Unnamed: 0 int64 | symbol string | quarter int64 | year int64 | date string | company_name string | company_id float64 | text string |
|---|---|---|---|---|---|---|---|
4,800 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Ted Pick: Yeah, Ebrahim. I'll tag on to that. Deposit side, we're going to service clients across all three channels in wealth, the FA channel, the everyday transaction offering of cash plus type of offering in E*TRADE. We're going to continue to focus on checking accounts with competitive rates, integrating products into the client journey as they move along with E*TRADE to potentially a classic FA. And then as you know, we've been really banging the drum on workplace where we can partner with companies to reach employees. And on the loan side, as Sharon said, we've been growing loans steadily. The loans number in wealth, as you know, was about $80 million in the fourth quarter of '18, that's doubled to $160 million. We grew that every quarter in '24. We're a bank. We lend and we have to do that in the context of deepening relationships. We lend to about 16% of our households and the best-in-class peers are higher. They're 50% higher, mid-20s. So there's -- as Sharon has said, there is real opportunity. And then in ISG, where we've been growing the lending capability there too, up about 15% year-over-year. So there is real focus on this and upside. But there is also been, I think back to the concept of owning Morgan Stanley as a durable instrument that we are growing both deposits and loans in a smart way over the next five years, 10 years, you can expect these numbers to continue to move higher.
Operator: We'll move to our next question from Brennan Hawken with UBS.
Ted Pick: Good morning, Brennan.
Brennan Hawken: Hey, Ted. Good morning. How are you?
Ted Pick: Good. |
4,801 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Ted Pick: Good morning, Brennan.
Brennan Hawken: Hey, Ted. Good morning. How are you?
Ted Pick: Good.
Brennan Hawken: Would love to follow up on that -- some of that last discussion and talk about the loan growth because it seems like loan growth was -- the trends were better than certainly many were expecting last year. And it feels like given the expectation for capital markets reopening, improving risk appetites, we should continue to see that building momentum. Could you talk a little bit below the surface around what you're seeing on the loan side? You spoke to it at a really high level before, but I'd just love to drill down and hear what you're seeing more recently. And then where do you stand from a capability perspective, do you guys need to continue to build that out or do you feel like you're fully ramped from a competitive perspective? |
4,802 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Thanks, Brennan. I'll take that. As I mentioned in my prepared remarks, as you alluded to, what we saw, if you remember over the last -- since really interest rates when they began to rise, we saw a decline in the use of the SBL product. And we often actually saw an increase in paydowns. What's changed over the last – particularly, we noted it this quarter is, we've seen that pace of paydowns decline and then, we've actually seen an increased use of the lines. The important part there is, as you know probably better than anyone else is that, that product is one that is often generally used in periods of time by our clients when you actually see markets rise. And I wouldn't be surprised if we also begin to see it from a tax perspective as we enter the second part of the quarter. In terms of capabilities, excuse me, -- in terms of capabilities, I think we have the capabilities, there is clearly places you can still look from a tailored perspective. There is still capabilities when you think about the assets that we can move from an eligible perspective from the ISG side onto the bank. So it's a different portion of the question in terms of what we're doing from a legal entity perspective. But overall, I think we're very happy with what we have from the wealth management perspective and it's really about seeing the change in environment that should help the dynamics as we move forward to see that increase in loan growth.
Ted Pick: And I think integrated firm matters here because there is the ability for us now in our risk committee sessions to look at tailored lending as a form of sophisticated structured product that has some institutional qualities to it. So it's not so much the classic bifurcation of division-by-division, but more of a firm lens across what the commitments are at a time when we should see acceleration in both of the major sides of the house. |
4,803 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Brennan Hawken: That's interesting when thinking about utilizing the balance sheet. Thanks for that. I'm really sort of happy to ask this next question because of the focus on cash in the past year or so, and now I don't have to worry about drawing Sharon's ire when I ask about that. It seems like we're likely to have a pivot like, around cash trends. Like, we've got stability and even a little growth in the sweep. And when you think about prior easing cycles, what has -- how long has it taken before we see some of the recycling out of those yield oriented cash equivalents like CDs and money funds, which tend to be thinner margin into more market-oriented products that are higher margin? How should we be thinking about that timeline? Thanks. |
4,804 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Brennan, it might be the first time in two years that I'm excited to answer a sweeps question. I am really encouraged by the signs that we see on the underlying sweep dynamic. It often actually plays to the fact that there is a lot that our clients can do and a lot that our clients are interested in right now. You see that in the transactional level of activity and all of the underlying trends as it relates to sweeps are actually playing out in that increase in transactional. So if I can just break it down, what we see, right, we look at sweeps and we look at the underlying sweeps in multiple different layers. So how do you think about where the sweeps are going to products that are under one year? How do you look at sweeps in terms of products over one year in terms of fixed income and how do you look at sweeps going in and out of market? What you saw this particular quarter, which I found to be quite encouraging and fascinating in terms of the sentiment of the retail investor actually changing is that we saw a really strong increase of the flows moving from sweeps into market. So it's not as though they aren't using that cash to invest. They're just using that cash to look at it more transactionally to go into market and asset level products. That's point number one. Point number two is, you begin to see the fixed income products that were over one year mature and just sit there. So it's as though when you think about what is the retail client doing, they're waiting, they're getting those assets, they're letting it mature and it's just sitting in some sort of sweep product until they want to deploy those assets into the market. The final point is, you're just seeing less activity go into various types of cash alternatives. And in my mind, that just means that this cash, now that rates has come down, markets are going up, it feels to be somewhat more normalized. It's acting transactional, which is what we had always assumed there would be some level of transactional cash. And to your point, as |
4,805 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | transactional, which is what we had always assumed there would be some level of transactional cash. And to your point, as that rate differential goes down and it's no longer -- you can earn 5% from a cash product. There are places and decisions of what individuals want to do with that cash, they're letting it sit and they're using it to eventually invest in markets. And what you're seeing is that, that is actually taking place in the transactional line item. |
4,806 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Operator: We'll take our next question from Mike Mayo with Wells Fargo.
Ted Pick: Good morning, Mike.
Mike Mayo: Hi. Well, Ted, last quarter you were pretty built-up on the markets and some of that's playing out. But to how much are your backlogs up? Is our backlog a record? I'm not hearing record backlogs anymore here, up, but not record. I'm just wondering, how much you can monetize the backlogs that were in place in some cases, I guess, one, two, or three years ago? |
4,807 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Ted Pick: Yeah. Depending on how you measure it, whether volume or unit, number of units or sort of add value, you see pipelines in the M&A product that are the highest in seven years. So that is really encouraging. Now, some of this will be dependent on how things roll out in the first couple of months of the incoming administration and how things feel on a cross-border basis. But the pent-up activity that we're seeing is starting to release. You had saw some announcements going into the end of the year. You saw some very large capital raises that took place where enormous capacity was filled for great names over a weekend or over a 24 hour period. And that -- we haven't seen that since really 2020 and that was a totally different interest rate and backdrop context. So there is clearly demand even discussions for IPO potential, not just as an option versus selling to another sponsor or selling to a corporate, but in fact, a real option. So I am -- you're right, I've been bullish on this. It has taken some time and I think we will have some unpredictability around regulation in one jurisdiction versus another. But I think the demand to -- for some corporates to get bigger, to purify their businesses, given the deglobalization effect, given climate, given interest rate transition, they have things to do. And then again, the sponsors, they are looking to harvest some of these assets given where prices are and that sort of mismatch of expectations versus the reality of what the market is willing to pay for good companies, I think that's really starting to come together. And I would also say that the -- within the investment banking cylinder, i.e., M&A versus ECM versus DCM, that sub -- those sublines, as you know, have rotated over the last four, six quarters. A couple of quarters ago, it was a great ECM quarter. This past quarter was a DCM quarter, that also is healthy. It suggests the people in the treasury or CFO's office of large corporate clients are looking at all the toggles. So it is an activity-based |
4,808 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | people in the treasury or CFO's office of large corporate clients are looking at all the toggles. So it is an activity-based business and I think '25 as we move through the year, if we continue to have reasonably constructive markets and reasonably predictable interest rates and reasonable sort of geopolitical backdrop, I think we are going to see increasing activity as the year goes on. |
4,809 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Mike Mayo: So you said the best backlog in seven years was that for mergers or all investment bank?
Ted Pick: Largely the M&A number, Mike. Globally.
Mike Mayo: Okay. So yeah, that's a -- I guess, that would be a lagging driver to the whole capital markets theme. And for you guys, when you think of a multiplier...
Ted Pick: Yes. By the way, yes. Yes, on that, Mike. Exactly as you've been saying all along, that is the last piece. And there have been periods where it's sort of frustrating, stuff gets discussed at a sort of free Board approval level and then there's some unpredictability and it gets tabled. But the sort of the inventory around stuff that is idea flow that is a near announcement, that piece of it is increasing and it may not result ultimately in a merger ticket. It may actually turn into the company being carved out and taken public. But I think what we are increasingly confident about, again if the market and the economy holds up and those are -- those are ifs, but if they do, then you're going to see the entire corporate finance cylinder really kick into something that maybe looks like mid-90s activity classic corporate finance.
Sharon Yeshaya: Operator, can you hear us? We can move on to the next question.
Operator: Steven, your line is now open. We'll take our next question from Steven Chubak with Wolfe Research.
Ted Pick: Good morning, Steven. Thanks, and good morning.
Steven Chubak: Good morning, Ted. Good morning, Sharon.
Sharon Yeshaya: Good morning.
Steven Chubak: So, one is that -- wanted to ask on the 30% wealth management margin target. Just taking a step back, you're already running at 29% on a core basis. Sharon, you cited a number of headwinds in the coming year, whether it's just NII inflecting AUM growth, capital markets fee tailwinds. I'm just trying to understand what would preclude you from getting to that goal this year. And why isn't the longer-term aspiration something north of 30 just given significant operating leverage in this model at scale? |
4,810 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: So I'll take that, Steve. I just juxtaposed this call to where we were a year ago and a lot of the conversations, obviously, as you think about the change in the rate environment, but then also very importantly, the change in the asset management fee revenues. That has been a very large contributor to the point that you're making where we've seen the fee-based increase, we've seen the AUM and then we've seen the revenues. But I don't want to lose sight of the fact that we're investing in this business and that investment is very important. We've always said over the course of the last five years, we can get to 30%, but we don't want to starve the business. We want to do it in a durable manner. And we want to make sure that we are able to invest specifically in the places that might be margin dilutive. Those are workplace. There are different parts of marketing and investment in the sales cycle as you think about self-directed. Putting money towards the top of the funnel, putting money towards technology that actually helps match places where you have the top of the funnel into the advisor-led channel. All of that's working. So the last thing one would want to do is, put a target out there, see a change in dynamics associated with all of a sudden markets go down or there is some shock that we're unaware of, you're unable to meet those targets and you pull back investments, that's not how we want to run this. As Ted said in his prepared remarks, the word across this entire -- these scripts is durable. We're looking for durable margins. We're looking for durable growth. We're looking for durable returns. All of that comes into play as we think about the actual investment in the business over time. |
4,811 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Ted Pick: Yeah. And what I would add to that is, the extraordinary performance of -- well, you just look at the fact that revenues grew by 8% year-over-year, but PBT grew by 19%. So that is -- that's the kind of progress against larger numbers that we are excited to see and a full contribution to the firm outcome.
