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. Bloomberg Intelligence has five
Speaker 1: hundred analysts and strategists working across the globe and has
Speaker 1: focused on all major markets. Our coverage includes over two
Speaker 1: thousand equities and credits, and we have outlooks on more
Speaker 1: than ninety industries and one hundred market industries, currencies and commodities.
Speaker 1: This podcast series examines the intersection of business policy and law,
Speaker 1: and today we'll be looking at the litigation and policy
Speaker 1: catalysts that we're watching in December twenty twenty four and
Speaker 1: that we think will impact companies across a number of
Speaker 1: different sectors. My name is Elliot Stein. I'm a senior
Speaker 1: litigation analyst covering litigation in the financials sector, and I'll
Speaker 1: be your host for today, December two, twenty twenty four.
Speaker 1: If you have any questions about any of the matters
Speaker 1: that we'll be discussing on today's episode, please don't hesitate
Speaker 1: to reach out to us at your convenience with questions.
Speaker 1: So we'll be discussing a handful of sectors today. First,
Speaker 1: Matt Chuttenhelm, who covers TMT policy and litigation, will discuss
Speaker 1: in anticipated court ruling in TikTok's fight against the US
Speaker 1: government's sale or band law targeting the platform. After that,
Speaker 1: we'll discuss a trial that starts December sixteenth in arms
Speaker 1: case against Qualcomm over chip licenseing. After that, Holly from
Speaker 1: who covers consumer and industrials litigation and policy, will discuss
Speaker 1: a key appeals court argument also on December sixteenth, in
Speaker 1: a two point four billion dollar case by Canadian Pacific
Speaker 1: bondholders over redemption rights. Holly will also talk about a
Speaker 1: verdict that she expects in a seven hundred and fifty
Speaker 1: million dollar PCB contamination trial against Bayern Monsanto, and Holly
Speaker 1: will also walk us through some of her research on
Speaker 1: the legality and process for some of Trump's threatened tariffs.
Speaker 1: After that, we'll talk anti trust and we'll bring in
Speaker 1: Jen Ree to tell us about a verdict that she
Speaker 1: expects in the FTC's challenge to the Kroger Albertson's deal
Speaker 1: and sticking with anti trust, Justin Teresi, we'll discuss what
Speaker 1: he expects in the DOJ's case against Google over the
Speaker 1: company's two hundred billion dollar ad tech Steck. We'll then
Speaker 1: move to healthcare and Dwayne Wright, who covers health care
Speaker 1: policy out of Washington, DC for US. We'll update us
Speaker 1: on President Biden's plan to cover anti obesity drugs under
Speaker 1: Medicare and Medicaid, and then we'll move on to financials
Speaker 1: and bring in Nathan Dean, our financials policy analyst also
Speaker 1: in Washington, to talk about deregulation in the financial sector
Speaker 1: and why crypto is poised to do well with Trump's victory.
Speaker 1: And then I'll wrap up with previews of a few
Speaker 1: things that I'm watching for in December, including in anticipated
Speaker 1: ruling in a coin base lawsuit seeking to force the
Speaker 1: SEC to engage in crypto rulemaking. I'll also talk about
Speaker 1: Turkish bank Hawkbanks petition for further review of a ruling
Speaker 1: denying it's immunity defense in a US criminal sanctions case.
Speaker 1: And I'll also briefly talk about a ruling in a
Speaker 1: lawsuit by banks that are challenging in Illinois state law
Speaker 1: that would ban interchange fees on taxes and tips. As always,
Speaker 1: all of our research is available on the Bloomberg terminal
Speaker 1: at bi go. And with all that out of the way.
Speaker 1: Let's get started with the content. Matt Shettanhelm, Let's bring
Speaker 1: you in. Let's talk a little TikTok. The US government
Speaker 1: past the law that would force TikTok to be banned
Speaker 1: in the US unless its owner Bitte Dan sells it.
Speaker 1: There was a key hearing in September. It sounds like
Speaker 1: you expect a decision by December sixth. Why don't you
Speaker 1: come in tell us more about the case, about the timing,
Speaker 1: and then if you could also talk about the ARM
Speaker 1: versus Qualcom case, which I know you're not covering. Our
Speaker 1: colleague Tamlin Basin is covering. He couldn't make today's call,
Speaker 1: but he did relay the relevant information to you. So
Speaker 1: why don't you come in and tell us about both
Speaker 1: these cases?
Speaker 2: Yeah, absolutely, Elliott.
Speaker 3: So first on TikTok, Yes, we are expecting that decision imminently.
Speaker 2: The parties asked the court to expedite.
Speaker 3: The case and to issue a decision by December sixth,
Speaker 3: which is Friday, and I expect the court is going
Speaker 3: to try to honor that request if it cans. And
Speaker 3: since the d C Circuit issues decisions on the mornings
Speaker 3: of Tuesdays or Fridays. I think that makes it very
Speaker 3: likely that we see a decision tomorrow, Tuesday, December third,
Speaker 3: or December sixth Friday from the court.
Speaker 2: And why does this matter, Congress?
Speaker 3: As you said, Elliot effectively bans TikTok on January nineteenth
Speaker 3: of next year, so in less than fifty days unless
Speaker 3: byte Dance sells the company to a different company outside
Speaker 3: of China, and Byte Dance and said, look, we're not
Speaker 3: going to do that, and so that effectively means the
Speaker 3: only way to dodge an effective ban by January nineteenth
Speaker 3: is for TikTok to win this case. And of course,
Speaker 3: if the ban remains in effect, that's great news for
Speaker 3: TikTok's leading social media competitors like Alphabet, like Meta.
