Bank Deregulation, Tariff Rulings Among 2H Catalysts

currencies and commodities. This podcast series examines the intersection of business policy and law, and today we're doing our mid year outlook on the litigation and policy catalysts that we're watching in the second half of twenty twenty five and that we think will impact companies across a number of different sectors. My name is Elliott Stein. I'm an analyst with Bloomberg Intelligence covering litigation in the financials sector, and I'm delighted as always today to be joined by several

of my BI colleagues. As always, you can find all of our research on the Bloomberg terminal at BI go, and you can find the majority of our litigation and policy research on our dashboard at BI laws go. We're recording this over two days July ninth and tenth, which we always we always like to timestamp these episodes because things move quickly and sometimes some of the things we say maybe out of date by the time the episode is published. But with that, let's get started with the content.

Let's bring in Nathan Dean, who covers financials policy and also some other policy issues across other sectors down in DC. Nathan, I feel like the first half of the year was focused on tariffs and the One Big Beautiful Bill. The One Big Beautiful Bill, of course, is pretty much is done at this point. Tariffs is sort of still an evolving story. But the second half of the year looks like it's going to be largely focused on deregulation for big banks, at least in your coverage area. And I

know you've written a lot about that. So what specifically are you watching for.

a process and that process takes time. Now, you needed agency leaders to come into place, and that largely happened in the first half of this year. So now if you look at like agency leaders like FED Vice Chair Michelle Bowman or you know, Jonathan gold Over the contro the currency was just confirmed about thirty minutes ago here on July tenth. You know, those agency leaders are now in place, and so they are going to move forward with proposals to deregulate these sectors. Now, let's talk about

financials in particular. You know, there's about three areas of focus that the financial industry is going to see in two age. Most of the benefiting the jesips, so like the Bank of Americas, the JP, Morgan's City Groups, Goldman, Sachs, et cetera. A little bit more less of an impact on the regionals. But some of the proposals that you're going to see, well, one is one call that's impacting

the supplemental leverage ratio. This is also the Enhanced Supplemental Leverage Ratio also known as the ESLR for a reserve release to proposal last week essentially taking the ratio from five percent down to three percent plus a fifty percent JESIP surcharge. So for the big banks you're looking at somewhere around three and a half to four and a half percent, depending on the bank, so there's definitely leverage relief. You're also going to potentially see a new Buzzle three

endgame proposal. We think this is going to come out after around September October timeframe. You know when it was proposed under the Biden administration to increase capital requirements in nineteen percent. We think this is most likely at a starting point, going to be capital neutral. And then third, you've got proposals altering the stress testing process. There was one from April that already came out. It's not that big of a deal. It just really is more of

a technical proposal. But a more substantial proposal is going to come out probably by September that will make it a little bit more transparent for these banks to go through the stress testing process and make it easier for these banks to go through the process. So a lot of this work is going to kick off in two h It's going to be proposal work. You're not going

to see finalizations until twenty twenty six. But keep that in mind that these process is going to take place and there's not much here the Democrats could do to block it.

become law. Now, this bill would require stable coin issuers like Circle to be backed up by one hundred percent high quality liquid assets, and would also allow bank issuers a way to register with the Futteral Reserve and non bank issuers a way to register with the Office of the Control or the Currency. And if you're a smaller issuer and you have less than a ten billion dollar market cap, you have to issue with your state regulator. Now,

obviously this is going to increase compliance costs. You know, you're going to need compliance spend, technology spend and so forth. But the amount of regulatory clarity you get with this, you can now move forward with a new regulatory framework and there's not gonna be much of the way of enforcement risk for these stablequin issuers. So for somebody like Circle, yeah, you're gonna have to pony up more, but they'll gladly

do it to get that clarity that they need. But then for the rest of the crypto industry, it's a little bit more murkier because there is a bill called the Clarity Act, and this act would define what is a security, what is a commodity. It just gives it

the CFTC authority over spot markets. This bill, you know, the House is trying to pass it as well the week of July fourteenth, and they may, but there's gonna be a little bit more difficulty getting some of these Democratic senators on board like they did the Stable Cooin Bill, because even though it passed sixty eight to thirty, I'm nowhere anywhere close to getting the sixty votes in my vote counts right now, just because of our additional concerns

with the crypto industry at a large or broader perspective. Now, we know that the Senate does not want to take up this bill until September at the earliest. They're going to wait until after the August recess, so we have time. But I'm telling my clients, and I may be a little bit out of consensus here, but I'm telling my clients, I think this can get done in the first half of next year.

through it, they got it done. You know, some of the Democratic senators are going to be an absolute no. They still believe that nineteen thirty zero securities law should still apply and that a lot of these tokens should be you know, adhering to that type of securities law.

