These are wild times on Wall Street, which had been anticipating unbridled growth and empire-building on the eve of Trump II. Now faced with escalating trade wars and the slashing of government staff and services, the investor class is in for a rocky ride. The stock market has given up trillions of dollars in post-election gains, M&A activity is all but frozen, and analysts are forecasting lower G.D.P. growth and higher inflation. Some recession signals are flashing red. For many, the “detox” that Treasury Secretary Scott Bessent has been spinning feels more like an emetic. Others are unabashedly bullish. Mike Mayo, the singular equity research analyst at Wells Fargo Securities, has long been one of the most insightful and thoughtful prognosticators on Wall Street’s prospects. He’s just back from weeks of conversations with investors in both the United States and Europe. What better time, I figured, to chat with Mike about what investors are saying privately about the jittery financial markets in the wake of the second coming of Trump and what it may mean for Wall Street and our economy? What follows is a lightly edited and condensed version of our conversation.

Bill Cohan: So, Mike, you’ve been traveling around the country, and in Europe, talking to investors, taking their pulse about the economy and the new Trump administration, which is determined to upset the apple cart. What are you hearing from investors, and what are your own conclusions? Mike Mayo: If I put my bank or corporate analyst hat on, this would be the new C.E.O. playbook: Highlight all the things that are wrong, blame those problems to justify a transition period, exploit those problems into front-loading changes, and rip the band-aid off. Warn that this may involve some short-term pain and disruption, but stress that it’s all in the name of superior structural long-term performance. So whether applied to my analysis of a bank, or the economy, I think that kind of sums up the bull case. And the evidence of that being the case is that the administration has specifically referred to a period of “detox,” of “transition.” They said, “If it causes a recession, so be it, because we’re looking at the long-term benefits.” In some ways, it’s like what Jamie Dimon did when he first became C.E.O. at JPMorgan a quarter-century ago. He highlighted the things that were wrong. He said there was a period of transition. He said they had to take on the tough problems. He ripped the band-aid off. He warned there could be some short-term pain, but that things would be better in the long term. So whether it’s the Jamie Dimon playbook, or the new C.E.O. playbook, I think that’s a good lens to understand what’s taking place. The only problem is, there’s no Jamie Dimon. So what you’re seeing here is some inconsistent messaging, and almost unprecedented policy uncertainty, and a very clear message from investors that they can only stomach so much policy uncertainty—on again, off again, on again, off again will only work for so long.

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Who should wary investors and bankers look to for a modicum of comfort here? The best hope here is Scott Bessent, the Treasury secretary. When he talks, it’s like prose to investors and financial firms and bank firms. He speaks prose. That is, “In Scott Bessent We Trust.” That’s really what it comes down to. In the last Trump administration, it was “In Gary Cohn We Trust.” In this administration, it’s Scott Bessent. [And the message seems to be]: Don’t sacrifice one iota of safety and soundness. Then, having done that, remove as much bureaucracy as humanly possible. The idea of bureaucracy busting, eliminating red tape, making it more efficient for banks to serve their customers can be a win, win, win. Banks can make more money, the customers will get some of those benefits, and the regulatory agencies can save money. To me, this is the most significant positive regulatory inflection point for banks in three decades. The problem is the short-term pain for long-term gain. If the short-term pain, and policy uncertainty, and flip-flopping, becomes too much, then the animal spirits that were there at the start can dissipate, and become a vicious cycle downward. That’s nice in theory, Mike. That’s the ideal spin you could put on what’s going on here. Is there any proof that there’s anything to what you just said? Well, people equals policy. You have Michelle Bowman nominated to become the vice chairman of the Fed. You’re going to have new heads of the O.C.C., the F.D.I.C., the S.E.C., the Treasury, and C.F.P.B.—and this is probably one of the more pro-business administrations that you’ve seen in a long while—and some very unique deregulation. As I’ve been on the road, people say, “Wait a minute, banks and deregulation could cause big problems.” But we’re just talking about regulation of banks going from a 10, to like a six, or a five. The pendulum is swinging back. [Since the 2008 financial crisis], capital is double, liquidity is double, financial firms are strong. The investment-grade bond market considers bank bonds as safe as corporate bonds. We’re not talking about crazy leverage, crazy lending, or anything that led to the global financial crisis. You’re just talking about ridding the complexity, and the red tape, to make banking more efficient, and to have banks become less marginalized, and be more of the heart of the economy. The banks’ loan and deposit ratio is historically low, so banks have the capacity to put a lot more loans on their books. The blueprint makes absolute sense, but it comes down to the execution. Can they execute? Can people stay on message? Can others gather around Scott Bessent and let him take the lead more?