Speaker 2: So how do we think it will go.
Speaker 3: We give it a thirty percent chance that TikTok can
Speaker 3: win this case and stop the ban. As you mentioned
Speaker 3: that that September sixteenth hearing that what was really the
Speaker 3: best chance to take a look at how the three
Speaker 3: judges are thinking about this case, and it went very
Speaker 3: poorly for TikTok. It looked very doubtful that any of
Speaker 3: those three would rule for the company. Now, could those
Speaker 3: views softened because President Trump has since won the White
Speaker 3: House and has said TikTok shouldn't be manned. I guess
Speaker 3: it's possible. Two of those three judges at the Court
Speaker 3: were nominated by Republicans, one was appointed by Trump, so
Speaker 3: we can't rule out the possibility that their views have
Speaker 3: eased a little bit and they might want to create
Speaker 3: a path for Trump to block it. It's probably not
Speaker 3: likely that he would go back to Congress and have
Speaker 3: Congress perverse itself with a new law. But if TikTok
Speaker 3: wins this case, suddenly Trump has a much more significant
Speaker 3: say in the matter. But if TikTok loses, has really
Speaker 3: felt like it was most likely coming out of that hearing,
Speaker 3: it's going to be panic time. I think for the company,
Speaker 3: its next move will be running to the US Supreme
Speaker 3: Court and pleeing for a stay of that January nineteenth date,
Speaker 3: so the court, the Supreme Court could take up the
Speaker 3: full case. I think that would have a chance, but
Speaker 3: I'd view TikTok TikTok as as the underdog in that matter.
Speaker 3: So definitely something to watch in the immediate days ahead.
Speaker 3: Turning to Tamlin Basin's research on ARM Qualcom. So yeah,
Speaker 3: A trial is set to start in December December sixteenth
Speaker 3: in Delaware Federal Court in a trademark infringement and breach
Speaker 3: of contract dispute between ARM and arm's largest client, Qualcom. Now,
Speaker 3: the trademark claims are really just window dressing the relate
Speaker 3: to whether Qualcomm is allowed to continue using ARMS marks,
Speaker 3: But this is fundamentally a contract dispute that has its
Speaker 3: roots in Qualcomm's decision to acquire Nuvia for one point
Speaker 3: four billion dollars in early twenty twenty one. Nuvia at
Speaker 3: the time also had a life since with ARM that
Speaker 3: Nuvia was using to try to design chips for use
Speaker 3: in servers and PCs. And just for background, Qualcom has
Speaker 3: primarily made chips for smartphones and so the Nuvia acquisition
Speaker 3: broadened its addressable market. ARM wasn't happy with Qualcomm's apposite
Speaker 3: acquisition and responded by terminating Nuvia's license. So the legal
Speaker 3: dispute is really over whether the termination of that Nuvia
Speaker 3: license blocked Qualcom from continuing to develop the technology it acquired.
Speaker 3: Qualcom has maintained that its own license with ARM allowed
Speaker 3: it to continue that work, and ARM, of course views
Speaker 3: it it differently. We do think there's a strong likelihood
Speaker 3: that this case settles, likely before or during trial. As
Speaker 3: I said, it's set to start in December mid December,
Speaker 3: December sixteenth. This is fairly high stakes litigation for both parties.
Speaker 3: But again, Qualcom is arm's largest single customer, accounting for
Speaker 3: about ten percent of total sales last year. ARM is
Speaker 3: seeking a new license agreement that pays a higher rate
Speaker 3: than the new VA agreement, and Qualcom is looking to
Speaker 3: expand outside of the handset market, and it's going to
Speaker 3: be in both parties interest to put this behind them
Speaker 3: as soon as possible. And so Tamlin's conclusion is that
Speaker 3: it's unlikely ever to get to a verdict in this case.
Speaker 2: So with that, let me toss it back to you. Elliott, Great,
Speaker 2: thanks a lot, Matt.
Speaker 1: All right, Holly, let's bring you in. You're watching several
Speaker 1: things on the litigation front. You'll be watching in a
Speaker 1: pellet hearing in a two point four billion dollar Canadian
Speaker 1: Pacific bondholder suit over redemption rights. You're also waiting for
Speaker 1: a trial verdict in a seven hundred and fifty million
Speaker 1: dollar PCB contamination suit against Bayern Monsanto, and on the
Speaker 1: policy front. You've done some really interesting work on the
Speaker 1: legality and the expected processes for Trump's threatened tariffs. Why
Speaker 1: don't you come in and sort of walk us through
Speaker 1: all these things?