There shouldn't be a specific carve out. But I go back to the idea that Chairman Gary Gensler tried this under the Biden administration and the courts overwhelmingly, as you've written many times, Elliott, the Court's overwhelmingly ruled against the administration on this and as a result, it was courts, not Congress that was dictating what crypto policy looked like.

And if I'm a Democratic Senator, do I I do nothing and allow the crypto industry to continue to operate for four to five years with piecemeal regulations, or do I try and get myself involved to actually take control of the narrative. And I think that's what's significant. Number of Democrats are at least enough number of Democrats. So think of Senators like Mark Warner, Reuben Gallaghos from Arizona. They voted for these stable coin bills to probably vote

for the crypto bill. Senator Christin Jillobrand as well from New York. They're there, it's just they need a little bit more time and a little bit work to get through.

about three cases I'm watching. This is a little more company specific and actually involves mostly non US banks. The first involves French bank BNP Pariba, which is scheduled to go to trial September eighth in the class action case by suiting these refugees, accusing the bank of aiding and

abetting genocide and Sudan. We expect the bank to settle ahead of the trial, and that's based on a June thirtieth letter from the parties asking the court to push the September eighth trial date back a month to give the parties more time to formalize basically a process for resolving the case through mediation. The court denied the request to push back trial date, so for now trial is on for September eighth, unless the parties reach a settlement

or at least some sort of settlement than principle. But we expect them to be able to do that because I don't think either side really wants to go through with the trial and the risks that come with it. As far as how much a settlement might be, our best comparable is probably one point twenty five billion dollar Holocaust settlement by two Swiss banks in nineteen ninety eight.

That implies roughly a sixty five million dollar cord here based on the number of plaintiffs, but you know, we really can't rule out a settlement for more, potentially several hundred million dollars, So that's one thing we're watching. The second case we're watching in the second half of this year. This involves Swedish bank sweat Bank, which has been investigated for several years now by US authorities over possible money

laundering violations. Again, we expect these probes to also wrap up by year end, given how long they've been going on, which is roughly about five years, and we think the fines in this case could be about approaching four hundred million dollars, which is close to the three hundred and eighty six million dollars a sweat Bank paid to Swedish

authorities in twenty twenty. But again we can't rule out a higher amount, maybe even one approaching a billion dollars if it's structured similarly to penalties that Danish bank Donska Bank paid in twenty twenty two. And just lastly, the third case I want to talk about involves Turkish bank Hawkbank, which is fighting a Justice Department lawsuit, a criminal lawsuit

accusing the bank of violating US sanctions on Iran. Hawk Banks principal defense so far is that it should be immune from prosecution in the US because the bank is owned primarily by the Turkish government, and the bank therefore argues that it should enjoy sovereign immunity in the US. So far, courts have rejected that defense. Indeed, even the US Supreme Court has rejected that defense at least based

on the Foreign Sovereign Immunity Act Statute. But when the case went to the Supreme Court, the Supreme Court in twenty twenty three allowed the bank to pursue a related sovereign immunity defense, not based under statute, but based under

the common law. So that's where we are now. The bank is trying to argue that it still has sovereign immunity under the common law, but again lower courts have rejected that defense so far, and now Hawkbank is back at the Supreme Court asking the High Court to review those decisions. I think we'll get a decision in October from the Supreme Court just on the petition the cert petition, meaning we'll know in October whether or not the Supreme

Court will take up Hawkbank's case. We give the bank a sixty percent chance of actually getting their cert petition granted and getting Supreme Court to review the case. But at the end of the day, we think the Supreme Court will again rule against the bank on the merits like it did the first time, and we think the High Court will take up the case, but only to clarify sort of what the relevant immunity standard is under

the common law. But ultimately it'll rule against the bank and say that the bank is not immune from prosecution, and that'll probably put the bank on a path to settlement. We've said all along that we think settlement could be about one billion to two billion dollars just based on the amount of money that allegedly went through the US

financial system. But we think the bank and the Turkish government may be able to convince the Trump administration to sort of go a little soft in terms of a settlement, but that's still a ways away. For now, we're just waiting to see if the Supreme Court will take up Hawkbank's most recent cearch petition, So that's what I'm watching.