Steven Chubak: No. That's great to hear. Just one quick follow-up, Sharon. You referenced the recently announced partnership with Carta. And I was hoping to double-click into some of the tangible financial benefits from leveraging that partnership. Just given the number of planned participants, it's been pretty stagnant over the last few quarters, but certainly feels as though this could be a potential accelerant, maybe help reinvigorate growth within that channel. |
4,812 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Yeah. So let me just first -- I'll take the second part of your question first because there is some stuff to unpack when you actually look at the underlying participants. We have talked about and we've seen -- we will see a transition from some of the stock sale plants that we have sold and announced both in Europe and in Asia, that are associated with the actual participants. So I just want to be clear that -- there are other underlying factors in there. The other point that I would mention is, we have not been in a cycle in which -- especially over the last two years that you've seen a lot of monetization events. And so you have changes really in the workforce dynamics for many of these companies where you might have seen headcount reductions, you might have seen acquisitions in which some of those stock plan participants decline. I don't want you to read into that as though there is not investment or it's not growing because we continue to meet win mandates and we continue to have expanded corporate relationships. So that's important as we talk about where are we investing. We are investing and we're seeing progress as we continue to have greater breadth of corporates that we service within the United States in particular. Now as it relates to Carta and I'm glad you mentioned and asked the question is that's a really exciting partnership, especially, as the capital market cycle turns. So as you're likely aware, Carta does service the private companies in particular. And what we have now done and the relationship that we announced at the end of last year was that we have an exclusive partnership with Carta, which means that they will refer those private -- different stock plans or different corporate companies to Morgan Stanley as they move into going public. It's really exciting for many reasons, not just the opportunities on the wealth side, but also as Ted talked a lot about is the integrated firm. So there is a lot of places to build out those relationships as those companies are going |
4,813 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | a lot about is the integrated firm. So there is a lot of places to build out those relationships as those companies are going through that transition. Moreover, what we are committed to doing as we go through that transition is to make sure that it's a seamless experience for those clients. As you know, we already do service individually some of those private companies. As they move public, they'll have that seamless experience both from a Carta referral perspective and even what we see that's currently on the books. |
4,814 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Operator: We'll move to our next question from Christian Bolu with Autonomous.
Ted Pick: Good morning, Christian.
Christian Bolu: Good morning, Ted and Sharon. Maybe on Wealth Management organic growth, first of all. So if I look at flows over the last three years, total flows have been somewhat short of that sort of $1 trillion target and have been at the lower end of your 5% to 7% organic growth target. So maybe just talk through how you think about the ability to accelerate organic growth going forward and then maybe confidence level in that $1 trillion target?
Sharon Yeshaya: So what I would like to note here is, this is a really I think in the environment that we've been in the last two years, I think, this is a remarkable outcome. Especially, if you look and you compare it to our peer set and anyone who's been able to actually aggregate assets were best-in-class. And a lot of that best-in-class has to do with the fact that -- and I mentioned this in my prepared remarks, the vast majority of the assets, the new assets that we're seeing over the course of this last year has been on the advisor-led channel. And we've talked about some of the headwinds that are going from a cyclical perspective that I think are beginning to abate. And those have been spending of money, you're necessarily -- not necessarily seeing as much money in motion and you aren't seeing monetization events from workplace corporates. So you add the self-directed channel, you're not necessarily seeing as much money coming in. From the workplace side, you're not necessarily seeing monetization events. So people aren't getting that cash, you're not seeing companies going public. Those things are beginning to turn. And so this -- these results were really led from the advisor-led channel from new clients and existing clients, new clients being really important. And so, I think that there is a lot of opportunity there in terms of the 5% to 7%. |
4,815 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Ted Pick: Yeah. What I'd add to that, Christian, is sort of a big picture answer and a little picture answer. My little picture answer would be just taking a look again at Slide 9, fee-based flows. That is the -- that's sort of the core of the funnel. And we've been talking about that every quarter, and Jed Finn running well very much has been focused on that too. And you see that the number just continues to move. $109 billion last year or two years ago, $123 billion in 2024. So fee-based flows, that's kind of the ultimate outcome. And you see that we are seeing this incremental activity now in the self-directed product from clients who they kind of -- have the kind of experience that we talk about when they make their way to a financial advisor, it could prove very sticky. My big picture observation though would be, one, and I know you know this, but by way of sort of a reminder, just given what's happened in the market over the last year of when we did this call a year ago, the combined assets for wealth and investment management stood at $6.6 trillion. And as you know, we said we're going to get to $10 trillion and we're going to keep going. And in a year, we've gone from $6.6 trillion to $7.9 trillion. So that is a $1.3 trillion in a year. Now, of course, we've had the kind of markets that are -- take asset prices higher, but that I think speaks for itself in terms of our ability to continue to stay on what really is what I would have folks paying attention to, which is just this commitment to get to $10 trillion. And whether that takes X years or X plus one year or X plus two years, we want to get the kind of assets that ultimately work their way through the funnel and you say, well, what's the KPI there? And I'd say, the KPI there is going back to Slide 9, which is are we increasing the TAM of relationships and are we doing that across the financial advisory of lever through workplace and through self-directed? Are we doing it all three? The answer is, yes. Are we seeing enough net new assets that it's |
4,816 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | and through self-directed? Are we doing it all three? The answer is, yes. Are we seeing enough net new assets that it's actually material and clearly at $250 per annum, that is a material number? And then how are we doing on that which you can model on a multiple -- a nice multiple on, which is fee-based flows, and there it is on the right. So I'm less wrapped around the axle on whether we are at 700 or 800 versus $1.23 trillion in a given three year period and more focused on sort of the composition of the funnel and that the assets are growing materially, but that ultimately we are translating that across a broader number of clients, again, $19 million plus and that ultimately, at least for some of them translates into financial advisory fee-based flows and that's the right side. So that's kind of the way we're thinking about it, Christian, in the context now of the integrated firm. |
4,817 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Christian Bolu: Okay. Very fair. Thanks for the full answer. Maybe another quick one here on just comp leverage, very strong expense, especially in ISG comp. And I'm sorry if I missed this in the prepared remarks, but is the 2024 full year ISG comp ratio of 31% kind of a good place to run going forward, obviously, as you mean, revenue continues to grow?
Sharon Yeshaya: Yeah. Obviously, Christian, as you can tell, we look at comp on a full year basis and you did have the outperformance as it relates to the revenue in the fourth quarter on a relative basis. And so you do see changes within that comp. We don't give full year guidance specifically on one expense line. We manage the company holistically. When we think about our expenses, we're looking at our overall efficiency of the firm. And what I would pay attention to is on the last page of the targets, the 70% efficiency ratio goal that we've stated over the long-term.
Ted Pick: And what I'd add to that is, listen, we're running a talent business. And so we pay for performance and performance comes in sort of the upside for our partners comes in two forms. One is through compensation over many years, which is why tenure matters. And of course, total return in stock ownership, which is, as you know, a critical part of our partner compensation, so that is the thinking. Of course, when you have good years, you experience some operating leverage in comp of which then flows to the bottom line. In tougher years, as you know, the comp ratio moves higher. What we did do in 2023 in the second half was some of the tough work around calling and doing some lateral work and that obviously has the -- if it's done right, both enhances the efficiency of the income statement, but also allows for some incremental productivity on the top line of those bankers and traders and salespeople and structures and risk management folks as they begin to kind of gestate over the two, three years after that. So we feel like we came out at a good place there. |
4,818 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Operator: Thank you. [Operator Instructions] We'll move to Devin Ryan with Citizens JMP.
Ted Pick: Hey, Devin.
Devin Ryan: Thanks so much. Hey, Ted. Hey, Sharon. I just have one on Investment Management. Slide 12, you lay out, your parametric has been a great success story in the alternatives bucket. In investment management, overall, it's still less than 10% of firmwide revenue. And I know the Alts (ph) bucket specifically is an area of focus, but I'm curious areas like private equity, private credit, there is a lot of secular growth there. I know you have ambitions to grow private credit, but how do you think about that becoming a larger strategic piece of Morgan Stanley? And what's the appetite there to maybe do acquisitions to step function or accelerate that? |
4,819 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: So when we look at -- what I would focus you on as we think about investment management more broadly is the fact that, as you know, we are looking to create a diversified platform and we obviously were able to do that, as you mentioned, through acquisitions. And specifically through the acquisition of Eaton Vance when we think about both Parametric and a lot of the fixed income products. We're beginning to see a lot of reaping of those synergies across the more -- the wealth management business, across MSIM, and across all of the initiatives that we laid out at the beginning. So remember, what we said is, we thought we -- there was more to do on Parametric, specifically on the retail side, that's working. We're seeing increased participation from our FAs, retail clients, and even asset managers to leverage that parametric product. We have also noted that we plan to think about things like fixed-income and use fixed-income and see international distribution, that was evidenced this quarter. A lot of the flows that we saw there have to do with international distribution. So the synergies themselves are working already. I think there is much more to do just on bringing the two franchises together. And as we see continued investment with different parts of private credit, different parts of private equity, different parts of infrastructure, we will take part in those secular growth trends as they move forward.
Operator: We'll move to our next question from Dan Fannon with Jefferies.
Ted Pick: Good morning, Dan.
Daniel Fannon: Thanks. Good morning. One more question just on wealth. Can you talk about advisor retention, kind of recruitment, and backlogs here? And then you used to talk about the companion accounts within wealth and workplace. So curious if there is any update on where that sits and some of the progress you're seeing within that initiative. |
4,820 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Yeah, I'll take that. So in terms of the workplace in general and how we're beginning to see the transitions in the companion accounts. What I would focus you on is companion accounts were something that we were looking at the beginning of time when we had put together the E*TRADE and the Morgan Stanley platforms, that integration is largely complete. What we're more focused now is actually better understanding the channel migration. And those are the numbers and statistics that we've been giving over the last couple of calls more specifically. So what I mean by channel migration is, we have workplace assets that began at some point in workplace and we're seeing them move into the advisor-led concept. Over the last five years or so, since 2020, we've seen $300 billion coming and initiating at some point from workplace and moving into that advisor-led channel, that has been a big part of the move towards first transactional and then that movement from transactional flows into fee-based. So those are more of the metrics that I'd point you to on the forward when we think about being able to mark ourselves to market from a funnel perspective.
Operator: We'll take our last question from Gerard Cassidy with RBC.
Ted Pick: Good morning, Gerard.
Gerard Cassidy: Thank you. Hi, Ted. Thank you. Can you guys share with us -- we share -- many investors -- many of us share your optimism on the outlook for Morgan Stanley in the business? Can you share with us the risk aside from the obvious geopolitical risks globally, what risks or curveballs are you guys trying to keep your eyes on for this year? Because again things do look very good for yourselves and others. But what are some of the risks you guys talk about on a regular basis? |
4,821 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: So needless to say, we're constantly running a number of stress tests as you think about the risks, geopolitical macro in nature, counterparty risks and that's been a lot of the focus when you think about the velocity of the balance sheet and all of the capital metrics that we have is making sure that we're in a position to constantly refresh. And look, when we think about -- if you look back at any of the episodes that we've talked about and then a lot of the risks that we've learned, we are constantly thinking about where are there tall trees. How do you see the velocity of different positions that you have? So it's very hard to pin down and say, well, what match risk have you not necessarily solved for because generally speaking, there is something brand new that one -- I don't know that anyone knew that there would be a global pandemic, right? But the underlying risk of what does the global pandemic mean, you think about even the risk that you might have seen over the course of this quarter. You have an election, we don't know what's going to happen with the election. None of us knew what would necessarily happen with the election. You look at the risks, you look at tall trees, you think about being able to bring down, what can you bring down quickly and how do you think about velocity? And then how do you run scenarios? What does it mean for higher rates? What does it mean for lower rates? And we look at different geographical exposures as well to try and better understand how we can manage all of that dynamism as you move forward. |
4,822 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Ted Pick: I guess, what I'd add to that, Gerard, is most of the risks that we have been looking at in this period are -- and Sharon kind of went through a whole panoply of them, they are largely in the buckets of either the implications or the reality of regime change around interest rates that the period of zero interest rates and zero inflation is now passed and that this hot coal that we feel are now tilted more towards inflation. And if there was a downside risk, it would be something that felt more stagflationary that we are running risk scenarios around that, then there might be periods when it feels a little colder again. And that is all sort of imputed in the language of interest rate policy around the world. So that's sort of bucket one, the end of financial repression. And then bucket two is the geopolitical uncertainty and tension that we're seeing that has built over the last number of years and will continue. And that's important to us because, of course, we're running a global business. So there may be places where there are re-equitization opportunities. There may be places where there is outsized risk in behalf of clients and we have to navigate that as well. So those are the two major buckets, I think, of our time. And that is why it's so important that we were able to put up a quarter that concluded a year where we had the kind of consistency we had on the top line, on the bottom line. We can't undertake that, that will be the case in every market context. But if you think about the year we just had, there were multiple years within that year. And the fact that the enterprise through the businesses we're in was able to generate that kind of consistency on the top and bottom line, I think augurs well for a period where we think all things being equal, the denominator of opportunities should improve.