Speaker 4: Please. We're watching a trial that began October seventeenth against
Speaker 4: buyer's Monsanto on behalf of teachers and students in Sky Valley,
Speaker 4: Washington school District over alleged PCB contamination. The plaintiffs claim
Speaker 4: they suffered neurological and other serious health problems when PCBs
Speaker 4: in lighting and cocking the school late. Monsanta was the
Speaker 4: primary manufacturer of PCBs. Around two hundred lawsuits have been
Speaker 4: filed against Monsanto related to Sky Valley. The litigation has
Speaker 4: been sort of a roller coaster so far. Verdicts to
Speaker 4: date by plaintiffs suing over Sky Valley total one point
Speaker 4: five billion dollars, but a one hundred and eighty five
Speaker 4: million dollar verdict was reversed by an intermediate appellate court
Speaker 4: on grounds that could affect all of the verdicts. But
Speaker 4: in October, Washington State's highest court agreed to review that ruling,
Speaker 4: so we await the decision there. On that trial underway,
Speaker 4: we expect a verdict in December, and plaintiffs have asked
Speaker 4: for seven hundred and fifty million dollars, but we can't
Speaker 4: predict the amount it will be. We think the jury
Speaker 4: will find for plainniffs. In litigation by holders of Canadian
Speaker 4: Pacific bonds, a hearing before the Second Circuit Us Court
Speaker 4: of Appeals is scheduled for December sixteenth. The bondholders sued
Speaker 4: Canadian Pacific, claiming they had a right to redeem two
Speaker 4: point four billion dollars worth of bonds at one hundred
Speaker 4: and one percent face value after the company failed to
Speaker 4: get a decision that was effective approving its merger with
Speaker 4: Kansas City Southern Railway by March twenty fifth by the
Speaker 4: relevant agency. They claimed the indenture agreement pursue into which
Speaker 4: the bonds were issued required a decision before that date.
Speaker 4: The approval from the relevant agency was rendered March twenty fifth,
Speaker 4: but wasn't effective until April fourteenth. The lower court found
Speaker 4: Canadian Pacific found four Canadian Pacific based on the language
Speaker 4: of the agreement, and we think that ruling stands on appeal,
Speaker 4: we may get some insight as to the panel's inclination.
Speaker 4: On December sixteenth, the day of the hearing. Turning to terras,
Speaker 4: president elect Donald Trump pledged on the campaign trail terrorists
Speaker 4: is sixty percent on goods from China and up to
Speaker 4: twenty percent on goods from everywhere else. Recently, Trump said
Speaker 4: he would impose additional twenty five percent tariffs on goods
Speaker 4: from Canada and Mexico until the border crisis and Phentanmenal
Speaker 4: crisis is resolved, and ten percent on goods from China.
Speaker 4: We don't know if that ten percent is in addition
Speaker 4: to the sixty percent he mentioned on the campaign trail,
Speaker 4: but whatever the case may be, we think it's highly
Speaker 4: likely terras will be imposed, and we think in general,
Speaker 4: the president has power to impose them. There are a
Speaker 4: number of laws on the books that give the president
Speaker 4: power to impose terrorists, to protect national security, the US dollar,
Speaker 4: and to address countries that are not abiding by trade agreements.
Speaker 4: We think Trump may have justification under one of the
Speaker 4: current laws on the books, but if he does it
Speaker 4: that way through a proclamation or after agency investigations, depending
Speaker 4: on which statute he uses, will likely be challenged in court.
Speaker 4: Based on prior cases in which Trump's first term terrorists
Speaker 4: were challenged, they could those those terriffs could be stayed
Speaker 4: or even tempor early struck. By the way, all the
Speaker 4: cases we located in which terrorifts were struck were reversed
Speaker 4: on appeal. But in any event, that's there's a potential
Speaker 4: for delay of the tariffs.
Speaker 5: And so.
Speaker 4: If the president, if the President decides to address terriffs
Speaker 4: through Congress, and see if think you can get Congress
Speaker 4: to pass a bill that avoids potential judicial challenges on
Speaker 4: grounds the president lacks authority. So we'll be watching for them.
Speaker 4: With that, I'll turn it back to you, Elliott.
Speaker 1: Great, Thanks Holly, and yeah, that's going to be an
Speaker 1: interesting story in the first part of twenty twenty five.
Speaker 1: All right, Jen Reid, let's bring you in to talk
Speaker 1: anti trust. You were in Portland, Oregon in September for
Speaker 1: trial and the FTC's lawsuit challenging the Kroger Albertson deal.
Speaker 1: Now you're here back in New York waiting for her decision,
Speaker 1: which you think will come in December. Why don't you
Speaker 1: come in tell us more about the case and what
Speaker 1: you're expecting.
Speaker 6: Thanks, Elliott, and I certainly hope it comes in December,
Speaker 6: because I am beginning to feel a little bit like
Speaker 6: a broken record saying each month, I expect a decision
Speaker 6: from this court. And that's because I and I think
Speaker 6: most people watching this case thought that she'd be ruling
Speaker 6: the judge of was female, that she'd be ruling in October,
Speaker 6: and now she's really quite late compared to other similar cases.
Speaker 6: So I went back and I looked at the average
Speaker 6: timing for decisions on Federal Trade Commission comparable at least
Speaker 6: Federal Trade Commission court efforts to win a preliminary block
Speaker 6: and a proposed merger. I went back to the start
Speaker 6: of twenty eighteen and I saw that the average days
Speaker 6: from the start of trial was fifty five. And at
Speaker 6: this point we're ninety eight days from the start of
Speaker 6: trial for Kroger, which was August twenty sixth. It had
Speaker 6: finished up on September thirteenth, then the closing arguments were
Speaker 6: held September seventeenth. So I definitely think it'll come out,
Speaker 6: but at this point I'm not really sure what's taking
Speaker 6: so long. I don't think that this delay means anything
Speaker 6: in terms of the verdict. At the end of the trial,
Speaker 6: we thought the FDC was more likely to win the
Speaker 6: preliminary block than not and continue to think that, and
Speaker 6: the main reason is that their case showed undue concentration.