Let's move on to tariffs, which we touched on just briefly earlier, but let's bring in Holly from who's been covering the many different lawsuits challenging the Trump administration's tariffs. We got some very big rulings at the end of May from the Court of International Trade. Those are on appeal now. I know, Holly, you're watching these intently. Why don't you come in and tell us exactly what you're watching for in the second half.

you mentioned, held them unlawful in May. The court found that if the president is going to address trade deficits using tariffs, which the reciprocal tariffs are supposed to do, he must do that through Section one twenty two or the Trade Act. He cannot use the emergency statute called AIPA that he used. And another District Court in Washington, d C. Held that they were unlawful for different reasons. That court basically said APA doesn't allow tariffs at all.

Both of those rulings are on appeal. The International Trade Court's ruling is on appeal to the Fed Circuit and the Washington d C. District Court's ruling is on appeal to the DC Circuit. And with regard to the Fed Circuit appeal, opening briefs have been filed, opposition briefs have been filed, and there was a hearing before the Fed

Circuit on July thirty first. The full panel of the court will be hearing that appeal, so we should get a better idea of the course leadings after oral argument on July thirty first, and we think that decision could come retively quickly, perhaps in August. The DC Circuit hasn't scheduled a hearing yet, but we think that court will also rule relatively quickly, and whoever loses that appeal will

probably appeal to the Supreme Court. And we think that the Supreme Court will take the case and it could rule as early as four Q on the merits. What we've said is we think reciprocal terroriffs will be deemed unlawful because the trade deficit cited as the basis is not an emergency that poses an unusual and extraordinary threat

as required by a EPA. But fentanyl trafficking tariffs maybe deemed lawful because we think that the Supreme Court will disagree with the lower court that leverage on countries, which is what the terrorists are supposed to create, cannot address the emergency sited. And in other lawsuits that may inform the issue, there's a hearing on appeal a lower court order out of California dismissing a challenge to the tariffs. That court, it was a district court in California, said

that it lacked jurisdiction. That's on appeal and there's a hearing on that appeal on September seventeenth. And in addition to that, today on July tenth, there is a hearing on a lawsuit challenging elimination of the dominimus exemption. And what that exemption is is it says that goods that are eight hundred dollars or less are exempt from tariffs. The Trump administration eliminated that exemption with regard to goods from China. So a lawsuit challenging that says Trump didn't

have the power to do that under the statute. He used that there's a hearing on that. There's a most preliminary injunction trying to enjoin the administration's elimination of the exemption, and there is a hearing on that motion today July tenth, and I think that the court will again rule relatively quickly,

possibly next month. And I think what we said about that is we think that the elimination of the dominimous exemption is probably on stronger footing than fentanyl trafficking tariffs because the court, the the International Trade Court found that the pentonal trafficking tariffs didn't deal with the emergency because it was a terriff. Tariffs on every good doesn't deal with the emergency, and UH leverage on countries created through

the use of tariffs doesn't deal with the emergency. But here what the government has said is that shippers have been using deceptive means such as the diminishment mis exemption to import fentanyl. So I think there's a stronger connection to the emergence to the fentanyl crisis. So that that's why we think that these are on stronger legal uh footing, and but we expect a ruling probably in August.

But even if he answered they answered that question, there would still be a question of whether he can do what he did. Uh with regard to the elimination of the the minimus exemption, because it's a different statute that governs that so I don't think they necessarily have to be decided together, but they can be.

tracking a bunch of these cases. What are you watching for in two h and in the cases that you're following?

of both fiction and non fiction works. We have been tracking a lot of them and in late June, we actually had had two decisions and these are the decisions on fair use at the summary judgment stage. So essentially, the developers of large language models are arguing is is fair use under the Copyright Act for them to use this copyrighted content in order to train their large language models.

