By Sam Sutton and Michael Stratford

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It’s a good time to be a Big Bank.

Donald Trump’s imminent return to the White House has already yielded the industry critical victories over top regulators. As private equity firms and corporations tee up new mergers and acquisitions, the CEOs of top financial institutions on Wednesday told analysts that deal fees are likely to surge. But just beneath the bright projections about the U.S.’s growth prospects under Trump and boffo quarterly earnings, there was an undercurrent that circumstances could change quickly under the new administration.

“The environment feels good,” Goldman Sachs Chairman and CEO David Solomon told analysts during the investment bank’s year-end earnings call. “But I'm not at all confused that — you know — I could wake up in three months, and there could be things going on in the world that would change that perspective.”

Indeed, while Solomon and other banking executives spotlighted how c-suite and client sentiment soared post-election, they acknowledged that recent bond market contractions — which corresponded with stock market losses — reflect trepidation that Trump’s agenda could drive up consumer prices and interest rates.

Solomon cited immigration, trade, tax and energy policy shifts as factors that could influence sentiment. Citi’s Mark Mason told reporters that clients are bullish on U.S. markets but that there is uncertainty about how Trump’s rhetoric will translate into policy changes — including with regard to future government spending.

“There's a little bit more uncertainty [on] some of the tariff questions and how all of that's going to play out. It's obviously an issue,” BNY’s Robin Vince told reporters. Even with recent Federal Reserve rate cuts, yields on 10-year Treasury notes — which are used to price new mortgages and corporate bonds — have climbed “in a pretty meaningful way.”

Forecasters like the Penn Wharton Budget Model and the Committee for a Responsible Federal Budget have estimated that Trump’s agenda could add trillions to the federal debt over the next decade. And even though Vince said Trump’s emphasis on economic growth could boost capital markets (and BNY Mellon), the recent spike in yields “reflects an uncertainty in the world about what's going to happen in terms of U.S. debt issuance,” he said. (Stocks rallied and Treasury yields fell on Wednesday after the Labor Department reported inflation slowed for key sectors of the economy in December, increasing the likelihood that the Fed will lower borrowing costs.)

JPMorgan Chase’s Jamie Dimon — who’s issued frequent warnings about the dangers posed by the U.S.’s growing debt obligations — noted that deficits are typically “more inflationary than not, and we'll see how the new administration handles it.”

Notably, the uncertainty about how policy changes may affect the economic environment could be a reason why – despite the buoyant corporate outlook — demand for new loans hasn’t accelerated as quickly as one might expect, JPMorgan CFO Jeremy Barnum told analysts.

“We'll see what the New Year brings as the current optimism starts getting tested with reality,” he added.

It’s THURSDAY — If you have thoughts, reach Sam at ssutton@politico.com.

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The National League of Cities holds a summit on housing beginning at 8:30 a.m.. … The Peterson Institute for International Economics holds a virtual discussion on audit firms at 9 a.m. …The Senate Banking Committee holds a hearing on the nomination of Scott Turner to be Housing and Urban Development secretary at 10 a.m…The Senate Finance Committee holds a hearing on the nomination of Scott Bessent to be Treasury secretary at 10:30 a.m….

Bessent faces first Senate test: Bessent, the hedge fund manager who emerged last year as a top Trump economic adviser, faces Senate Finance this morning in his quest to become Treasury secretary. The confirmation hearing could offer the most high-profile clash yet on Capitol Hill over Trump’s sweeping economic agenda days before he’s sworn into office.

What to expect: Senate Republicans are all in on Bessent, even as some in the GOP – and Wall Street – have reservations about Trump’s maximalist rhetoric on tariffs. Some moderate Democratic votes might be up for grabs for Bessent while most progressives are expected to oppose the wealthy financier and Trump megadonor.

Bessent plans to make the case that Trump’s economic agenda will “usher in a new, more balanced era of prosperity,” according to excerpts of the prepared testimony. He’ll make a call to “secure supply chains that are vulnerable to strategic competitors” and “carefully deploy sanctions as part of a whole-of-government approach to address our national security requirements.”