Speaker 6: The evidence really showed undue concentration in various regional grocery
Speaker 6: store markets in a very straightforward way and was really,
Speaker 6: I think supported by most of the evidence presented. That
Speaker 6: the companies had offered a remedy, which included a divestiture
Speaker 6: of just under six hundred stores and other ancillary facilities
Speaker 6: to a company called CNS Wholesale. Now, I should point
Speaker 6: out that when companies offer a remedy for a deal,
Speaker 6: it's essentially conceding that the deal has anti trust problems,
Speaker 6: because if you don't have problems, you don't need a remedy.
Speaker 6: The remedy is intended to fix whatever the issues are.
Speaker 6: And I think the companies were depending on being able
Speaker 6: to convince the judge and trial that the remedy they
Speaker 6: were proposing was sufficient to fix these problems and she
Speaker 6: should allow the deal to close.
Speaker 2: But the FTC said it.
Speaker 6: Was insufficient, and our view, we think they did show
Speaker 6: that in the trial that it has flaws and that
Speaker 6: it's uncertain, and that's primarily due to the piecemeal nature
Speaker 6: of the assets to be sold and the lack of
Speaker 6: experience of CNS as a grocery retailer. So well accepted
Speaker 6: guidelines for remedies for problematic deals say that a remedy
Speaker 6: has to replace the competition that's lost by virtue of
Speaker 6: the merger. So it means the buyer has to be
Speaker 6: shown to have experience, skill, and incentive to be able
Speaker 6: to buy these assets and jump into the market and
Speaker 6: compete pretty viably and quickly in a short period of time.
Speaker 6: And in this case, I think the CNS witnesses weren't
Speaker 6: that convincing with respect to whether CNS could do this
Speaker 6: or even had the incentive to do it. The primary
Speaker 6: experience of the company is in wholesaling, and there was
Speaker 6: also a suggestion that it was more likely to use
Speaker 6: the stores they were buying from Kroger and Albertson's to
Speaker 6: bolster their wholesale business. In other words, they buy the stores,
Speaker 6: then sell them to other grocery store retailers change for
Speaker 6: a contract to beat the wholesaler. So I should just
Speaker 6: say if the judge rules for the FTC, it means
Speaker 6: the deal is blocked pending an internal hearing at the
Speaker 6: FTC to determine whether the deal violates the intertrust laws
Speaker 6: or not. I really doubt the companies will stick with
Speaker 6: the deal if that comes to pass, because that could
Speaker 6: take another eight to twelve months, and this deal has
Speaker 6: already been pending since October of twenty twenty two, so
Speaker 6: a loss in court would likely lead to an abandonment
Speaker 6: of the deal. And if that happens, Kuroker is going
Speaker 6: to owe Albertson. Albertson's a six hundred million dollar breakup
Speaker 6: fee that's in their purchase agreement. Now really quickly, Elliott.
Speaker 6: There are also decisions pending from two state courts, Colorado
Speaker 6: and Washington. Those state attorneys general decided to go it
Speaker 6: alone rather than join the FTC suit. Kind of unusual,
Speaker 6: pretty unprecedented, but they did that in state court under
Speaker 6: state laws. And I think these decisions will come out
Speaker 6: after the federal judge's decision, but the Washington judge recently
Speaker 6: scheduled to issue a ruling on December tenth, so there's
Speaker 6: some chance it come out before the federal courts. But
Speaker 6: I should say both of these judges express hesitation about
Speaker 6: issuing a nationwide injunction on the basis of state laws,
Speaker 6: So I suspect if either won rules against the companies,
Speaker 6: it would be for a state wide injunction only. And
Speaker 6: the FTC decision we expect any day now will be
Speaker 6: the this positive one that's either going to make or
Speaker 6: break the deal. So with that, waiting for this deal, Elliott,
Speaker 6: as I wrote today is like waiting for GOODO.
Speaker 1: I saw that headline. That was good. You know, Portland's
Speaker 1: a nice place. Maybe the judge is just enjoyed the
Speaker 1: surroundings and whatnot. Maybe, okay, justin let's bring you in.
Speaker 1: Let's stick with antitrust. You have been following the DOJ
Speaker 1: case against Google over the company's two hundred billion dollars
Speaker 1: ad tech stack. You attended closing arguments last week. What's
Speaker 1: some investors know about those arguments and what are you
Speaker 1: expecting going forward? Yeah?
Speaker 5: Absolutely, thanks Elliott. So our attention shifts back to the
Speaker 5: Eastern District of Virginia this month as we await the
Speaker 5: verdict following a bench trial before Judge lead and Brinkhema
Speaker 5: on the anti trust case against Google related to the
Speaker 5: company's ad tech stack for display advertising, which reportedly brought
Speaker 5: in thirty one billion dollars of revenue in twenty twenty
Speaker 5: three and this particular case is being led by the
Speaker 5: US Department of Justice. So what's going on here, Well,
Speaker 5: that's complicated, but in a nutshell, the DOJ is alleging
Speaker 5: that Google has a controlling market share in all three
Speaker 5: parts of the ad tech market for display ads, and
Speaker 5: that Google acted anti competitively with respect to that dominance.