Operator: There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you everyone for participating. You may now disconnect and have a great day. |
4,823 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Operator: Good morning. Welcome to Morgan Stanley's Third Quarter 2024 Earnings Call. On behalf of Morgan Stanley, I will begin the call with the following information and disclaimers. This call is being recorded. During today's presentation, we will refer to our earnings release and financial supplement, copies of which are available at morganstanley.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Morgan Stanley does not undertake to update the forward-looking statements in this discussion. Please refer to our notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release. This presentation may not be duplicated or reproduced without our consent. I will now turn the call over to Chief Executive Officer, Ted Pick. |
4,824 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Ted Pick: Good morning, and thank you for joining us. In the third quarter, Morgan Stanley delivered strong revenues of $15.4 billion, $3 billion of net income and a 17.5% return on tangible. The results reflect top-line growth across our businesses and demonstrate operating leverage. Year-to-date results reflect the firm's ability to generate consistent quarterly performance, $15 billion of revenues, sequential EPS of $2.02, $1.82, and $1.88, and year-to-date returns on tangible of 18%. Across the firm, we advanced toward our strategic goals while continuing to invest in growth. We are delivering on asset aggregation by leveraging our unique platform and scale in Wealth and Investment Management. Through the first nine months, we achieved $200 billion of organic growth. It's worth noting that over the last year, total client assets are up almost $1.4 trillion. Total client assets across Wealth and Investment Management have now reached $7.6 trillion, on the road to $10 trillion. Our strategic investments across the Integrated Investment Bank are reflected through share gains in our Institutional franchise. The breadth and depth of our global team working seamlessly across all three regions was evident through the summer and post Labor Day, as we helped clients navigate volatility against economic and policy uncertainty. As a whole, the Integrated Firm is achieving operating leverage with our year-to-date efficiency ratio improving by approximately 300 basis points to 72%. We have achieved this while continuing to thoughtfully invest across business and infrastructure priorities. Institutional and individual clients are engaged and we are well-positioned to capture opportunities against different market condition backdrops. Strong fee-based flows in Wealth and the strong performance in Institutional Securities speak to clients seeking Morgan Stanley's advice. Improved underwriting markets combined with increasing participation among financial sponsors and corporates across Investment Banking support a |
4,825 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | markets combined with increasing participation among financial sponsors and corporates across Investment Banking support a constructive outlook. A broadening equity market and evolving interest rate policy are favorable backdrops for our markets businesses. Continued individual client focus on tax customization strategies are a tailwind for our Parametric business inside Investment Management. Now, with three quarters of 2024 on the board, we are striking a cadence that we will execute against. Our team is unified across the four pillars of: strategy, culture, financial strength and growth. Morgan Stanley's strategy is to raise, manage and allocate capital for institutions and individuals. We will continue to execute on this strategy with a culture of rigor, humility and partnership. And with high levels of capital and liquidity, Morgan Stanley will continue to execute on a plan of durable growth across our Integrated Firm. Sharon will now take us through the quarter. Nice job, SY. |
4,826 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Thank you, and good morning. The firm produced revenues of $15.4 billion in the third quarter. Our EPS was $1.88, and our ROTCE was 17.5%. Results in the third quarter show the inherent strengths of our business model and our ability to grow revenues while also driving profitability. The firm's year-to-date efficiency ratio was 72%. In addition to strong revenue growth, efficiency gains are the result of disciplined prioritization of our controllable spend. An ongoing review of our real estate footprint as well as lower litigation and consulting spend contributed to this year's operating leverage while maintaining strong infrastructure to support ongoing growth. Now, to the businesses. Institutional Securities revenues were $6.8 billion. Notwithstanding advisory and equity underwriting markets remaining below historical averages, the segment's revenues represented a near record third quarter. Performance accelerated towards the end of the quarter and was driven by the benefits of scale and the global reach of our Integrated Investment Bank. Activity outside the U.S. drove the segment's outperformance relative to historical averages. Our global footprint positioned us well to capture share. As risk events around the world drove activity, including the Bank of Japan's monetary policy changes, shifting expectations around the size and the timing of the Fed's first rate cut and China's announced stimulus, we supported our clients. Investment Banking revenues increased to $1.5 billion. The year-over-year improvement was driven by continued strength in underwriting, led by debt underwriting, and further aided by a pickup in advisory revenues. Steady improvements in corporate and sponsor activity as well as our investments in talent and client relationships are yielding results. Advisory revenues of $546 million increased year-over-year on modestly higher completed M&A transactions in the quarter, with particular strength in EMEA. Large fee events from closed deals in EMEA, including those involving |
4,827 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | in the quarter, with particular strength in EMEA. Large fee events from closed deals in EMEA, including those involving financial sponsors, supported the strongest quarter in over a decade for the region. Equity underwriting revenues were $362 million. While global market volumes remain well below historical trend lines, revenues were higher year-over-year, with a notable pickup of activity in Asia, driven by IPOs and follow-ons. Fixed income underwriting revenues more than doubled versus the prior year to $555 million. Results were driven by strong non-investment grade issuance, supported by both refinancing and event-driven activity, as well as a record third quarter volumes in the investment grade market. Pipelines are healthy and diverse. We continue to believe we are in the early stages of a multi-year capital markets recovery. Corporate activity is gaining momentum, and the desire among sponsors to transact is steadily materializing, not only domestically but also abroad. While we are cognizant of the broader macroeconomic risks at play, we are well-positioned to deliver the Integrated Firm with a deliberate focus on comprehensive solutions for our global clients. Equity revenues were robust at $3 billion. The business navigated bouts of market volatility well and remained nimble as we supported clients, in particular, performance in the Americas and Asia was strong. Prime brokerage revenues were above historical averages, as client balances, once again, reached a new peak, driven by higher equity markets. Cash results improved versus the prior year, reflecting higher volumes across the regions. Derivative results were also up year-over-year, reflecting an increase in client activity coupled with an improved trading environment in Asia associated with China's announced stimulus in the final weeks of September. Fixed income revenues were $2 billion, driven by strength in macro, particularly rates, largely offset by results in commodities that were stronger in the prior year. Results reflect solid |
4,828 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | macro, particularly rates, largely offset by results in commodities that were stronger in the prior year. Results reflect solid performance in EMEA and Asia, as well as a coordinated global effort to support clients through periods of volatility. Macro revenues increased versus the prior year, attributed to higher client engagement as our rates business navigated the markets well amid shifting expectations around the size and the timing of the Fed's first rate cut. Micro results were roughly flat year-over-year. Results in commodities declined compared to the strong prior year, which benefited from elevated volatility in energy markets. Turning to ISG lending and provision. In the quarter, ISG provisions were $68 million, driven by portfolio growth, partially offset by an improved outlook. Net charge-offs were $100 million in the commercial real estate and corporate loans. Turning to Wealth Management. In the third quarter, the business produced a record revenue of $7.3 billion and record PBT, highlighting the model's strong operating leverage. Strength in Wealth Management reflects a combination of constructive markets and a disciplined execution of our strategy. Client assets in Wealth Management reached $6 trillion. Fee-based flows were strong, demonstrating the power of our scaled and differentiated client acquisition funnel and the value of advice. Our multichannel model is driving durable long-term growth and profitability, benefiting from continued investments in our expanded offering and technology. Moving on to our business metrics. Pre-tax profits of $2.1 billion drove the margin to 28.3%. In the quarter, DCP negatively impacted the margin by approximately 90 basis points. Asset management revenues were $4.3 billion, up 18% year-over-year, driven by the cumulative impact of positive fee-based flows and higher markets. Fee-based flows in the quarter were robust at $36 billion and year-to-date flows are on pace to exceed last year, supported by an ongoing contribution of assets from advisor-led brokerage |
4,829 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | year-to-date flows are on pace to exceed last year, supported by an ongoing contribution of assets from advisor-led brokerage accounts to fee-based accounts. Clients are diversifying fee-based accounts to include fixed income and alternative products. Fee-based assets now stand at $2.3 trillion. Net new assets were $64 billion, bringing year-to-date net new assets to $195 billion, which represents 5% annualized growth of beginning period assets. Net new assets in the quarter were supported by our advisor-led and workplace channels, with a notable contribution from new clients in the advisor-led channel. Transactional revenues were $1.1 billion, and excluding the impact of DCP, were up 10% year-over-year. Overall, higher levels of client activity supported results. Loan growth was $4 billion for the second consecutive quarter, driven by mortgages. Total deposits increased sequentially to $358 billion. While average sweeps were down slightly, the recent stabilization, particularly -- we've seen recent signs of stabilization, particularly as the Fed began cutting rates. This is encouraging. Net interest income was $1.8 billion. Looking ahead to the fourth quarter, we would expect NII to be modestly down from the third quarter results, largely on the back of lower rate expectations, consistent with the forward curve. We are committed to continuing to execute as the opportunity in front of us remains significant. We currently touch 19 million relationships, 1.3 million more than last year. Our expanded offering includes unique market access for high-net-worth clients across a broad range of alternative products and, more recently, robust private market services, which continues to attract demand. We are investing in our intellectual capital, unique products and an integrated infrastructure to help our advisors serve their clients. Turning to Investment Management. Revenues of $1.5 billion increased 9% compared to the prior year. Results reflect higher asset management and related fees, which increased 5% |
4,830 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | billion increased 9% compared to the prior year. Results reflect higher asset management and related fees, which increased 5% year-over-year, driven by higher average AUM. Long-term net flows were approximately $7 billion. Inflows were primarily driven by continued demand in alternatives and solutions, and were further supported by our fixed income strategies. Since the acquisition of Eaton Vance within alternatives and solutions, Parametric customized portfolios have been a consistent source of strength. Our multi-year investments into Investment Management's partnership with Wealth Management includes initiatives around advisor education on our tax-efficient product capabilities. This has helped drive steady demand originating from our own Wealth Management clients as well as the broader retail base. Liquidity and overlay services had inflows of $9.3 billion, led by our Parametric overlay strategies. Performance-based income and other revenues were $71 million. Results supported gains in infrastructure and real estate. MSIM's total AUM now stands at $1.6 trillion. Our investments in customization and alternatives are showing returns, demonstrated by positive long-term flows this quarter. We continue to invest in secular growth products in order to meet global client demand. Turning to the balance sheet. Total spot assets grew to $1.3 trillion. Standardized RWAs increased sequentially to $490 billion, as we actively supported clients. We accreted approximately $2 billion of Common Tier 1 capital. Our standardized CET1 ratio stands at 15.1%. We continue to deliver on our commitment to the dividend, which we raised to $0.925 per quarter in this quarter, and we bought back $750 million of common stock during the quarter. Our year-to-date results serve as hard evidence that we are executing on the opportunity set, benefiting from being global and diversified with the resources to invest in growth. Across Wealth and Investment Management, we reached $7.6 trillion of total client assets. Expanding markets and |
4,831 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | in growth. Across Wealth and Investment Management, we reached $7.6 trillion of total client assets. Expanding markets and increased client engagement should further support asset growth as we progress toward $10 trillion in client assets. With that, we will now open the line up to questions. |
4,832 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Operator: We are now ready to take any questions. [Operator Instructions] We'll take our first question from Steven Chubak with Wolfe Research.