On taxes, Bessent will call for making permanent the 2017 GOP tax law along with “new pro-growth policies to reduce the tax burden on American manufacturers service workers and seniors,” a nod to Trump’s various campaign tax proposals.

On Trump’s plans for tariffs, Bessent plans to say that “Trump was the first president in modern times to recognize the need to change our trade policy and stand up for American workers.”

Sen. Mike Crapo, the Republican committee chair, has vowed to usher Bessent’s nomination quickly through the process. “Bessent has worked for the last three decades as one of the sharpest minds in the global finance industry,” Crapo plans to say this morning, praising his “background, experience, and character.”

Democrats, meanwhile, have an opening to lay down a marker as they confront the first of Trump’s economic nominees on the Hill. They’re planning to focus heavily on criticizing the 2017 Republican tax law that Bessent will be responsible for negotiating with Congress to extend.

Sen. Ron Wyden, the top Democrat on the committee, plans to say that Bessent would be at the center of advancing Trump’s “class war on typical American families” through a tax plan Wyden said would favor the rich.

— To that end, Benjamin Guggenheim reports that the Democrats are preparing a fresh line of attack on Bessent. A memo prepared by Wyden’s staff alleges the hedge fund executive improperly claimed nearly $2 million in tax losses and owes nearly $1 million in taxes related to his firm, Key Square Group. A spokesperson for the Trump transition called the claims "meritless."

Meet Scott Turner — Motivational speaker and former NFL player Scott Turner is poised to be the next secretary of HUD. He’ll be tasked with solving an intractable nationwide housing shortage that is driving up inflation and activating voters during the 2024 presidential campaign.

Unlike other members of Trump’s economic team — including Bessent, Kevin Hassett or Stephen Miran — Turner remains a relative unknown on matters of policy. On Thursday morning, lawmakers on Senate Banking will finally have an opportunity to hear him outline his playbook on the record.

Turner led the White House Opportunity and Revitalization Council during Trump’s first term, where he oversaw a multi-agency effort to encourage investment in distressed communities through opportunity zone incentives created through the 2017 tax law. And while those efforts have elicited praise from homebuilders, mortgage lenders, insurers and other industry groups — as well as prominent Trump proxies like Rep. Byron Donalds (R-Fl.) — he has a lower profile than many other Trump appointees.

A spokesperson for Senate Banking Chair Tim Scott said the South Carolina Republican “looks forward to hearing Scott Turner's vision for reforming our failed federal housing policies to increase access to affordable housing, remove burdensome red tape, and put more Americans on the path towards homeownership.”

Parting words — Bloomberg’s Josh Wingrove and Akayla Gardner: “President Joe Biden warned Americans of a ‘dangerous concentration of power’ in the hands of a ‘very few ultra-wealthy people’ and the impact he feared it would have on the country’s democracy as he delivered a farewell address Wednesday from the Oval Office.”

Late delivery — Elon Musk’s formidable ties to the new administration may not be enough to save him from a new SEC lawsuit alleging securities law violations related to his purchase of the social network Twitter, now known as X. The charge is “a very open-and-shut violation” that is usually settled, Ann Lipton, a law professor at Tulane University, told Declan Harty. The SEC alleged in its complaint that Musk was 11 days late in filing a disclosure stating he held more than a 5 percent stake in the company’s shares.

“You either filed the form or you didn’t,” Lipton said. “It’s really not hard.”

— More Musk news: From E&E’s Corbin Hiar: “Musk made a fortune on climate credits. Trump is targeting them.”

Block busted — Block, the Jack Dorsey-led owner of the payments application Cash App, has agreed to pay $80 million to settle allegations brought by dozens of state financial regulators that it violated anti-money laundering laws, Michael Stratford reports. The company did not admit or deny wrongdoing in the settlement.

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Rubio’s big day — During an otherwise low-key confirmation hearing to be the next secretary of State, Sen. Marco Rubio (R-Fla.) told lawmakers that the U.S. needs to take a much firmer tack with China or “everything that matters to us in life will depend on whether China allows us to have it or not,” per Doug Palmer’s report. The Florida Republican said the U.S. needs “to rebuild our domestic industrial capacity, and we have to make sure that the United States is not reliant on any single other nation for any of our critical supply chains.”