Speaker 5: So in the ad tech stack, this includes the cell side,
Speaker 5: which is website publishers, the buy side those wanting to advertise,
Speaker 5: and the ad exchange, which serves in the middle to
Speaker 5: link the two sides. Now, what are display ads, Well,
Speaker 5: those are essentially those little rectangular or square advertisements that
Speaker 5: you see when you visit a website through a standard computer.
Speaker 5: Really important here, Mobile ads in app ads and connected
Speaker 5: TV ads are not a part of the DOJ's alleged
Speaker 5: relevant markets in this case. But based on Trialt testimony
Speaker 5: and comments the court, we think it's extremely unlikely that
Speaker 5: the DOJ is going to get everything that's after in
Speaker 5: this case, especially as it relates to the buyside or
Speaker 5: the advertiser side, because on the last day of trial,
Speaker 5: Judge Brigham has said that that itself was a very
Speaker 5: competitive market.
Speaker 2: We think liability is likely to.
Speaker 5: Be found on the publisher ad server side and possibly
Speaker 5: in relation to claims of illegal product tying, where DJ
Speaker 5: further alleges that in order for a customer to access
Speaker 5: one aspect of Google's ad tech services, that same customer
Speaker 5: must also use another part of the ad tech stack.
Speaker 5: That said, we really don't think a court ordered divestiture
Speaker 5: was supported by the evidence at trial, with the testimony
Speaker 5: of publishers and competing publisher ad servers really suggesting to
Speaker 5: us that behavioral remedies like simply cutting product ties or
Speaker 5: restricting policies could in many ways solve the issues that
Speaker 5: are in hand in the case. We also think Google's
Speaker 5: council did a really good job here of establishing the
Speaker 5: pro competitive benefits of allowing some formulation of a unified
Speaker 5: solution under one roof to continue, like security, web page latency,
Speaker 5: and billing issues, to at least support the continued availability
Speaker 5: of a kind of one stop shop if customers truly
Speaker 5: want that option. Either way, we're almost certain that we're
Speaker 5: almost certain that the out final outcome in this case
Speaker 5: it's not going to be decided now, but rather ru
Speaker 5: in the future by either the Fourth Circuit Court of
Speaker 5: Appeals or possibly even the US Supreme Court that aside,
Speaker 5: it's also too soon to tell whether a new DOJ
Speaker 5: under the incoming Trump administration would be open to some
Speaker 5: kind of a settlement during that appeals process, should liability
Speaker 5: in fact be found. Judge Brinkham must state it her
Speaker 5: hope to have an opinion issued prior to the close
Speaker 5: of the year, and judging by the truly extraordinary speed
Speaker 5: with which he has moved the litigation along here, we
Speaker 5: think it's really likely we're going to see a ruling
Speaker 5: in this case this month. If Judge Brinkhama does find
Speaker 5: against Google, will then move into a phase of the
Speaker 5: case that we centered around what the appropriate remedy should
Speaker 5: be to address to address any antitrust violations that are found.
Speaker 5: And if that's not confusing enough, Eliot, No matter what
Speaker 5: happens here, a second government enforcement suit on substantially the
Speaker 5: same issues is being led by Texas Attorney General Ken Paxton,
Speaker 5: and depending on what we see coming out of the
Speaker 5: Virginia case, as a result, that separate case is slated
Speaker 5: for its own trial this coming year in March. So
Speaker 5: with that, I'll turn it back to you.
Speaker 1: Oh, so you might be going to Texas in March.
Speaker 2: Going to Texas.
Speaker 5: It sounds sounds like it's going to happen as of now.
Speaker 2: That that sounds accurate, Yes, and.
Speaker 1: Kind of funny to compare the speed with which the
Speaker 1: judge in your case, Judge Brinkhama, and the judge in
Speaker 1: Jen's case in Oregon are ruling night and day.
Speaker 2: Yeah.
Speaker 1: I hope for both your sakes it doesn't. These decisions
Speaker 1: don't drop on you Christmas Eve. All right, Dwayne, let's
Speaker 1: bring you in talk a little healthcare. Last week, the
Speaker 1: Biden administration indicated it would seek rule making to allow
Speaker 1: Medicare and Medicaid to cover anti obesity drugs. Why don't
Speaker 1: you come in and tell us more about that, how
Speaker 1: you expected to play out, what it means for drug makers,
Speaker 1: and what it means for the Trump administration when it
Speaker 1: takes office in January.
