
Speaker 4: start right now, and.
Speaker 1: Just digging in a little deeper. What what are some
Speaker 1: of these changes that the FTC is trying to make
Speaker 1: to the consent degree.
Speaker 4: Yeah, it's pretty remarkable, you know. Meta says there are
Speaker 4: eight hundred changes to a to a twenty three page
Speaker 4: page document, and and and so it's it's not just
Speaker 4: kind of tweaks around the edges, and in fact, most
Speaker 4: most substantially to the business. There there are a couple
Speaker 4: terms that that the FTC is adding now or proposing
Speaker 4: to add. It's saying one, Meta can't introduce any new
Speaker 4: or modified product or service until an assessor signs off
Speaker 4: on its privacy program. Another one is that it effectively
Speaker 4: bans META from monetizing data of teenagers those from age
Speaker 4: thirteen to seventeen. This is something Congress has worked on.
Speaker 4: The FDC just is adopting it unilaterally and adding it
Speaker 4: to this to the consent degree, or at least proposing
Speaker 4: to do so at this stage. So pretty substantial changes
Speaker 4: from a business perspective that the FDC is proposing to
Speaker 4: add here.
Speaker 1: And so the hearing is today March first, When do
Speaker 1: you expect of ruling it?
Speaker 4: Yeah, so this has been kicked down the road repeatedly,
Speaker 4: but the FDC is trying to push ahead with this,
Speaker 4: and the plan right now is March fifteenth is the
Speaker 4: next step in its own proceeding to modify the agreement.
Speaker 4: I think that's when the companies are due to formally respond.
Speaker 4: And so the action today and in the next two
Speaker 4: weeks is will a court hit pause on that and
Speaker 4: and and say no that FDC proceeding can't move ahead
Speaker 4: while this challenge to the FTC proceeds. And so I
Speaker 4: expect the court, either in the hearing today or in
Speaker 4: the next two weeks, will will give us some guidance
Speaker 4: on that he may rule right away. There's also a
Speaker 4: Court of Appeals challenge on this that that's pending at
Speaker 4: the same time. I think in the next two weeks
Speaker 4: you're likely to see decisions from at least one of
Speaker 4: those courts, or if not, at least some some movement
Speaker 4: about when that decision is going to come, maybe a
Speaker 4: nudge to the FDC. Let's delay things for a month
Speaker 4: and and then we'll have a decision coming from there.
Speaker 4: But it's going to be very near term where we
Speaker 4: see we see a decision whether the FTC can move
Speaker 4: ahead with this during the litigation.
Speaker 1: And how do you see a.
Speaker 4: Plane out To me, I'm pretty skeptical that that meta
Speaker 4: can hit pause on it can put the brakes on
Speaker 4: the person seating right away. I think I get you know,
Speaker 4: that's it's not a sure loser, but I only give
Speaker 4: them about a thirty percent chance here where they're going
Speaker 4: to be much stronger is after the fact. If the
Speaker 4: FDC moves ahead with this, then META is still going
Speaker 4: to have the right to challenge it in court, and
Speaker 4: then I think a judge is going to be very
Speaker 4: suspicious that the FDC can do this sort of thing
Speaker 4: using its power to modify its orders, and so I
Speaker 4: like Meta's chances over the longer term. I expect most
Speaker 4: likely that it will be a bumpy road in the
Speaker 4: near term, over the next two weeks, maybe over the
Speaker 4: next month or two, as courts rule on this, and
Speaker 4: probably let the FDC move ahead.
Speaker 1: Great, Thanks Matt. All Right, I'll sort of wrap up
Speaker 1: the call with the case that I'm watching in the
Speaker 1: financials space. This is a March thirteenth Pellet argument in
Speaker 1: a terror finance case against Donska Bank, Deutsche Bank, and
Speaker 1: Standard Chartered. This is one of several similar terror finance
Speaker 1: cases that I've been watching over the years, most of
Speaker 1: which the defendant banks have been able to beat so far.
Speaker 1: In this particular case, families of American service members that
Speaker 1: were killed or wounded during the war in Afghanistan sued
Speaker 1: the banks, alleging that they aided and embedded terrorist groups
Speaker 1: in Afghanistan like al Qaeda, by allowing their financiers to
Speaker 1: secretly move money and evade detection. The trial court in
Speaker 1: this case dismissed the claims for two reasons. First, the
Speaker 1: lawsuit didn't sufficiently allege that the banks knew they were
Speaker 1: facilitating terror attacks, and second, the lawsuit didn't sufficiently allege
Speaker 1: that the banks substantially assisted the terror attacks. So the
Speaker 1: case is now on appeal in the Second Circuit and
Speaker 1: the parties will be in court arguing their case on
Speaker 1: March thirteenth. And again, I expect the defendant banks will
Speaker 1: prevail on appeal, as they did in the lower court,
Speaker 1: based on a ruling by the same court the Second
Speaker 1: Circuit in a similar case last year, where the court
Speaker 1: affirmed dismissal because the defendant banks conduct was just too
Speaker 1: far removed from the actual terror attacks in question. And
Speaker 1: then on top of that, you have a Supreme Court
Speaker 1: case last year involving Twitter's alleged role in terror attacks,
Speaker 1: and the High Court there interpreted terror finance laws in
Speaker 1: a way that would reject liability for banks unless there
Speaker 1: was some sort of direct relationship between the bank and
Speaker 1: the terrorists. Planning the attacks. So you know, in this case,
Speaker 1: at most, the plaintiffs of alleged that the banks should
Speaker 1: have been unnoticed that some of their non terrorist customers
Speaker 1: were aiding terrorists, and the banks should have stopped providing
Speaker 1: services to those customers. But I don't think that's enough
Speaker 1: under either Second Circuit law or the Supreme Court precedent
Speaker 1: to allowed this case to proceed. What's at stake in
Speaker 1: the case. You know, alleged damages in these cases are
Speaker 1: never specified, but you know, if you assume multimillion dollar
Speaker 1: payouts per plaintiff across several hundred, if not thousands of plaintiffs,
Speaker 1: the figure could easily run into the billions of dollars.
Speaker 1: But that's only in the unlikely event that the case
Speaker 1: has revived and allowed to proceed. So again, the next
Speaker 1: key date is oral argument on March thirteenth, and I
Speaker 1: expected ruling by the end of twenty twenty four. All right,
Speaker 1: So with that, I think we'll wrap up this episode
Speaker 1: of votes and verdicts as you can see, a lot
Speaker 1: of interesting things to watch in March and beyond. As always,
Speaker 1: thank you for listening, and as a reminder, you can
Speaker 1: find all of our research on the Bloomberg terminal at
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