These decisions came in cases they were asserted against Anthropic and in another case where the allegations were asserted against Meta. The plaintiffs in both of these cases were book authors, so and nonfiction. In both of those decisions, the judges and these are two separate judges sitting and both sitting in the Northern District of California, they did find in favor of the large language models on fair use. However,

they took fairly divergent views. Starting first with the Anthropic judge, he looked at their use and fair use is sort of this fact sensitive four factor test which judges have to weigh up and decide whether or not the equities favor allowing what has happened with this copyrighted work, whether

that was fair or whether that was infringement. The judge in the first case in Anthropic said pretty clearly that it was highly transformative what Anthropic did, and he didn't spend a whole lot of time really drilling into the other three facts factors, So transformative use is sort of

the first factor in that fair use test. Now, just a few days later, his colleague in the metacase he also said that, yes, what Meta has done is transformative, but he spent a lot of time looking at this fourth factor, which looks at whether or not there was a potential market impact from the large language models using this work on the original copyrighted content. He said he didn't necessarily find that here, partly because he sort of

took issue with how the plantiffs prosecuted this case. He said they didn't sort of put enough evidence forward that there might be dilution in the market for the artists, sort of for the author's work based on the output of these large language models. But the thing I want to know is that both these cases only concerned inputs, which, as we said, it's just the data that went into training the large language model, so that's input infringement. Neither

of them had allegations of output infringement. And I think that's important because in both decisions, the judges made very clear that their decision more than likely would have gone the other way if they was output infringement. Output infringement is a much less strong fair use defense in this case. It's not going to be transformative, and this is the reason it's going to be much less strong in this case. Now, what we see in the second half of twenty twenty

five is we're going to have some decisions. So we think we're going to potentially start going against the large language models, partially because we're going to see some cases

that also have some output allegations output infringement allegations. Now, the first one is in another case against Anthropic and this was brought by a group of music publishers so in Concord Music Group UMGCMG, and they are alleging both input and output infringement input because song lyrics were used to train these anthropicsge language model called quad as well as output infringement, and the users were able to say, what are the lyrics to, say, a Beatle song, and

the model was generating that back. And that's a pretty clear situation of potential output infringement when you do that on the Internet and you get the lyrics to a song, those are mostly coming from licensed parties who are paid for the privilege of posting those lyrics. So I think summer in judgment hearing is scheduled for November. In that case, we may get a decision just just at the tail end of this year, if not in early twenty twenty six, I think that's going to be a much closer call

on fair use. And then heading into twenty twenty six, I think we're going to have some more ones where fair use is going to be much more tricky for the large language.

And and Anthropic during the pendency of this litigation brought on the music publishers has tweaked its algorithm to make that much more difficult to get. Whether or not it was entirely efficient is another question. I think it's a little bit different with with the authors. We have a large work of fiction. I think what the judges said was nobody is necessarily going to chat GPT or Anthropic or Meta and saying, you know, give me the entire

book of J. J. R. Tolkien or something. So so there there's less less likely given the works that issue, that you're going to have output in. Also, these were spiled to you know, a a little while ago, and I think from now on, especially based on so the reasoning and medicase, a lot more plaintiffs that are going to you know, try to include out infringement and definitely try to show sort of potential market harm. Looking at that fourth very.

the FCC regulator are largely deregulated. Already. Broadcast industry is aggressively regulated by rules that have been on the books since the nineteen seventies or sometimes earlier than that, and there's been a big desire from Republicans to ease these rules for a long time. I think we're finally going to see it happen, and it's going to start to happen in the second half of this year. So what

are we talking about here? Where the broadcasters that are most significant here are companies like Nextstar, Sinclair Tegna, who own TV stations or sometimes radio stations across the United States, and the FCC rules generally limit both how many stations they can own in any an individual market. You know, a big market like New York or Chicago, limit how many TV stations you can own there, as well as nationwide.

The FCC has a rule that says no company subject to a discount can can own more than can reach more than thirty nine percent of the country. And just to take that as an example, the FCC could potentially use this rulemaking to scrap that rule entirely. So a company like Nextstar, which currently can only reach a fraction of the United States with its its broadcast stations, could could go ahead and buy stations across the entire country.