 Horse trading — The House Freedom Caucus is pitching a new deal that would lift the state and local tax deduction, delivering a critical win for Republicans in California, New York and New Jersey. The catch? Blue state Republicans would have to agree to raise corporate taxes, Benjamin Guggenheim reports.

Crypto’s momentum — Sen. Tim Scott and House Financial Services Chair French Hill (R-Ark.) are mulling the creation of a bicameral working group that would tackle digital assets, Eleanor Mueller reports.

Fallout — Treasury and other law enforcement officials told House lawmakers that Chinese hackers gained access to more than 3,000 unclassified agency files as part of a cybersecurity breach last year, Jasper Goodman reports.

First in MM: Lummis probes U.S. Marshals over Bitcoin sale — Sen. Cynthia Lummis (R-Wyo.) sent a letter to the U.S. Marshals Service Wednesday requesting more information on plans to sell tens of thousands of seized Bitcoin, Eleanor reports.

"This rushed approach, occurring during the presidential transition period, directly contradicts the incoming administration's stated policy objectives regarding the establishment of a National Bitcoin Stockpile," Lummis writes, adding that the timing of previous sales may have led to "a loss of more than $18.5 billion in unrealized value for American taxpayers."

Senators call on Treasury to share home insurance data — Following the Los Angeles fires, eight Democratic senators are urging Treasury to publicly share home insurance data. Sen. Ron Wyden (D-Ore.) led the letter, which asks for anonymized zip code-level data on homeowners insurance to be shared with all members of the Financial Stability Oversight Council and to state or federal agencies that request it, according to a copy obtained by Natalie Fertig. The letter also requests a Federal Insurance Office analysis of the data on how the climate impacts affordability and availability of homeowners insurance.

“Failing to publish this data will prevent informed decisions and implementation of impactful policy changes that can help communities and households live and grow in a more climate-resilient manner,” according to the letter.

Craig Phillips, a former Steven Mnuchin adviser who’s also held leadership roles at Morgan Stanley and BlackRock, has joined Freddie as executive vice president for corporate strategy and external affairs.

First in MM – Eleanor reports that Tim Hite, senior counsel on the House Financial Services Committee's digital assets panel since 2023, is leaving for a role as policy director at cryptocurrency firm Exodus.

Kirsten Wegner, the former CEO of the high-frequency trading industry group Modern Markets Initiative, has been tapped as the new chief executive of the Index Industry Association. She succeeds Rick Redding, who is retiring after 13 years at the helm.

Palantir’s former head of U.S. government communications Morgan Gress is joining Andreessen Horowitz as a communications partner in the venture firm’s D.C. office. She will support the firm’s American Dynamism practice, which backs companies in the aerospace, defense, education and manufacturing sectors.

Gregg Gelzinis, a top aide to CFPB Director Rohit Chopra, is joining Sen. Elizabeth Warren’s staff on the Senate Banking Committee, according to a person with knowledge of the move. He will lead the financial institutions policy portfolio. – Jasper Goodman 

A message from U.S. Bank:

At U.S. Bank, we recognize and celebrate small business owners for their vital contributions to our communities and economy.

That’s why we’re proud to support small business owners like Melanie Cedargren, founder of The Spicy Olive, a thriving Ohio-based gourmet foods shop. With our help, Melanie was able to expand her business from one shop to three.

U.S. Bank is committed to fueling growth for small businesses like The Spicy Olive. With a 74% rise in SBA lending this year, we are helping more small businesses continue to thrive and contribute to local economies. We serve over 1.1 million small businesses nationwide, providing financial guidance and resources to help them succeed. Because U.S. Bank is small enough to care, and big enough to make a difference.

Learn more about U.S. Bank’s support for small business.

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Mark McQuillan @mcqdc Zachary Warmbrodt @Zachary Victoria Guida @vtg2 Declan Harty @declanharty Eleanor Mueller @eleanor_mueller Katy O'Donnell @katyodonnell_ Sam Sutton @samjsutton

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