Steven Chubak: Hi, good morning.
Sharon Yeshaya: Hey, good morning, Steve.
Ted Pick: Good morning, Steve.
Steven Chubak: Ted. Hey, Sharon. How are you both doing? So, wanted to start off with just a question on op leverage. You noted that the management team has been very focused on driving more efficiency. We're definitely seeing now on the ISG side, 75% incremental margins, even in Wealth, you're delivering 35% incremental margins. Just wanted to gauge the sustainability of some of those higher-marginal margins, just given some of the efforts you cited on the efficiency side while continuing to invest for growth? |
4,833 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Certainly. Thank you for the question, and thank you for noting the progress. We have been really focused on this over the course of the year, and I'd say that it's not -- the intention has not been to be shortsighted, but rather to take a very long-term lens as we think about efficiency. Over the course of this spring, we began to look not only at one-year budget, but really two- to three-year outlook, not just about revenues, but also understanding where are the efficiencies that we have to gain and where can we consolidate certain investments in order to make room for what would be investments in growth. I highlighted occupancy, because that's one that's notable in the SEC disclosures. You'll see that over the course of the year-to-date-to-year-to-date basis, so that line item has really only increased about $11 million. And we've made a lot of room to invest in optimization of the space, but also investments of space. You think about data centers, you think about new buildings, you think about new technology and new places that you think need to be used for occupancy. So, there is a way that we're thinking about self-funding. Same goes for a decline in professional services. Some of that was related to -- remember, we were going through many years of integration, and while we stopped disclosing on an integration basis, there were still places that we thought that we could augment what we were looking at from a professional service basis and where we were thinking about long-term gains. On the other side of that, you've seen increases in places like BC&E, because we have been in a position where we've been supporting our clients. We're also making space investing in the infrastructure as we think about the growth that we have going forward. Some of that just has to do with cyber resilience, thing that you would expect us to do as we grow the business going forward. But we're also looking at places where we're investing for FAs, new products, new technology that can give them space to go and |
4,834 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | But we're also looking at places where we're investing for FAs, new products, new technology that can give them space to go and prosecute new clients, which you see in our net new assets the course of the quarter. And broadly, as you think about risk and controls, you need to make sure that you have all of the right, like I said, infrastructure, really the foundation and the building blocks so that when you have growth, you're able to support it on a go-forward basis. So, we've been looking at it from both sides, Steve, and it is a multi-year process, and we would continue to do that not just in this business cycle and this budget cycle, but as we go forward over multiple years. |
4,835 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Steven Chubak: Thanks for all that perspective, Sharon. And maybe just for a quick follow-up, on the Wealth business, the KPIs were quite strong across the board, clearly reflects very strong momentum in the third quarter, especially in September. Just wanted to better understand what -- if there were any idiosyncratic factors that maybe drove some of that strength. Inevitably, when you see that type of momentum, it begs the question as to how durable or sustainable some of those KPIs might be and especially focused on just the growth in sweep deposits, which was certainly a nice surprise?
Sharon Yeshaya: Yeah. Specifically, I'd say actually all the KPIs and all the underlying is strong, sweeps being one that I called out as the deposit trends are certainly encouraging, especially since the Fed began to cut rates. We've seen that over the back end of September and even as we look into the beginning of the fourth quarter on a relative basis in terms of expectations. So, that has been positive. The underlying for me on all of the asset growth, both on NNA as well as fee-based assets, there's not one particular driver, but rather you've seen the advice-based side really picking up. You've seen clients and FAs engage. There continues to be investments into markets on a monthly level from brokerage sweeps, which you didn't see last year. So, needless to say, the markets are improving. You're seeing momentum in the economy. Uncertainties are lifting and retail clients are engaged both from seeking advice but also coming to the platform as new clients, which I think is a particularly good trend to watch.
Operator: Our next question comes from the line of Ebrahim Poonawala with Bank of America.
Ted Pick: Hey, Ebrahim. |
4,836 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Operator: Our next question comes from the line of Ebrahim Poonawala with Bank of America.
Ted Pick: Hey, Ebrahim.
Ebrahim Poonawala: Hey, good morning, Ted. I guess, maybe just first question on capital priorities. Just talk to us in terms of how you're thinking about the capital ratio today in context of -- we're still waiting for the Basel re-proposal, but more importantly, I think the history of the last 10 years has been excellent capital allocation organic or inorganic. As you're looking at the world today, Ted, where are you deploying capital? Where are the best investment opportunities? Is it in market? Is it in wealth? Is it in international? Would love to get your perspective. |
4,837 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Ted Pick: Thanks for the question. As you know, we're at 15.1% CET1. The new number is 13.5%. So, our buffer is 160 basis points. We like that buffer. It gives us room to operate. You saw that we had some risk-weighted asset increase, but we still managed to keep the ratios at 15%-plus. So, there's a story here, which is to continue to price best-in-class financial strength along the lines of capital and liquidity, but also to lean into the businesses as the market opportunity affords. We did that clearly in both businesses. You saw it in the Investment Bank, where we gained share across the primary and both markets businesses, but you also saw it in Wealth Management, some of the technology spend that Sharon described. In the sort of forced hierarchy of what we would wish to do at any given moment around capital allocation, as we said before, it's the dividend first that is sacrosanct and we continue to grow it. Second here, because of the secular growth and where we are in the cycle, as Sharon just described, there is a good cause to be investing in all three segments, Wealth Management, Investment Management and the Investment Bank, and to do so across the world. We're clearly seeing rates of equitization increasing in places like Japan and India and on the continent. So, having a global franchise and investing in that, we think is existentially important. And then, the buyback is opportunistic. We'll be buying back $3 billion-plus this year, as that's an ongoing lever that we're going to pull. Of course, the Basel uncertainty likely lasts through the election and we have our points of advocacy that are aligned with the industry, but also those things that matter very much to Morgan Stanley specifically. And we're going to continue to make our case concertedly, respectfully, and we'll see how it plays out after the election. But as it stands now, 160 basis points of buffer on CET1, 5.5% SLR, we are investing in the business, we're achieving operating leverage. So, these things are always a movable feast, but |
4,838 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | SLR, we are investing in the business, we're achieving operating leverage. So, these things are always a movable feast, but we are keeping a very close eye on it and we're happy with how we're optimizing the allocation. |
4,839 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Ebrahim Poonawala: Got it. And one quick follow-up for you, Sharon, on sweep deposits, NII, all that good stuff. Just as we think about rate cuts, clients kind of -- maybe serving a trigger event for clients to reallocate how they'd invest. Is the NII, give or take, close to a bottom because of a certain level of sort of -- I think you've talked in the past about cash balances that clients have maintained. Are we close to that? And if we get QT maybe before the end of the year, could those deposit balances potentially have one less headwind and as a result grow looking into next year despite rate cuts? |
4,840 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Sure. So, let me take the last part of your question first just to be clear. QT hasn't really been a driver for us. I'd say that's more for a commercial bank. So, in either direction, I don't think it has to do with a decline or an increase. So, I'd put that aside, because our deposit base is just slightly different. When we look at where we've been and the types of language that we've used historically, I'd say that just to put it in context, the rate environment has changed. It's changed since the second quarter and I'd say it's changed pretty materially. So, we don't have control as we all know in terms of where interest rates are going. What I can speak to is where we are from a deposit level. And as I said, the trends that we've seen are extremely encouraging. If you think about where we've come from and where we are over the course of the last couple of weeks, especially when the Fed -- ever since the Fed has cut interest rates. The near-term guidance that I gave is that we will likely be modestly down over the course -- on a quarter-over-quarter basis. And where we will be as we look into 2025, I think we will re-evaluate based on where sweeps are, one, but more importantly, on the forward, is likely where interest rates are, which will be a function of what does the Fed do in November, what does it do in December, and what is the path for '25 when we sit at the beginning of January. But I just want to put a little bit of perspective around the conversations that we've had about sweeps and NII over the course of the last couple of years. I understand that it's been a very important topic for investors, especially when you think about sweeps, in particular. But sweeps, as I said, have been, to some degree, stabilizing. And when you look at NII for Morgan Stanley, on a relative basis, think about where we were last year in the third quarter. The delta between NII this quarter and last quarter is $175 million. We make $100 million a day in this business every single day. And so, I think that |
4,841 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | quarter and last quarter is $175 million. We make $100 million a day in this business every single day. And so, I think that we really need to begin to think about what is the model, what are we thinking about and how are we executing in the model. Asset management fee-based revenues, that increase this year, is double the decline of NII. So, we just need to gain a bit of perspective now that we see where sweeps are, that the markets are coming back and that we continue to see asset management fees rise and that is the durable revenue and what we expect to see from this business model as we move forward. |
4,842 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Operator: Our next question comes from Glenn Schorr with Evercore.
Ted Pick: Hey, Glenn.
Glenn Schorr: Hi. Hello there. Okay. So, with RWA up 10%, I had assumed that it was trading and client-led with PB balances at record highs and it comes with a bar that's actually down a little bit. So, I'm curious, do you think that ebbs and flows with just the environment, or is there some of the -- your capital plan continue to feed this great client franchise across markets? And I'll just ask the follow-up with it, because I think it goes together better. With all of that, Wealth hasn't -- now that you've made a lot of investments, Wealth doesn't need a lot more capital infusion if you will. Based on how you're going about your capital plan, do you envision any material shifts in literally business mix? We've gotten all very accustomed and used to a big percentage of this company being asset and wealth management. Thanks for both of those. |
4,843 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Sure. Let me take them backwards, Glenn, just so I'll talk to Wealth. Wealth sees a steady -- a very small but steady increase when you look back in history associated with RWAs. And a lot of that just has to do with the lending growth. And as we think about greater household penetration, greater usage of those products by FAs and offering that to our client base, that will probably -- that's kind of where you'll see that capital allocation as we move forward. When you think about ISG though and the RWAs has been implemented in the business there, if you look at the loans and lending commitments, you'll see that where we've actually seen a lot of the growth is really on corporates. And a lot of that underlying is corporates, and all of the FSL, so the FID Secured Lending. That is inherent to the Integrated Investment Bank and the Integrated Firm. We have said over the course of the last two years that we expect this to be a Investment Banking-led recovery. We've also said and we've invested in individuals. And when you think about talent in terms of the Investment Bank more broadly, that's where you're seeing the RWAs being put to work. And that's actually also where you're seeing the results, right? That's where you're seeing an increase in DCM, an increase in different parts of the balance of fixed income coming from more lending durable financing revenue. So, it's very much alongside what we're thinking about the stabilization and the durability of the Investment Bank rather than something that's necessarily more episodic. Of course, it will ebb and flow as you see deals and transactions and that environment for those corporates, but that's how I would think about it broadly. |
4,844 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Ted Pick: Yeah. What I'd add to that is what is important, too, as you look through the metrics, Glenn, is that the revenues in the Investment Bank are up 20% year-over-year and roughly flat down 2% sequentially, but in that same period, the trading bar, the value of risk across the Investment Bank is running flattish. And that is -- in fact, it's slightly down. So, we were able to put up some real operating leverage without taking up the underlying measured risk in the business, which speaks to sort of the type of durable revenue model that Sharon described across our Integrated Investment Bank.
Operator: Our next question comes from Devin Ryan with Citizens JMP.
Ted Pick: Hi, Devin.
Devin Ryan: Hey, good morning, Ted and Sharon. First question on NII in Wealth. Obviously, a lot goes into that, but it would be great if you could maybe speak to some of the second order impacts of lower interest rates that we should be thinking about and maybe some that are a little bit less obvious like changes in margin utilization or securities lending or securities-based loans or even customer engagement with certain types of products or really anything else I'm missing there. Just love to kind of get some more flavor around the implications and how you guys are thinking about the second order impacts on NII as you look out over the next year or so. |
4,845 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Yeah. We continue -- as I mentioned, this is the second quarter that we've seen loan growth. I wouldn't -- we've seen stronger quarters. So, this is just the beginning. Basically, there's been a steady increase in mortgages, even though there's the rate hike cycle where it is and the rates were higher. And over time, as rates would come down, you'd expect to begin to see refinancing activity, which will spur lending. You'll also likely see, as you get into tax cycles with asset levels where they are, an increase also in SBL. So, there's -- those lending products have been relatively muted versus the historical basis. And you -- it wouldn't be surprising to begin to see more and more of that activity on the forward.