Do investors have faith that this group is going to execute on this blueprint? I just got back from two weeks of seeing investors in Europe, after a couple weeks of seeing investors in the U.S. The three words that came up most often were: I don’t know. So it’s really testing the fortitude of investors in banks, and perhaps elsewhere. You’re granted a certain amount of leeway, just like when Jamie Dimon took over, to go ahead and implement the changes that you think are necessary. You don’t have forever to do so. Whether it’s the first 100 days, or by the end of the second quarter, if we’re still talking about policy uncertainty, and it’s July Fourth, there’s significant trouble. We’re hearing from investors: Don’t let the perfect be the enemy of good. In a merger, go ahead and make the decisions. They might not be perfect, but it’s more important to make those decisions, so everyone can run the business. In other words, what I’m hearing from investors is, What are the rules of the game? Until you know the rules, there’s a degree of paralysis for CapEx, for capital markets, for big strategic moves by corporations. Investors know that corporations and investors need to know the rules of the game before they truly jump into the next several years. You transition from regulatory risk to political risk to policy risk, and the policy risk is a lot more than almost everyone I’ve spoken to had expected. The goal is to make banks more of the heart of the financial system. The stock market’s reaction over the last month shows there’s a big disconnect here. So that’s a warning, and hopefully someone is paying attention so that they can stay on message and execute the plan. I think the consensus [among investors] is, We’re going to step out of the way, let whatever happens, happen, and then step back in, if and when [the administration gets] further along with their plans. I’m talking about beyond bank deregulation. I’m very [excited about] bank deregulation. I think this is needed to help eliminate some of the frictional costs in banking. This reminds me of the mid-1990s, which was also a time when people underestimated deregulation and the potential benefits. People tend to overestimate deregulation in the short term, and underestimate it in the long term. Okay, but we know that in the 1990s, when there was deregulation and Glass-Steagall fell, we had the consolidation, and a lot of people believe that led to what happened in 2008… You had five years that I thought were extremely appropriate [after the bank deregulation], but then it kept going. On a scale from one to 10, the starting point, you deregulated down to almost nothing. It was the Wild West. I got fired a couple times for being too negative, and then things blew up. But that’s not the starting point here. Now, the $7 trillion investment-grade bond market says that bank bonds are as safe as corporate bonds. So you’re starting at a point where banks are strong.

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But Dodd-Frank pushed a lot of the risk out of the Wall Street banks and the depository institutions into the shadow banks and the alternative asset managers. Do we really want to return to a time when depository institutions are taking risks again? Don’t you want to have more of your country’s commerce go through the regulated banking system, instead of all the non-banks? There’s no question that the private credit, and the non-banks, have made inroads against the banks, but the banks’ lack of loan growth recently is simply a degree of paralysis while everybody waits to find out what the rules of the game are going to be. A lot of these [non-bank] loans are a different credit box than where banks want to operate. It’s a nice gig to be head of a bank—as long as you don’t blow up, you tend to keep your job. So it’s been 15 years of de-risking of the banking industry, de-risking of leverage, de-risking of the liquidity, de-risking of your customers, de-risking of your trading book. But there’s still a chance that defeat will be grabbed from the jaws of victory. Washington needs to stay on message. Get the rules of the game finalized over the next month or two. Let Scott Bessent be Scott Bessent. Deregulate for growth, and project greater certainty about the path ahead, to allow for the major capital expenditures and capital market actions.

Do you think the big banks will be allowed to do M&A deals again? Yes, I think mergers are back. This was just a case of well-intended, but misguided, public policy for the last 15 years. The lack of large mergers simply keeps a deep moat around JPMorgan. It was the Jamie Dimon Protection Act. Like you have some rare species in the world. But I don’t think Jamie Dimon needed the protection against bank mergers. There should be several large national banks. When I worked at the Fed back in 1988, the idea was, once a merger application was submitted, it would be decided on within 60 days, with the 60-day rule. That’s where I think it could be win, win, win for everybody. Uncertainty doesn’t help anybody. So if you’re going to deny a merger, or if you’re going to say, These are types of deals that we turn down, fine, turn it down, just make the rules transparent, so everybody can move on. There is a chance that this is a very unique opportunity—that if you’re thinking of a deal for the rest of your life, and you have such a pro-business administration, and if you’d want to do it in the next 12 to 18 months, this is your moment. Do you think that’s why these bank C.E.O.s are sucking up to Trump? Banks are a heavily regulated industry, so they do what they think is best for the shareholders. That’s it. That’s the win. I’ll take that as a yes. And why do you think the market has crapped out since Inauguration Day? Well, I think it was just the degree you had the animal spirits, banks were leading the market. There were expectations of loan growth accelerating, the chance for a capital market super cycle, deregulation, and a tone from the top that free markets are going to rule, as opposed to bureaucracy. That was music to investors’ ears. But the flip-flop on a myriad of policy issues, day to day, has taken such a toll, that you’re not seeing the big pickup in loan growth and investment banking. The months of January and February were less than expected, and there’s a degree of paralysis until the rules are decided. Investors can only stomach so much. Just like if there were a new bank C.E.O., I’d say, all right, find the problems, bring them out in the open, deal with them. There’s a period of pain and transition, but then you have to get on with it.

It sounds like we’re at a critical juncture, here. Yes, this is a very critical juncture. You’re in a window here for a couple more months. We’ll make or break whether my bull case for banks plays out, or whether they wind up in a ditch. So you’re bullish on the banking sector? At the moment, I’m bullish on the banking sector. But, in the end, good economics is good politics. I think there’s enough collective pressure by corporate America to not fritter away this opportunity. It’s testing my conviction. I’m saying my earnings adjustments are at risk, because of the paralysis for business activity, but I still think you come out on the other side. It’s like when you take Amtrak: All aboard! So I’m shouting All aboard the bank train, but I’m also shouting, Mind the gap! One year from now, I think you’ll be in a good place, but it’s tricky over the next month or two, depending on how this policy stuff plays out. Especially in Europe. Boy, they were so pessimistic in Europe about what’s happening here from a policy standpoint. I guess what I’m saying is, Buy the chaos. Wow, that’s a bold statement. Well, you buy chaos, and you sell certainty. It’s what Warren Buffett says: When everyone else is freaking out, be the buyer. That looks good when it works out. It doesn’t look so good when it doesn’t. Having said that, the caveat is, don’t go on vacation for more than two days.

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