Instead of reaching thirty nine percent, can reach one hundred percent via this rule change. And so a real opportunity for for M and a for for acquisitions, and the ECONO means of scale are significant from from owning most all those stations.

think Congress did any math to justify this? No, I think these were these were political deals that and they they just ended up at a certain point and and so that's the that's but your question is important in part because Congress hold the FCC to make the limit thirty nine percent, and so one of the tricky legal issues is whether Congress is the only one who can fix this, and so that's going to be the legal

fight after the FCC acts. I think there's a pretty decent argument that Congress didn't tie the FCC's hands and prevent it from adjusting its rule going forward. But there's going to be a big fight over that. And it also goes to your other question about adjusting, whether it's total repeal or an adjustment. When when a g PI was the chairman in Trump's first term, when he was trying to push this ahead, he was looking at, I

think a doubling of it. So keep a cap in place, but make it go to seventy eight percent or something like that. Some cap, but adjust it based on the record. Now, i think the consensus among the broadcasters at least who are pushing the FCC to do this, and I'm talking about the National Association of Broadcasters, which is the lead lobbying group, it's now moved to say, look, none of it makes sense. We you know, let's let's repeal the whole thing, and you as an agency. You don't need

to set a new limit. You can you can look at the record and say, look, it's not needed right now. And so the current push from broadcasters is to entirely eliminate the role.

more of the same. Are you seeing sort of a full scale return to the pre Biden approacher or something more in between.

trust enforcers to stay pretty tough on deals. You know, as you mentioned, anti trust enforcement in the merger control area was really really enlarged and increased and made more aggressive during the Biden administration, and because of that, a lot of deals were abandoned and a lot just weren't signed in the first place, given the hurdles that deal makers would have to get through to get their deals cleared.

And I think things are changing now, and the reason is because what we're seeing in the first few months here is that this administration is willing once again to accept settlements for otherwise problematic deals. What that means, very generally, is that if two companies have an overlap in a line of products or services and it creates too much concentration in the market for that service or that product, the companies can sell that line to another competitor and

then close the rest of the deal. And that's a pretty big deal, right because it gives these transactions a pathway to get closed that wasn't available really for the last four years.

for the next few years than they did previously. I don't see this as a complete return to what we think of as the pre Biden era of anti trust enforcement, which many thought was way too less, a fair too relaxed, allowing for too much concentration in too many industries. I don't think we're going to step back to that, but I do think hurdles have eased.

deals right and left. And then you had the uncertainty of the election, and nobody really knew what was going to happen, and so deal makers just held off to wait to see what would happen. So we don't have a whole lot going on. We do have some big pending deals that I think we'll get some decisions, maybe in the first half of next year. But there are two deals that were recently cleared by the USFTC that are still waiting for clearance from other jurisdictions, and I'm

watching those. One of them is Synopsis Ansis and the other one is mars Kelenova. The FTC cleared both Synopsis Ansis with a remedy there was a divesteture and mars Kelenova with no remedy, but we still have the Chinese Merger control authorities investigating the Synopsis deal and the European Commission investigating mars Helenova. I think that both deals will ultimately get cleared, and I think probably in the second half and be able.

including an order that Google divest Chrome. After the Trump DOJ folks came in, the judge allowed for an amended or revised request, and they put in a revised request that did tweak what Biden's administration had asked for, but only slightly, but kept the really more drastic remedies, which

included a request for Google to sell Chrome. So we see some continuity there between the two agencies, and we don't really know yet if it's going to be fully within the monopolization space or just because this is about a big tech platform and we know that by the Trump administration, Andy's enforcers are no great friends to big tech platforms. But I think what we're going to see here is something short from the judge of a decision

that forces Google to sell Chrome. Now, even if we get that by the way in August, Google will appeal and probably get it stayed. So no matter what the judge does in August, I don't think Google's going to have to implement those remedies right away. But elliott I think it's going to be pretty harsh, even if it doesn't include an order to sell Chrome. I think that Google is going to have to stop paying other companies

to set Google Search as the default. For instance, they were paying Apple about twenty billion a year to set Google Search automatically as the default search engine behind Safari and other Apple Search Internet access points. Because Apple doesn't have like some of the other browsers have their own search engine. Apple does not, so it made sense for them to have this deal with Google Search. I think it's going to have to stop paying companies for that