Devin Ryan: Okay. Great. Thanks, Sharon. And then, just want to come back to the -- really nice quarter you put up in net new assets in Wealth. And you touched on a notable contribution from new clients in advisor-led. And so, I'm just curious if there's anything else you can highlight that supported that momentum with new clients, specifically, whether it's new products or if there's programs internally that you're running to support that because it sounds like it was a catalyst. I'm just curious if that could continue. |
4,846 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Sure. So, specifically on new clients, Devin, I'd remind you a conversation that Jed had when he spoke publicly recently, which was really about what we're doing on stock plan and different ways that we're introducing FAs to new clients. We call them human referrals. It's a place where you begin to think about if someone's calling, for example, into a call center or they've come to a different event, and they'd like to actually be matched with a financial advisor. Remember, we're using technology, different parts of AI and different ways to begin to appropriately match individuals with FAs we think will suit them. That -- those human referrals are double and over 100,000 year-to-date versus what you've seen in the past. So, I think that, that's a place where we've invested in technology. We understand now how to better match and understand individuals and their needs. And we're giving them an opportunity to see the value of the advice on the forward, and that's what you're seeing in those numbers in terms of the net new assets. So, it's really bearing fruit in terms of the investments we've made.
Operator: Our next question comes from Dan Fannon with Jefferies.
Ted Pick: Good morning, Dan.
Dan Fannon: Hey, good morning. I was hoping you could expand upon some of the strength of activity outside the U.S. Some of the events you cited seem country specific, but can you talk to how you see the rest of the world participating and what you guys have said will be in Investment Banking recovery? And certainly we know the U.S. is focused in terms of the potential cap markets recovery, but curious as how you think about the broader base outside the U.S. |
4,847 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Ted Pick: The Integrated Investment Bank premise that we built over the last 10 years and really intensified over the last five years was that it takes a real local commitment to have a global investment bank. We've made real investments on the continent, for example, in Iberia, in Italy, in France. We continue to be the largest presence actually as tenancy matter in Canary Wharf, so in the UK. So, our European commitment is real across both Investment Banking and increasingly in the markets business. That's in the Investment Bank. But also we have a thriving Investment Management business, LPs, who are well ensconced on the continent, and we're building that integrated capability with alternative solutions and the like. We have been strong, as you know, in Asia for really decades. And that spoke to the power of a global investment banking institution that when we had disruptive events, as Sharon alluded to, in Tokyo and then in China in the last couple of months leading into this quarter, it was important that we have a leading investment banking and markets presence, both in Japan and in Hong Kong and Mainland. So here, the seamless execution will pay off as cross-border M&A intensifies as parts of the world outside of the U.S., where, of course, we have our concentrated bet as a regional matter, to the point you were asking, you see good growth in revenues both in Asia and in Europe. You saw year-over-year growth of almost 25% for the firm in EMEA, Europe, Middle East, Africa, and then 30%-plus in Asia. That speaks to having a local presence such that when the Investment Banking cycle really kicks in and companies wish to engage in strategic activity, which includes, obviously, getting bigger or making a sale and potentially go public locally that we're going to have the kind of presence to transact. So, running the global investment bank is going to pay for years to come. And I would add, by the way, that an important part culturally of what we've done at Morgan Stanley for many years which is bearing fruit, |
4,848 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | add, by the way, that an important part culturally of what we've done at Morgan Stanley for many years which is bearing fruit, is to mobilize some of our senior talent from one region to another, not just across businesses but across regions, which is important when you have 30 of your 80,000 people outside the United States that they're familiar with our operations in places like India and Budapest. |
4,849 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Dan Fannon: Great. That's helpful. And then, just as a follow-up, within Investment Management, [longer-term] (ph) inflows certainly a positive, but if we look at the backdrop, markets are up significantly year-to-date, revenues have moved modestly, but still have expenses. So, as you think about the asset mix that's coming in the door that's skewed more towards lower fee, whether that's within Parametric or fixed income, how do you expect or how do you plan on improving the overall profitability of that segment as you think about the longer-term trends that are putting more pressure on fees?
Sharon Yeshaya: I'll take that. So, you're right to identify that there is a mix shift as we're seeing different types of flows. I'd also note, though, there are also investments being made when you think about just the expenses to help make sure that we're there to service the clients in terms of where we're seeing the secular growth trends. So, it's an asset story on Parametric. It's an asset story on alternatives. We're investing in both. Both of those are places we see secular growth trends, and we're making sure to be there with -- for our clients. Now alternatives is going to be higher fees, just basic private credit, et cetera, will be higher fees than you might see in Parametric. That being said, I don't see it simply as a fee sort of game, but rather the greater the assets, the more opportunity and the more to be the leader in the space and to continue to attract new capital to seek new opportunities. So, overall, I see it more as a strategy associated with asset building, aggregation and being there to service our clients, but also making sure that we have the capital there to invest. So, things like Parametric, you're going to need to spend money on more market data. You're going to need to build relationships with Wealth. And that's going to cost money on margin in the short term, but it will give us the opportunity for growth as we move forward over the long term. |
4,850 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Operator: Our next question comes from Brennan Hawken with UBS.
Ted Pick: Good morning, Brennan.
Brennan Hawken: Hey, Ted, good morning. All right. So, I'm willing to risk the wrath of Sharon here and ask a question on NII. And I totally appreciate it's just a part of the Wealth business, right? So, totally get that. But I thought it was really encouraging to see the end-of-period deposit costs tick down pretty decently quarter-over-quarter. So, maybe is that driven by the fact that you've seen a lot of those deposits shift into like the higher cost and therefore, higher beta products? And so, would that be sustainable? And then, when we're thinking about a combination of that de facto higher beta, the potential for reinvestment tailwinds in the securities book and loan growth, is it too optimistic to think that NII could grow next year? |
4,851 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Thank you, Brennan. I appreciate that you do understand the business, and you do understand that there are multiple drivers of this business. I think what you're hitting on is that there are a lot of places that you can still see growth that is not specific only to the deposit mix. So, yes, it's encouraging to see certain pieces. Now, of course, you also had our Fed rate cut in there. So that will continue to bring the cost of certain types of deposits. You think about the beta, the beta will really depend, like you alluded to, also on products. So, things like a savings product will have a much higher beta than something like a sweeps product, which will have a much lower beta. They just -- they are two different products with two different purposes in terms of the dynamics of what they're used for. Now, on the forward, it will, of course, depend on the Fed rate path. There are so many changes that have taken place over the course of the last quarter that make it very difficult to say, well, where will the Fed be, and where will be those investment opportunities. So, where I would sort of point to is there are three pieces that we've always talked about that will drive NII. Two of them are encouraging. That's the growth on the asset side in terms of where you're seeing us being able to actually deploy the capital, where you're seeing people ask for lending opportunities, et cetera, it's growing, it's encouraging. Sweeps, what we know and what we've seen, especially since the first rate cut, is also very encouraging, particularly as historically, if you look back, and I said this in the last quarter call, generally speaking, when you begin to see interest rate cuts, you do begin to see different parts of deposits rise. So, again, an encouraging sign. Where will it be when you think about reinvestment and the rest of NII? That in and of itself is really the Fed. And if we go back a quarter ago, no one -- it was a very low probability to see a 50 basis point rate cut, and lo and behold, we have |
4,852 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | we go back a quarter ago, no one -- it was a very low probability to see a 50 basis point rate cut, and lo and behold, we have one. So, why don't we see where we are after the November and December meetings and then restate kind of where we think we'll be over the course of the year just from a rate perspective. But those three building blocks, you know what they are and you know that the two that are under our control or they have to do sort of -- I wouldn't say, under our control, but rather have to do with what our clients are doing. I've told you what I'm seeing from our data, and it's all positive. |
4,853 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Brennan Hawken: Okay. Totally. That's helpful. Thanks, Sharon. And then, for the follow-up, maybe shifting gears a little bit. You spoke to sponsor engagement. We've seen some sponsors actually start to hit the IPO market. Given your strength in ECM and the strong franchise you have there, what are you seeing on the IPO pipeline front? And how should we be thinking about that outlook into next year? |
4,854 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Ted Pick: Well, as you know, the sponsors have roughly $1.3 trillion of dry powder. They have $3 trillion to $4 trillion of portfolio companies in the ground by some measures, 10,000 companies in the ground. And for the first time in close to 15 years there, the deployment is outpacing the fundraising. So, there is a need for that group to move. And they act as a liquidity source, but they also act as a competitive player to our traditional corporate community. I think much has been said about the barriers to entry to be a highly regulated [indiscernible] public company. But I would take the view that there are a whole bunch of great companies that are owned privately that do want to make their way into the public markets. That currency allows them to make acquisitions, to set up long-term compensation plans and like, to go global. So, what I'd expect to see are larger companies going public, having been private for some time, reaching a level that makes them a tougher sale on the private front. There are private alternatives, but the going-public phenomenon is not going away. And I made reference to this earlier, I think there is a going-public phenomenon that will exist around the world, whether it's select countries doing privatizations, whether it's exciting companies that for the first time are reaching global benchmarks. So, I think we're going to see the IPO market slowly work its way back, larger names coming to market. And then, when they do, quite quickly needing the full service suite of a global investment bank, needing the treasury capabilities, needing hedging services, needing the kind of advice at a mid- or large-cap mature company needs, and that, of course, on a global scale is right in our sweet spot. So, I'm bullish on IPOs and M&A coming back. It may take some time. And the size of the companies when they come will be likely larger. So, there will be slower unit volume than the sort of the heyday of post-COVID stimulus and quick listings, but I think these are going to be global mature |
4,855 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | volume than the sort of the heyday of post-COVID stimulus and quick listings, but I think these are going to be global mature companies which are going to very much need our advice. |
4,856 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Operator: Our next question comes from Christian Bolu with Autonomous.
Ted Pick: Good morning, Christian.
Christian Bolu: Good morning, Ted and Sharon. On Wealth Management, really nice to see solid loan growth in the last two quarters. Just thinking a little bit looking forward here as rates come down, kind of how are you thinking about maybe longer-term growth? Do you think loan growth can maybe reaccelerate back to pre-COVID levels where we were seeing 20%-plus growth per year, or is that business more mature today with less growth upside?
Sharon Yeshaya: No, I actually -- thank you for the question. I don't think that it's more mature with less upside. I actually think there's more upside to go when you think about the penetration of FAs using those products. So, we used to be sort of in the low-double-digits in terms of that penetration. That's moved up to somewhere in the teens. But we do think that there's opportunity to surpass that higher. And if you look sort of at peers even in similar kinds of channels, so not lending through a commercial bank, but more on the wealth side, those numbers are higher. So, there are certainly opportunities there, Christian. So that's why I appreciate you asking the question. I wouldn't say it's not just on the mortgage side. That certainly can come back. But SBLs have been relatively flat. And it's not surprising. We've talked a lot about the uses of those lines. And especially if rates are low, thinking about how to use those lines to pay taxes, for example, and think about what you're doing from an efficiency perspective with your portfolio as an individual investor.