Speaker 7: Thanks Elliot So. The Biden administration in November issued a
Speaker 7: draft proposal for Medicare plans that's aimed at sidestepping current
Speaker 7: statutory restrictions that prevent Medicare plans from covering weight loss
Speaker 7: drugs by allowing them to do so if they're used
Speaker 7: to treat obesity, which is a chronic disease. Now, on
Speaker 7: the surface, it would benefit drug makers like Nova, Nordisk, Eli, Lilly,
Speaker 7: and others that are currently in the process of developing
Speaker 7: their own drugs. But I think it's worth noting a
Speaker 7: couple of things. Some caveats to this one. When the
Speaker 7: Biden administration released their proposal, the agency is not projecting
Speaker 7: a lot of utilization and expect very few seniors would
Speaker 7: continue using the drugs after two months. Mirrors a Congressional
Speaker 7: Budget Office cost estimate that came out a couple of
Speaker 7: months ago that showed while there would be some initial uptake,
Speaker 7: we could see interest flag over time as seniors get
Speaker 7: tired of using the drugs. And then the other piece
Speaker 7: is that some aglue tide, which is the main ingredient
Speaker 7: for wakeo vi and ozempic, is expected to see deep
Speaker 7: cuts as part of the IRA negotiation program. These drugs
Speaker 7: or this drug is already discounted by about sixty percent
Speaker 7: off of the this price, so even with more volume,
Speaker 7: we could see drastically lower prices. And that's all assuming,
Speaker 7: of course, that the Trump administration continues to move forward
Speaker 7: with the negotiation program. But it's also worth flagging that
Speaker 7: the Trump administration would have to finalize this provision as
Speaker 7: part of the managed Care rule. Now working in its
Speaker 7: favors the fact that Republicans and Democrats support the proposal,
Speaker 7: so the Trump administration we have to approve this proposal
Speaker 7: as part of a final rule. Working in its favor
Speaker 7: is the fact that Republicans and Democrats support it. As
Speaker 7: I mentioned earlier, CBO scored a similar proposal at about
Speaker 7: thirty five billion dollars over ten years, and it seems
Speaker 7: like the type of policy that would fit into the
Speaker 7: tax extension package that the Republicans are going to push
Speaker 7: in twenty twenty five. One way to think about it,
Speaker 7: thirty five billion compared to three to four trillion, it's
Speaker 7: not much of a heavy lift. The other piece is
Speaker 7: kind of the internal administration dynamics. HHS nominee RFD Junior
Speaker 7: opposes weight loss drugs and is more focused on preventing
Speaker 7: chronic diseases. Doctor Oz the likely CMS administrators ports expanding access.
Speaker 7: I never thought I'd say those two things, but that
Speaker 7: is where we are with the nominations. Central to an
Speaker 7: ultimate decision by the administration will be balancing the cost
Speaker 7: with the expansion supported by Republicans and Democrats. Now the
Speaker 7: rule is expected by April or final rule is expected
Speaker 7: by April, and it could open up access to these
Speaker 7: drugs as early as twenty twenty six, but more likely
Speaker 7: twenty twenty seven, given new formulary demands and also midikaid requirements,
Speaker 7: which by rule they're supposed to cover any changes made
Speaker 7: at the federal level within sixty days, which is a
Speaker 7: fairly quick turnaround for states given state budgeting process. Now,
Speaker 7: finally there's litigation and whether, in a post Chevron world,
Speaker 7: skirting the statute for obesity is permissible. It's worth noting
Speaker 7: the current administration provides access to people who are obese
Speaker 7: but not overweight, since overweight is not a disease. Whether
Speaker 7: or not that is a distinction a court would look
Speaker 7: at remains to be seen. But overall, there's a lot
Speaker 7: to unpack here, with several months of conversation about whether
Speaker 7: this is the right way to go or if even
Speaker 7: the Trump administration will move forward. So we'll have more
Speaker 7: to say over the coming months. And with that I'll
Speaker 7: turn it back to you.
Speaker 1: Elliott, Great, thanks a lot, Dwayne, all right, Nathan, let's
Speaker 1: bring you in. We'll wrap up with some financial sector
Speaker 1: talk Why don't we start with why there's so much
Speaker 1: sentiment about deregulation and the financial sector, if you could
Speaker 1: sort of walk us through that and then also talk
Speaker 1: about why crypto is doing so well in the wake
Speaker 1: of Trump selection victory.
Speaker 8: Yeah, So, you know, I thought it'd be interesting to
Speaker 8: go sector by sector and talk about some of the
Speaker 8: performances that we've seen in the market since the election.
Speaker 8: And let's start with the banks. You know, if you
Speaker 8: look at the KDW Index, it's up twelve point eight
Speaker 8: percent since the election. I think a lot of this
Speaker 8: is driven by the sentiment of deregulation. Now you think
Speaker 8: about some of the rules that are currently out there
Speaker 8: right now by the Bidenerra regulators. You have the Bosle
Speaker 8: three end game, which was an increase of you know,
Speaker 8: saying about nine percent in terms of capital requirements for
Speaker 8: the g SIVs like the Bank Americas, the JP Morgan's,
Speaker 8: and the Goldman Sachs of the world. That's been indefinitely delayed.
Speaker 8: I think, you know, there's still this question out there
Speaker 8: of whether or not they'll finalize the Basle three endgame.
Speaker 8: I think there's a lot of questions coming from New
Speaker 8: York and from Europe and saying, look, the Europeans have
Speaker 8: already implemented this they call Basil four. The Americans need
Speaker 8: to implement something as well. We're taking the different take.
Speaker 8: We're just saying that the Trump era regulators, when they
Speaker 8: come in and this is at the Office of the
Speaker 8: Contour or the Currency and the FDIC, will hit pause
Speaker 8: on this and then do more of a capitalistic review
Speaker 8: over twenty twenty five in trying to determine whether they
Speaker 8: actually want to move forward with Basle three or not.