default position. I think it's probably going to have to add choice screens for Chrome and for new Android users that right off when they open up their new Android device allows them to choose what they want to set is their default search engine. And I do think they're going to have to share some search data. Through all the billions and billions of searches that have been done on Google Search over the years, they've gathered really valuable

data that helps them get better. And one of the allegations here was that the others liked being couldn't get better because they didn't have that scale, they didn't have enough searches. So I think the judge will force them to share a lot of that data and probably even their search index, which is like a huge index of the Internet, and it's bigger than what everybody else has to allow some of these rivals to try to use that to try to improve got it.

over a decade ago. We're anti competitive in nature. We still favor Meta with regard to a winning this case. It's seventy percent chance that we think Matt is going to walk away from this unscathed at the moment, and there's a timeframe for that. Parties are filing their post trial briefing between now and just after Labor Day here in the US, so we're expecting the judge to really dig in and start evaluating the claims that were made by a trial and probably expecting a ruling in the

matter sometime before the end of the year. I think it's highly likely the judges looking to get this office plate.

realities of how social networking exists today. And also, you know, there really are these questions about whether or not these purchases, if they were actually anti competitive, were all the pro competitive justifications involved with Instagram and WhatsApp since they were bought, really, you know, do they do they really justify? They do they outweigh the anti competitive concerns? And we think the

answer is probably yeah. So the judge self really said, look, Instagram itself probably wouldn't have developed and grown to the level that it did, but for Meta really stepping in, I'm buying the app and developing it after it did, so that that's really what we're looking for there in the FTC versus metacase and then not the DOJ versus Google this time regarding ad tech as opposed to search

that Jen just spoke about. Look, there was a liability finding made earlier this year in May by Judge Breakaman in the Eastern District of Virginia, similar to the to the to the Meda case. DJ here is looking for divestitures of of both the buyside and the cell side of of Google's platforms, as well as the at Exchange in the middle.

being the problem here in the case. I think the court views addicts as that tie. So if it's going to invest anything it's or ordered divestiture of anything, it's probably going to be Addicts. But again, you know the relevant markets in this case, they were really limited, right, So dog didn't didn't bring a case about the entirety of Google's ad tech stack. It was really about these display ads only that you see kind of served up

on desktop websites. Right, So mobiles not included, video ads aren't included, all these other things that Google's ads tech transacts business. And so that being the case, probably going to be the Google's defense here moving into the remedies trial that look, you know, we didn't cover all of

these other aspects of the business. Therefore it's really unfair for you to force a divestiture of any of it, right, And that trial, the remedies trial is downset for September twenty second, probably lasts a week, maybe a little bit more or but look, you know Judge Brinkhamash who took longer than folks thought she would in issuing her liability ruling. But you know, again it has moved really fast compared to other aspects, other aspects of ad tech litigation, if

you will. So we are expecting a ruling from her either by the end of this year, perhaps sometimes in one que next year, but again relatively fast I think coming from her and just to point out too, it's not just her case right there. There is a case by Texas Attorney General Ken Paxton and a series of red states, if you will, that.

Congress and it's you know, wisdom passed the Venue Act relatively recently the past couple of years. That's allowed these cases to proceed in different forums and substantially the same claims outside of an MDL process. So this is where we're kind of left here, left with here is this soup of who goes first? And how does how does plain preclusion apply? How does one case affect the other?

In other ways? All this is kind of a mess, But we think at least some aspects of that Texas case are probably going to be delayed while we await the ruling from Virginia. It's possible the court will move forward with the liability phase of that case, which will be in front of a jury, but then delay the remedies phase until a little bit later after we know whether or not some of those claims have kind of

been mooted by what comes out of Virginia. So that's where we're watching with regard to Google ad Tech, and and we'll just briefly mention that, you know, even though the FTC case against pharmacy benefit managers has been stayed until at least February twenty twenty six, I think we're probably in for a whole lot more activity with regard to those folks as well on the second half of twenty twenty five.

convenience with questions. As a reminder, you can find all of our research on the Bloomberg terminal at BI go or on our litigation and policy dashboard at BI laws go. And with that, thank you for listening and have a great day.