Christian Bolu: Okay. Very helpful. Thanks. Maybe one more on deposits, Wealth Management deposits again. Appreciate this is maybe a smaller issue now and fading away. But how are you thinking about just the philosophy around deposit pricing within Wealth Management, given some of the SEC scrutiny? And then, maybe any data you can provide around how much of the sweep cash is in the advisory-related assets? |
4,857 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Sure. So, why don't we just -- I'll take it to sort of, I guess, together but answer it slightly backwards, which is we talked about different pricing changes. And last quarter, we also said that, that was a small portion in terms of where the changes are going to be made. So, it's small. It's in the run rate. You saw it over the course of the quarter, and it was in the results. When we think about deposit pricing, we take a number of factors into consideration. And one of the most important factors that we highlighted last quarter and we've been looking at even through this cutting cycle are competitive dynamics and where competitive pricing is. So that's -- it's the market, and it's also competition. It's the need for deposits and it's where that is on a relative value perspective. So, all of those things that include the customer as well.
Operator: Our next question comes from Gerard Cassidy with RBC.
Ted Pick: Good morning, Gerard.
Gerard Cassidy: Hi, Ted. Hi, Sharon. In your prepared remarks, you guys talked about your prime brokerage revenues were historical -- above historical averages as clients' balances reach new peaks. Can you share with us how much of that is driven by just existing clients or also you're expanding your client base where you're growing that as well? Can you compare the two areas of driving these numbers? |
4,858 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Ted Pick: Well, I think the question is an interesting one because the barriers to entry to scaling a new asset manager are quite high. But we host, as you're aware, our cap intro conference every January down in Breakers. We've done that for decades and continue to draw enormous demand to try to get a slot. Because once you've made it, the platform economics of success and your ability to penetrate various distribution channels enables you to get big quite quickly. So, it's sort of tough to make it, but once you've made it, you can really scale into a large institution. By and large, though, the growth that we've seen across equities to hit the $3 billion mark over the last couple of quarters you've seen has not been consuming additional VAR. It's just staying close to our clients. These results indicate that we've increased wallet with predominantly the existing base. We've done that around the world. And the leverage levels for a lot of these clients in the quantum platform space are actually run close to the typical range for that subgroup. So, we've been able to interact with them in a productive way across not just prime brokerage, but cash and derivatives, too, and then importantly, across the markets business. So, this is part of this Integrated Investment Bank philosophy that you can have folks that are traditional players in one pocket moving across the asset spectrum, and the leadership in the market business has done a great job facilitating that, not just across underliers, but as I mentioned in the past quarter, across regions. And to the extent that there are spin-outs or others, we have a vibrant business now in the Middle East too, in Abu Dhabi, and in Scandinavia in Copenhagen. Those are the two offices we recently opened. And I mentioned them because they are not just great possible for Investment Banking and for our Investment Management business, but they're also very interesting for our markets business, too. |
4,859 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Gerard Cassidy: Very helpful. Thank you. And then just as a quick follow-up, I always appreciate your guys' insights and others that really don't have big exposures to credit. And so, you mentioned that you had charge-offs of $100 million in commercial real estate and corporate loans. Can you give us any color? Again, you're not a big lender like a JPMorgan or a Bank of America, so insights from folks like you, I think, are very helpful. Any color here?
Sharon Yeshaya: Sure. Those are largely provisioned for. And so, I think what you've seen is that it's almost as though some of the credit changes have been working themselves through the market. If you look back over the course of the last two years, we've had a lot of conversations, Gerard, specifically talking about CRE. You've had some great questions as it relates to that space. We saw that, that was happening. We provisioned for it. And over time, you will see that likely come through on the other side as charge-offs, and that's kind of where we are at this point in the cycle.
Operator: We'll take our next question from Mike Mayo with Wells Fargo.
Ted Pick: Good morning, Mike.
Mike Mayo: Hey, good morning. Earlier, you talked about your tech efforts. And so, Ted, as you think about AI, is Morgan Stanley a leader or a close follower, you wait for others to do it? And then, more specifically, what's going on with your partnership with OpenAI? I see a quote here from Morgan Stanley, "OpenAI is perhaps the best example to date of empowering Morgan Stanley with the marriage of human advice and technology." I think you're unique in using OpenAI. So, any color you can provide would be great. |
4,860 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Sure. I'll take it because we continue to do work with OpenAI. In terms of where we are overall on the technology side, Mike, you saw a lot of our products very early, say, almost 10 years ago at this point in time when we did our first tech expo. And we looked at tools that we were using AI and different types of machine learning, et cetera, to give our advisors tools to give them more time to prospect business. As it relates specifically to that partnership, that partnership is going extremely well. We continue to look at new platforms and new applications that we can use with them. And there are new places that we're using AI that we've launched and we've discussed over the course of the last two quarters or so. One is, we, obviously, do have a tool where FAs can use and speak to our research portal, so to speak, and understand that AI will basically read everything and then can help you answer different questions associated with what's already been published in terms of that volume of data. In addition to that, as we've moved forward, we can have tools like debrief where an individual, of course, gaining permission in a meeting can use what they've heard in a meeting through AI translate languages, et cetera, summarize and then be able to send out emails as follow-ups based on the conversations had in those meetings with a draft. Obviously, you have human interaction after in a human overlay, but just gives you the bare bones again to save time for the advisors as we move forward. We're doing that across the institution in different pockets and spaces as part of the -- if we think back to the efficiency work that we started this call with, there will be places where we can use AI to also think through efficiencies. So, it's a balance of understanding where to invest and then how to use that to gain time back from a productivity perspective as we move forward. |
4,861 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Ted Pick: And I also like the -- I like the question because it suggests that there are going to be opportunities where being a fast follower is just fine, where you can take existing capability and make the digitization process easier on a straight cost effectiveness play, where -- to Sharon's comments, where we are really digging in as a, call it, proprietary matter is around the productive efficiency inside of Wealth Management. This entire -- we call it AIMS, as you know, AI @ Morgan Stanley. The AI @ Morgan Stanley Assistant is just the first chapter of what we're going to do across the financial advisor platform specific to our own offering with clients where we think we're going to have some real edge.
Mike Mayo: You say it's the first chapter of what just -- I know this is looking forward, but what could be some other chapters as it relates to AI?
Ted Pick: At our place? Well, it's going to be a tool at the very least that is going to help inform FAs on what is relevant at any given moment under any different -- any given paradigm. They are going to have access to information across a whole bunch of data sets, ongoing conversations and interactions that are going to allow for crisper and more effective conversations with their clients. I think that will take some time to play out. But when you think about it, extraordinarily effective in terms of the interactions when there will be heightened proclivity to activity between the client and the FA, whether it's around an exogenous event or a life event for the FA to be well-equipped to know what types of products and services might be available down the road is something that we think will be part of the embedded offering.
Operator: We'll take our last question from Saul Martinez with HSBC.
Ted Pick: Saul, good morning. |
4,862 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Operator: We'll take our last question from Saul Martinez with HSBC.
Ted Pick: Saul, good morning.
Saul Martinez: Hey, good morning. Hey, you've had a pretty sustained good fee-based asset flow for some time now. And maybe this quarter was a little bit outside -- outsized. And Sharon, you mentioned the trends of advisor-led brokerage moving to fee-based, clients diversifying to alternatives and fixed income instruments or fixed income. Can you just comment on the extent to which you think these dynamics have legs where we are in terms of these dynamics occurring, given the strength in asset prices and equities and rates coming down and what that might mean for your flow expectations and for fee rates? |
4,863 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Yeah. I actually really appreciate the question. I appreciate that you took note of the comments that I gave in the prepared remarks, which is what we've been focused on is really migration and understanding migration of assets. So, we look at -- there's brokerage accounts in self-directed, and there's brokerage accounts when you think about on the advisor side. You have an advisor, but you also have a brokerage account, and not everything is in fee-based. The numbers from brokerage is -- those numbers are increasing in terms of what's actually migrating into fee-based. And why I think that's important is we've always said that we would expect -- oftentimes, the way you see net new assets come into the institution, they come in maybe under an advisor or not. But let's say you're in the advisor side, it comes into a brokerage account first. It doesn't go directly into fee-based. And so, it's really the migration of assets coming in and then seeing that pick up, say, oh, I understand that there's a value to advice, and let me now figure out where I'd like to put it in what type of fee-based wrapper, so to speak, that is going. If I go back sort of 10 years or so, it was really only in equities. That's where you saw most of those fee-based advice coming in. Now, that has changed. Over time, we began to talk about fixed income. Remember that had to do some of -- we would talk about fee degradation. We'd say it's not fee degradation, but it's mix and it was mixed into fixed income. Now we're seeing that mix also into alternatives. So that's what's interesting is that there are more products also being offered under the fee-based wrapper that people can begin to think about. And as those products increase, and we have more products than others, we have more tools, more opportunities to people -- for people to invest, we'll see more assets come in, there's more value to advice and there are more places to put it in when you think about the fee-based offering. So, I think that it has momentum, and as you |
4,864 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | there are more places to put it in when you think about the fee-based offering. So, I think that it has momentum, and as you know, those are the durable revenue streams that we expect to gain over time. |
4,865 | MS | 3 | 2,024 | 2024-10-16 08:30:00 | Morgan Stanley | 472,898 | Saul Martinez: Okay. That's helpful. Thanks a lot.
Sharon Yeshaya: Thank you.