Speaker 8: Just reminder, over at the Federal Reserve, vice Chairman Michael Barr,
Speaker 8: the Vice Chairman of Supervision and Regulation, and then Chairman
Speaker 8: Jerome Paul remained at the Fed until twenty twenty six
Speaker 8: or until their terms are debt. So you're gonna have
Speaker 8: a little bit of bienarior regulators and a little bit
Speaker 8: of Trump air regulators, which for the most part in
Speaker 8: banking means that you have regulatory status quo. Should also
Speaker 8: stayed on the regional bank side, for P and C,
Speaker 8: Truist and US Bank and Capital One, we think this
Speaker 8: regional bank long term debt proposal that was out there
Speaker 8: that would require these regional banks to issue around seventy
Speaker 8: two billion in long term debt. This is not t
Speaker 8: lack debt, but just long term debt. We also think
Speaker 8: that's going to be indefinitely delayed. So the idea here
Speaker 8: with bank for deregulation is, yes, there's a lot of
Speaker 8: sentiment out there, but because the FED, as they're individuals
Speaker 8: in place until twenty twenty six, and the OCC and
Speaker 8: the FDIC flip quicker, you essentially have regulatory status quote
Speaker 8: for a year, because the OCC and the FDIC cannot
Speaker 8: pursue a deregulation initiative unless the FED goes along with it.
Speaker 8: There could be other things they work on, SLR reform,
Speaker 8: you know, supplementally, leverage ration and so forth. But what
Speaker 8: we're trying to say here to our clients is is
Speaker 8: just remember deregulation from the banks can be seen as
Speaker 8: a positive thing, but it's going to take years, if
Speaker 8: not even longer. I mean you're looking at probably twenty
Speaker 8: twenty seven and twenty twenty eight before some of the
Speaker 8: efforts of this deregulation actually hits the bottom line. On
Speaker 8: the On the asset manager side, well, Blackrock, the biggest
Speaker 8: asset manager that we cover publicly is up only three
Speaker 8: point ninety six percent. So the sentiment here isn't as
Speaker 8: great as it was during the banks. But also because
Speaker 8: there wasn't a lot of policy risk for asset managers
Speaker 8: at the get go, the bidinary regulators really weren't looking
Speaker 8: all that much. Yes, they said that they were looking
Speaker 8: at private credit. Yes they said they were looking at
Speaker 8: hedge funds and private equity firms in terms of systemically risky,
Speaker 8: but we think that work is now going to be paused.
Speaker 8: Certainly questions about private credit could be asked, but I
Speaker 8: don't see any material policy risk for the asset management
Speaker 8: industry within the next two years. You could get the
Speaker 8: rumbling of something, but I just don't even know what
Speaker 8: that is. That's how back to the beginning of the
Speaker 8: drawing board they are with the asset managers. Now looking
Speaker 8: at the exchanges, CMME Group is up five point seven
Speaker 8: six percent. Remember they're a derivative exchange. Intercontinental Exchange ICE,
Speaker 8: which is both derivatives, and the New York Stock Exchange
Speaker 8: is only up two point one percent. But again, the
Speaker 8: exchanges are facing regulatory status quo. There hasn't been a
Speaker 8: lot out there in terms of policies for the exchanges
Speaker 8: minus some of the equit market structure proposals out there
Speaker 8: that the SEC has finalized. And then Elliott has talked
Speaker 8: about in many instances the court cases that are subsequently
Speaker 8: following that. So again, the exchanges really have a policy
Speaker 8: status quo here. But Elliott, to your point about crypto,
Speaker 8: and this is why we saved crypto for last. If
Speaker 8: you look at coinbase, they're up sixty six point nine
Speaker 8: to eight percent since the election. And if anybody's been
Speaker 8: following bitcoin, you know that bitcoin is now flirting with
Speaker 8: one hundred thousand dollars. Now why is this the case. Well,
Speaker 8: President Trump has said that he wants to make the
Speaker 8: United States the crypto capital of the world. Now we
Speaker 8: do not mean we do not believe this means to
Speaker 8: be the wild wild West, that there are not going
Speaker 8: to be any rules or regulations or anything like that.
Speaker 8: We think this is going to happen in two ways.
Speaker 8: One is you're going to get an SEC chairman next
Speaker 8: year that is going to be amicable, if not pro crypto,
Speaker 8: and will embark on a rulemaking and trying to determine
Speaker 8: a little bit more about what the SEC's role is
Speaker 8: in terms of looking at cryptocurrencies. We also anticipate Congress
Speaker 8: is going to jump back into this crypto debate, and
Speaker 8: we are giving a seventy percent chance of a bill
Speaker 8: passing next year that would develop the sec having authority
Speaker 8: over cryptocurrencies that are securities, and then the Commodity Futures
Speaker 8: Training Commission would be given spot authority over those that
Speaker 8: are deemed commodities. And just remember that Bitcoin right now
Speaker 8: is a commodity and ethereum most likely is a commodity
Speaker 8: as well. Now, what does this mean for somebody like coinbase, Well,
Speaker 8: it means that they're going to have to pony up
Speaker 8: tens and millions of dollars in new registration costs, governance costs,
Speaker 8: and so forth like that. But I think Coinbase will
Speaker 8: probably be okay with that. It gives them the ability
Speaker 8: to move forward without having this regulatory enforcement action hanging,
Speaker 8: these potential for enforcement actions hanging over their heads, and
Speaker 8: gives the industry clarity on how to move forward. Now,
Speaker 8: anytime you see a regulation like this thrust on in
Speaker 8: industry that doesn't usually have regulation, it also impacts the
Speaker 8: best place. It also helps the bigger players, the publicly
Speaker 8: traded ones, the folks like Coinbase, because they have the
Speaker 8: technology spend, they have the legal spend, they have the
Speaker 8: compliance spend. And who do they gobble up market share from?