Operator: There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you, everyone, for participating. You may now disconnect, and have a great day. |
4,866 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Operator: Good morning. Welcome to Morgan Stanley's Second Quarter 2024 Earnings Call. On behalf of Morgan Stanley, I will begin the call with the following information and disclaimers. This call is being recorded. During today's presentation, we will refer to our earnings release and financial supplement, copies of which are available at morganstanley.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Morgan Stanley does not undertake to update the forward-looking statements in this discussion. Please refer to our notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release. This presentation may not be duplicated or reproduced without our consent. I will now turn the call over to Chief Executive Officer, Ted Pick. |
4,867 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: Good morning and thank you for joining us. The firm generated $15 billion in revenue, $1.82 in EPS, and a 17.5% return on tangible in the second quarter. [Solid earnings] (ph) and demonstration of operating leverage completes a strong first half of 2024. $30 billion in revenue, $6 billion in earnings, and an 18.6% return on capital. In institutional securities, we're beginning to see the benefits from our continued focus on our world-class investment banking franchise, with revenues up 50% year-over-year, including a 70% increase year-over-year in fixed income underwriting. In institutional equities, we are back with a $3 billion quarter. In wealth, we posted margins of 27%, and across wealth and investment management, we've now grown total client assets to $7.2 trillion on our road to $10 trillion plus. Together, we delivered strong operating leverage. Further, on the back of the annual stress test results, we announced that we will increase the dividend by $0.075 for the third year in a row to [$0.925] (ph), reflecting the growth of our durable earnings over time. During the quarter, we built $1.5 billion of capital, and at quarter end, our CET1 ratio is 15.2%, 170 basis points above the forward requirement. Our capital position provides us the flexibility to continue to support dividend growth, support our clients, and buy the stock back opportunistically. The quarter also showed continued balance in both top-line and profitability across the major segments. Wealth and institutional securities produced $6.8 billion and $7 billion in revenue respectively, with earnings also roughly split between our institutional businesses and wealth and investment management. Our businesses are working closely together to maximize adjacent opportunities across the integrated firm. Across the investment bank, navigating changes in the cycle means being deliberate around risk management and, given geopolitical uncertainty, where we spend our time to deliver clients, solutions, and to capture share. In wealth |
4,868 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | and, given geopolitical uncertainty, where we spend our time to deliver clients, solutions, and to capture share. In wealth management, we continue to focus on aggregating assets and delivering strong advice. In investment management, we are investing in secular growth areas, including customization and real assets. Year-to-date, annualized growth in net new assets and wealth management is over 5%, with another strong quarter of over $25 billion in fee-based flows. Strong fee-based flows support daily revenue, which on average continues to be about $100 million each day this year throughout and show the stability and continued growth of the wealth franchise. We are well navigating the continued uncertainty around forward rate path, geopolitics, and now the US Political cycle and expect those to be the themes for the balance of the year. We remain focused on our best-in-class talent and building out best-in-class infrastructure to support ongoing growth across wealth and investment management and institutional securities. I wanted to reiterate our strategy, which is clear to advise individuals and institutions around the world in raising, managing, and allocating capital. World-class execution demands that we deliver strong earnings and returns through the cycle, that we do so while maintaining robust capital levels, and that we deliver on a durable growth narrative across the segments. And then Morgan Stanley executes on this strategy in a first-class way [Blue] (ph). That's it in a nutshell. And finally, in reflecting on this weekend's assassination attempt, we share in the hope that in the months to come, we will as Americans, find ways to unify and preserve our better selves. With that, Sharon will now take us through the quarter in greater detail. Thank you. |
4,869 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya : Thank you and good morning. In the second quarter, the firm produced revenues of $15 billion. Our EPS was $1.82 and our ROTCE was 17.5%. Results highlight the power and scale of our integrated firm. The resilience of the US economy and a more stable near-term outlook on rates supported conviction amongst clients. Institutional securities drove performance, led by strength and equity and a pickup in investment banking. Wealth management also delivered on our established strategy, reporting record durable asset management fees and strong fee-based flows. Together, improved confidence and higher client engagement along with our focus on prioritizing investments, yielded operating leverage, and profitability. The firm's year-to-date efficiency ratio was 72% benefiting from scale and reductions in our expense base. Year-to-date expenses benefited from lower litigation expenses, the absence of back office integration related costs and severance, as well as our dedicated effort to prioritize our current spend. On prioritization, we remain committed to client and asset growth, technology, and targeted investments to ensure robust infrastructure that supports growth and addresses ongoing regulatory expectations. Now to the businesses. Institutional securities revenues of $7 billion increased 23% versus last year, capturing the strengths of the integrated investment bank across US, and international markets. Higher activity in Asia contributed to results. Strong performance in institutional equity, as well as debt underwriting, demonstrate the breadth of our client franchise. In our markets business, opportunities unfolded on the back of global political events and macroeconomic data. Investment banking revenues were $1.6 billion. The 51% increase from the prior year was broad-based. We continue to invest in investment banking across talent and lending, broadening and deepening our global coverage footprint in key sectors, including financials, healthcare, technology, and industrials. These investments |
4,870 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | our global coverage footprint in key sectors, including financials, healthcare, technology, and industrials. These investments are beginning to have an impact as capital markets improve and activity picks up. Advisory revenues were $592 million, reflecting an increase in our completed M&A activity versus the prior year. The pre-announced M&A backlog continues to build and suggests diversification across sectors. Equity underwriting revenues of $352 million improved versus the prior year, driven by increases across most products, but remain below historical averages. From a geographical perspective, we brought a number of transactions to market in Europe and Asia, demonstrating the importance of having a strong global market footprint. Fixed income underwriting revenues were $675 million, well above five-year historical averages. Results reflect a meaningful pickup in non-investment grade loan and bond issuance, as tighter spreads and strong CLO issuance provided opportunities for refinancing. The investment banking backdrop continues to improve, led by the US, the advisory and underwriting pipelines are healthy across regions and sectors. Inflation data has continued to moderate, which has helped stabilize front-end rates and support boardroom confidence and sponsor reengagement. As buyers and sellers make progress to close the valuation gap, we expect that we are still in the early innings of an investment banking rebound. Subject to changes in [rate past] (ph) expectations and geopolitical developments, our integrated investment bank is well-positioned to service our clients. Turning to equity, we continue to be a global leader in this business. Equity revenues of over $3 billion, up 18% compared to last year, reflect strong results across business and regions. Higher client engagement, dynamic risk management, and strength in Asia all contributed to performance. Prime brokerage revenues were strong and increased from the prior year as client balances reached new peaks. Regionally, we witnessed higher client |
4,871 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | were strong and increased from the prior year as client balances reached new peaks. Regionally, we witnessed higher client activity in Asia and seasonal patterns in Europe. Cash results increased versus last year, reflecting higher volumes across regions. Derivative results were up versus last year's second quarter as client activity was higher and the business navigated the market environment well. Further, the business benefited from corporate activity on the back of convertible issuances, additional evidence of the integrated firm at work. Fixed income revenues of $2 billion increased year-over-year. Macro performance was up versus the prior year. Despite lower realized volatility, clients were engaged around elections and political events in the quarter. Micro results improved year-over-year, driven by the growth of our more durable revenues as we continue to support our clients with financing solutions. Solid results in commodities were in-line with the prior year. Turning to ISG lending and provisions. In the quarter, ISG provisions were $54 million, driven by certain individual commercial real estate loans. Net charge-offs were $48 million, primarily related to two commercial real estate loans for which we had previously already taken provisions. Turning to Wealth Management. Wealth Management generated strong results generating revenues of $6.8 billion with record asset management fees. Our PBT margin continued to make progress towards our goal, demonstrating our ability to grow and generate operating leverage through the cycle. We are delivering on our differentiated, scaled multichannel asset gathering strategy. Wealth Management client assets reached $5.7 trillion. Moving to our business metrics in the second quarter. Pretax profit was $1.8 billion up year-over-year with a reported margin of 26.8%. DCP negatively impacted our margin by approximately 100 basis points. The margin demonstrates the inherent operating leverage of our asset gathering strategy. We are improving the efficiency with which we |
4,872 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | demonstrates the inherent operating leverage of our asset gathering strategy. We are improving the efficiency with which we run the business. Asset management revenues of $4 billion were up 16%. That is more than $500 million in fees versus the prior year. It's driven by higher average asset levels and the impact of cumulative positive fee-based flows. In the quarter, fee-based flows of $26 billion were strong, marking the seventh consecutive quarter of over $20 billion, bringing the year-to-date fee-based flows to $52 billion. We are seeing a steady migration of assets from adviser-led brokerage accounts to fee-based accounts, evidence that investments in our client acquisition funnel are paying-off. Fee-based assets now stand at $2 trillion. Net new assets were $36 billion reflecting headwinds from seasonal tax payments. Year-to-date, net new assets are $131 billion representing 5% annualized growth of beginning period assets. Net flows will be lumpy in any given period of time and impacted by both the macroeconomic environment and business specific factors. We believe both tax-related outflows and increased spending, particularly among high net worth clients, impacted flows this quarter. Still our first half NNA growth remains solid. Transactional revenues were $782 million. Excluding the impact of DCP revenues were up 5% versus last year. The increase was primarily driven by higher equity-related transactions. Bank lending balances grew by $4 billion to $151 billion evidence that as the macroeconomic backdrop stabilizes, our lending capabilities can be met and can meet our diversified client needs. Total deposits of $343 billion remains stable, with sweep deposits down approximately $10 billion sequentially mostly offset by growth in CDs. Net interest income was down modestly to $1.8 billion reflecting the decline in sweeps, which was largely attributable to the seasonality of tax payments. The Wealth Management business continued to perform well, aggregating assets, generating fees and benefiting from scale |
4,873 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | The Wealth Management business continued to perform well, aggregating assets, generating fees and benefiting from scale and our differentiated offering, consistently earning approximately $100 million a day. In the third quarter, we intend to make changes to our advisory sweep rates against the backdrop of changing competitive dynamics. The impact of these intended changes will be largely offset with the expected gains from the repricing of our investment portfolio. Therefore third quarter NII will be primarily driven by the path of sweeps, and NII could decline modestly in the third quarter. Importantly inclusive of these pricing changes, the rate path and our expectations around client behavior, we believe that NII should inflect higher as you look out into next year. Our Wealth Management strategy is predicated on gathering assets, meeting our clients' lending needs and offering advice. Asset management fees, the core of our Wealth Management strategy, continues to produce strong results reaching a record this quarter. Taken together, we delivered a strong margin, and we continue to work towards 30% margins over time. This quarter, we reached approximately $19 million in relationships across our three channels, and we continue to invest in order to deepen engagement. AI tools are helping advisers grow, and Wealth Management's partnership with institutional securities is increasing connectivity around our workplace offering. These investments have supported flows to our adviser-led channel, where average client duration is nearly 15 years and growing. The steady progress supports our journey towards $10 trillion-plus in total client assets. Turning to Investment Management. Revenues of $1.4 billion increased 8% from the prior second quarter, supported by higher asset management revenue. Asset management and related fees were $1.3 billion up 6% year-over-year, reflecting higher average AUM. Total AUM ended the quarter at $1.5 trillion. Performance-based income and other revenues were $44 million as gains were |
4,874 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | AUM. Total AUM ended the quarter at $1.5 trillion. Performance-based income and other revenues were $44 million as gains were driven primarily by our infrastructure, US private credit and US private equity funds, reflecting our investments in secular growth areas. We recorded long-term net outflows of approximately $1 billion. We continue to see strong momentum across areas of strategic focus, namely Parametric. Consistent with current industry trends, we saw outflows in our active equity strategies. Our business is well-positioned given strength in areas of secular growth, such as customization, direct indexing and private alternatives. Our continued focus on global distribution combined with our deep structuring and product creation capabilities, should support incremental growth. Turning to the balance sheet. Total spot assets decreased $16 billion from the prior quarter to $1.2 trillion. Our standardized CET1 ratio was 15.2%. Client activity was strong and markets were open. We actively supported clients with a focus on velocity of resources. We also grew our CET1 capital by $1.5 [billion] (ph), reflecting strong earnings and continued capital distribution. The most recent stress test results reaffirm our durable business model and strong capital position. For the third year in a row, we announced a quarterly dividend increase of $0.075. Having generated over $3.85 of earnings per share and an 18.6% ROTCE year-to-date, we enter the back half of the year from a position of strength, with a robust capital base to support clients. Investment Banking pipelines are healthy and diverse, dialogues are active and markets are open. In Wealth Management, strong fee-based flows and the realization of operating leverage continue to demonstrate that our strategy is working. As capital markets become more active, we see opportunities for retail clients to engage and over time deploy their cash and cash equivalent balances into fee-based products. With that, we will now open the line up to questions. |
4,875 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Operator: We are now ready to take any questions. [Operator Instructions] We'll take our first question from Glenn Schorr with Evercore. Your line is now open. Please go ahead.
Glenn Schorr: Hi, there. Thank you.
Ted Pick: Good morning, Glenn.
Glenn Schorr: Good morning. Sharon, I appreciate all the upfront commentary on NII and Wealth. I wanted to drill down a little bit on what you said. So if you have $2 trillion in client assets in advisory and they keep a handful of percent of money in cash, that change you are making in rate paid on advisory -- on deposit in advisory accounts, can add up to like a good amount of money. So I wanted to get a little more sharper focus on what you said about 2025 NII? And then what exactly did you say the offset is on the NII? Thanks.
Sharon Yeshaya: Sure. Thanks, Glenn for the question. Actually, the portion that -- of the sweep balances that are impacted are as you mentioned, the sweep on the adviser-led channel, which is actually a small portion of the overall BDP that we disclose. So it’s a small portion of that overall stack. And the increase in pricing is being offset largely by the repricing of the investment portfolio, right? So as things mature and that investment portfolio reprices, it's that change in the quarter amount that will offset it when we look ahead.
Glenn Schorr: And is there a particular reason why you only have to focus on repricing in this smaller portion than of the adviser-led channel, meaning not --.
Sharon Yeshaya: Certainly. Yes, what I would note there is that what we think about -- when we think about sweeps, broadly is mainly in transactional accounts. And in those transactional accounts, we have a wide range of choices and products for our clients. And so therefore, they have a lot of options as you think about their transactional accounts and brokerage.
Operator: We'll move to our next question from Ebrahim Poonawala with Bank of America. Your line is now open. Please go ahead.
Ebrahim Poonawala: Hi, good morning. |
4,876 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Ebrahim Poonawala: Hi, good morning.
Ted Pick: Good morning Ebrahim.