Speaker 8: Most likely the mom and pops, the folks that are
Speaker 8: creating firms in their garages right now and don't have
Speaker 8: the hundreds of thousands of dollars to have meetings with
Speaker 8: the ICC or the CFTC and and so forth. So
Speaker 8: there's a lot of reason why the cryptocurrency industry should be,
Speaker 8: you know, feeling good about a Trump administration. But again,
Speaker 8: what we tell our clients is is just it's not
Speaker 8: going to be the wild wild West. There are going
Speaker 8: to be rules and regulations, and if Congress passes that
Speaker 8: bill in twenty twenty five, will then be up to
Speaker 8: the SEC and the CFTC to implement those regulations in
Speaker 8: twenty twenty six and twenty twenty seven. So with that, Elliot,
Speaker 8: I'm gonna pass it.
Speaker 1: Back to you. Great, thanks, Nathan, and so last, but
Speaker 1: not least, I'll wrap up this call talking about three
Speaker 1: cases that I'm watching and waiting for court rulings in December.
Speaker 1: The first one actually, since Nathan, you left off with
Speaker 1: crypto and with Coinbase, that's where I'll pick up. So
Speaker 1: the first case I'm watching involves Coinbase and the SEC.
Speaker 1: This is not the SEC's enforcement action against Coinbase, which
Speaker 1: I'm also tracking. I don't expect anything material to happen
Speaker 1: in that case in December. That's going to be sort
Speaker 1: of more a Trump administration effort, probably to unwind or
Speaker 1: narrow that enforcement action, similar to what you were talking about, Nathan.
Speaker 1: But the case that I'm watching for a possible rule
Speaker 1: and in December is an affirmative action from Coinbase against
Speaker 1: the SEC, asking the SEC to engage in crypto rule making.
Speaker 1: The SEC refused that request. Coinbase then sued, arguing that
Speaker 1: the SEC's refusal was arbitrary and capricious and an abuse
Speaker 1: of discretion, and that the SEC is exceeding its authority
Speaker 1: by refusing to engage in rule making while pushing an
Speaker 1: aggressive enforcement agenda. The parties were in court on September
Speaker 1: twenty seventh in the Third Circuit Court of Appeals for
Speaker 1: argument on this issue, and after listening to that argument,
Speaker 1: we think Coinbase is poised to get a partial win,
Speaker 1: sending the case back to the SEC for the agency
Speaker 1: to explain in more detail why crypto rule making is unnecessary.
Speaker 1: We give it about a seventy percent likelihood of that outcome.
Speaker 1: We're only at thirty percent, however, for Coinbase to get
Speaker 1: a court ruling that compels the SEC to do more
Speaker 1: and engage in crypto rulemaking, there's no deadline for a decision.
Speaker 1: I do think it could come in December, and of course,
Speaker 1: you know, like Nathan talked about, and as I mentioned,
Speaker 1: once the Trump administration comes in in January, we do
Speaker 1: expect more crypto friendly policies, which can include rule making
Speaker 1: like the type Coinbase seeks. And we do think that
Speaker 1: new SEC leadership will narrow or drop or settle on
Speaker 1: favorable terms for Coinbase the enforcement action against the company.
Speaker 1: All right, moving on to the second case I'm watching.
Speaker 1: This involves Turkish bank Hawkbank, which was indicted by the
Speaker 1: Justice Department in twenty nineteen for violating sanctions on Iran.
Speaker 1: The bank tried to argue it is immune from charges
Speaker 1: under sovereign immunity because the Turkish government is the majority
Speaker 1: owner of the bank. That immunity defense is been rejected
Speaker 1: by the courts so far, most recently by a panel
Speaker 1: of a federal appeals court in October. Hawk Bank is
Speaker 1: trying to get further review of that decision. They're asking
Speaker 1: for a bank review, which would mean the full appeals court,
Speaker 1: and we think we'll find out this month if that
Speaker 1: petition for review is successful or not. We don't think
Speaker 1: it'll succeed, but we'll see. And bigger picture, we think
Speaker 1: Hawk Bank is likely to wind up settling this case
Speaker 1: at some point down the road for one billion to
Speaker 1: two billion dollars. And then, finally, the third case I'm
Speaker 1: watching this month for decision is won by bank trade
Speaker 1: groups challenging in Illinois law that would ban interchange fees
Speaker 1: on taps I'm sorry, on tips and taxes at stake
Speaker 1: for the industry or compliance costs that could range from
Speaker 1: the hundreds of millions of dollars to more than a
Speaker 1: billion dollars by some estimates, and penalties could also run
Speaker 1: into the tens of millions of dollars or maybe even more.
Speaker 1: There was a hearing on October thirtieth on the bank's
Speaker 1: motion for a preliminary injunction to put the law on hold.
Speaker 1: We think the judge at that hearing was inclined to
Speaker 1: agree with the Bank's arguments that the Illinois law is
Speaker 1: preempted by federal law because the Illinois state law would
Speaker 1: interfere significantly with the bank's federally granted powers to collect fees,
Speaker 1: process transactions, and process data. We think the judge, you know,
Speaker 1: we're expecting a decision on this preliminary injunction motion by
Speaker 1: year end. No guarantee, but we think it could come
Speaker 1: this month, and we give the banks a seventy percent
Speaker 1: chance of winning, either at this early stage or later
Speaker 1: in the case. So those are the three things I'm watching.
Speaker 1: With that, 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
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Speaker 1: to reach out to us with any question that you
Speaker 1: may have, and we also encourage you to listen to
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Speaker 1: and have a great day.