Ebrahim Poonawala: Good morning Ted. Just maybe sticking with NII and more importantly, on pretax margin, right? You had an extremely strong quarter. The stock's weaker this morning, and it has to do with the NII drag on wealth revenues and margin. So one I think, Sharon, your level of visibility into NII, lots of moving pieces around client behavior, maybe we get interest rate cuts. Just give us a sense of, if history is any guide on, what rate cuts would imply for client behavior? Or is there cash to assets that you are looking at that gives you comfort around NII potentially stabilizing post 3Q? And then maybe a question -- go ahead, yes. |
4,877 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Yes. So why don't I take that, and then you can ask your second question. So you are pointing at a great point Ebrahim, as we look ahead through time, which was the second point of my guidance, is that when we look over the next year, we’re seeing and we expect that we should see an inflection in NII. And that is predicated on the points that you mentioned, which is that as you see rate cuts, we would expect those balances to stabilize. Remember, outside of the tax quarter this particular quarter, we had been seeing a stabilization in those sweep deposits. So it's important to recognize that, that has been happening, reaching that frictional level of transactional cash. So that would likely continue. And then over time, you would also begin to see a benefit as rates to be cut, that BDP could actually see inflows, which you've seen from a historical perspective. But in addition to that, you have two other factors. One is the repricing of the portfolio, which I've also already mentioned. And the second piece has to do with lending. We look to continue to support our clients with lending products, and you are beginning to also see that potentially reach an inflection. This is the first quarter that we've seen this type of lending growth since the interest rate hikes began. We've seen now use of SBL products rather than just it being offset by paydowns. So those are all encouraging signs when we look ahead over the course of the next year for NII.
Ebrahim Poonawala: That’s helpful. And I guess my second question was, just talking to investors, when we look at the 30% pretax margin target, the question is whether this is aspirational, whether the bar is set too high given how competitive the business is. So remind us in terms of your comfort level on the 30% pretax margin, to the extent you can, the time-line of when we get there? And when we get there, should that be a sustainable pace for the business? Thanks. |
4,878 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: Thanks, Ebrahim. Confidence level, high. If you take a step back, there are three pieces to the Wealth Management line; asset management, transactional, net interest income, as you know. In the asset management context, those are fees that are going to fee-based accounts, advisory-led. Those figures are up 4% sequentially and 16% year-over-year. That is fee-paying advice. Last quarter, the net new assets into that category was $26 billion. So fee-based flows -- that continues to be a growth piece of the Wealth Management store. The second cylinder is transactional. Transactional has been relatively weak, which is a link to general weakness in overall capital markets activity. And as you hear from our bullish commentary with respect to overall corporate finance activity in the investment bank, that will bleed through over time to the transactional line. And then third, the net interest income line. And as Sharon said, that will inflect and should inflect over the next year. You put those together, the scale of the business, the funnel, and the processing of $100 million of revenues a day that continue to grow, we are going to continue to achieve operating leverage. It's that simple. We're investing in E*TRADE. We're investing in the traditional advisor, and we're spending a lot of time top of house focused on workplace, which we think is an enormous opportunity across our corporate and sponsor base. In January, I had said 30% was the goal. We were in the mid-20s. We just printed 27% GAAP, 28% [Ex-CPE] (ph). It's a core stated objective. It will take some quarters to get there, but we intend on achieving it over time as we continue to grow assets and scale in the business.
Operator: We'll move to our next question from Mike Mayo with Wells Fargo. Please go ahead.
Ted Pick: Good morning Mike. |
4,879 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Operator: We'll move to our next question from Mike Mayo with Wells Fargo. Please go ahead.
Ted Pick: Good morning Mike.
Mike Mayo: Hi, Ted, you've said this and Sharon repeated this that the industry is only in the early innings of an investment banking rebound. I have to say we've heard that for a couple of years and there now is this time, why is this time real? Do you expect the rebound to continue through the normally slow summer period before the election? How many years? What gives you confidence that this is for real? And how much is your backlog up quarter-over-quarter? |
4,880 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: It's an excellent question because you're exactly right that a number of folks have been calling for this and it has been sort of a delayed shoots if you will. But I think now we are seeing some tempering of the inflation prints and some normalization rates. We are also beginning along with that to see the market broaden-out. You of course have seen that over the last number of weeks. And I think, we can now expect broader corporate finance activity to quicken, whether that is across the corporate community or sponsors or other institutions. And the early sign of this kind of activity can be seen in the convertibles product. Global convertibles activity is up significantly. And as you know, on the margin ladder, it typically goes converts, IPO, and then M&A. In the context of bake-offs and the like, in some spaces we are seeing bake-offs running at triple plus the year-over-year rate that they were at for sectors and for some of our client groups. We've been seeing now the launch of traditional IPOs and we are seeing M&A pipeline kicking in. So corporate community, sponsor community, cross-border community, I think we are in the early stages of a multi-year investment banking-led cycle. If you believe the economy is going to hold up led by the US, you should expect then to see that if there is some regulatory normalization too across a whole bunch of the sectors that are typically most active. So we are quite convicted on this call.
Mike Mayo: And just one pushback, I mean with interest rates, you know, so much higher than they've been in the past. Don't you think that could get in the way when people are looking to borrow money for deals and the like? Is this a matter of simply waiting for rates to go lower? Or that's not going to get in the way? |
4,881 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: I mean it's a fair question. You've written about this in the context of what was the normal before financial repression, right? And I would take the view that in the context of the last 15 years, even some normalization, because I don't know that we are going to go into a full-blown rate cycle to your point, some normalizations of rates will still have you at 3% or 4% on the front-end and even some steepening potentially. So now we are just back to the old weighted average cost of capital of mid-90s in most normal economic periods. And the game will have to go on because there is just been some activity that has been suppressed by any kind of measure percentage of asset stock percentage of market cap. And the stickiness that we are seeing in the sponsor community, too needs to unglue. There is an enormous, as you know multitrillion-dollar stockpile between the two sides of sitting on inventory that needs to be released and then dry powder that's been raised. That will act as a competitive weapon against the competitive bid from the corporate community that has to contend with the reality of a smaller world with real sovereign risk and real cost of capital differences from one jurisdiction to another. So in short, unless you were to tell me we are going to go into a full-blown recession, which none of us can call, and that even if we saw rates normalize to something that is along the lines of the historic 4% on the front end, I think you will see over the next number of quarters and really over the next number of years, a resumption of more normalized M&A activity, with the key difference being that the financial sponsor community is now institutionally come of age. They have global reach. They can work the entire capital structure. They will work in concert with corporate partners, as you know. They don't actually have to act as a lone wolves, and they can work with us to finance the package. So it is not just the straight M&A advise or the straight IPO, it would also be bespoke offerings in the |
4,882 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | finance the package. So it is not just the straight M&A advise or the straight IPO, it would also be bespoke offerings in the private public space, interest rate and foreign exchange hedging and the other ornaments on the investment banking tree that a couple of the leading global investment banks can bring. And this is really why, over the last couple of years, the extent we've done a so-called front-office hiring, it really has been to target several very high-quality investment bankers who typically have spent their entire careers at one firm and have decided to come to the Morgan Stanley platform. And we are seeing the fruits of that across industries. So I am quite bullish on it. Certainly take your point that has been a number of quarters on sort of on the promise. But I think as we get into 2025 and the election coming and then the election behind us, we should see that activity continue on a sustainable pace. |
4,883 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Operator: Our next question is from Dan Fannon with Jefferies. Please go ahead.
Ted Pick : Good morning Dan.
Dan Fannon: Thanks good morning. I was hoping to get a little bit more color on the flows in the quarter within Wealth, maybe the breakdown from the channels and contribution. Last quarter, I think we saw a Family Office be an outsized contributor. But hoping to get a little bit more color on where the flows were sourced in 2Q.
Sharon Yeshaya: Sure. I'll take that. It's -- we continue to see broad-based sourcing in terms of where those assets are coming from. In this particular quarter, as I mentioned the biggest offset and drag though, is really from taxes. So it's -- you still have a workplace accounts. You still have the advice-based account directly. You still have self-directed. All those places remain contributors. What continues in my mind to be most interesting though, isn't just the contribution that you are getting from the three various channels, but the fact that you have in the advice-based channel, it's not just coming from existing clients, but it's split with existing and net new clients. And some of those net new clients are also relationships that are being sourced from workplace. So I would not just directly focus on what channel is it coming from, but how are you seeing those channel in that interplay work, because that's actually the power of the differentiated platform. Once you have somebody who wants more differentiated advice for self-directed speaks to an advisor, that advisor sees net new clients, bring in assets, and then that's new acquisitions into the funnel and eventually into fee-based. So it's really the whole ecosystem that I would call your attention to, rather than just one isolated leg. |
4,884 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: Which is part of the reason that workplace is so important, because at workplace, I can continue to experience success amongst the corporate and sponsor community that has an affinity effect on the top of the house at those institutions in terms of their own wealth, and then potentially other products around it. So it can be an indirect sale where you aren't necessarily going directly to the prospective client via the FA, but you could actually work potential clients through the institutionalized effect of workplace where we do a great job educating on wellness -- financial wellness and then effectively institutionalizing ourselves by overseeing incentive comp through the Morgan Stanley Solium product and having succeeded on an MS at work mandate, which, as you know is a durable, sticky asset that effectively is seen by the entire employee base, you can start working your way up the funnel to the senior executives of that front.
Dan Fannon: Great. Thank you.
Operator: We'll move to our next question from Brennan Hawken with UBS. Your line is now open. Please go ahead.
Ted Pick : Good morning Brennan.
Brennan Hawken: Good morning Ted. Thanks for taking my question. I'd like to just drill down a little more to give the second follow-up here on the repricing change that you mentioned in your prepared comments, Sharon. So the repricing that we've seen in the securities book has been slow. So I'm just kind of curious as to why you think that will help offset the repricing actions that you are taking on the deposit side. Is that because it will be a phased repricing, and therefore there is an ability to have the phased benefit in the asset side offset? And then just a nitty-gritty question on it, is the switch going to be to money fund sweep rather than higher yielding deposits, and then that way you can just slowly replace that funding as you see [fit] (ph)? |
4,885 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: So thanks, Brennan, I'll take that question. No, all the changes that we'll make will happen, are expected to happen in the third quarter. And so those different changes will be made, and they'll be based on various competitive dynamics.
Brennan Hawken: Okay. Got it. And then is the -- is this going to be focused on the advisory relationship similar to what we've seen from some other wirehouse competitors? And could you just -- is it the changes that have been announced by Wells and BofAs, is that what you mean by competitive dynamics? Or is there something else that I'm not aware of?
Sharon Yeshaya: That's exactly as I stated it, and it will just be limited as you said, to the sweeps that are dealt within the advisor-led channel.
Operator: Our next question comes from Devin Ryan with JMP Securities. Your line is now open.
Ted Pick : Good morning Devin.
Devin Ryan: Great. Good morning Sharon and hi. The first question, just on -- another one on the GWM flows. Sharon, you mentioned tax season is a factor, which you completely get. But then you also mentioned increased client spending. And I just wanted to drill into that, just whether that's something that could continue, whether it was seasonal or influenced by inflation? Just trying to understand that component of the impact on flows.
Sharon Yeshaya: Yes. I think that's a really interesting question. I did call it out. We've seen increased spending by higher net worth, and so higher income bands are certainly spending. We see that in the data alongside actual spending. We see that in purchases of homes. We see that in various tailored investments. So they are -- that cohort, so to speak, is using its cash in different ways and its various investment in different ways. So I do think that -- that's an interesting dynamic that's playing out. I know that others have mentioned it within their portfolios as well. It's only something we are seeing in our data. |
4,886 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Devin Ryan: Okay. Got it. Thank you. And then a follow-up just on the interplay between Investment Banking and Trading, and I appreciate the commentary on kind of the improving capital markets backdrop, which is great to hear and kind of the expectation from our end that there's going to be a lot more primary issuance in equities, maybe in debt as well as M&A picks up. So just trying to think about what that means for the trading businesses, equities and fixed income and whether you guys feel like we could maybe sustain around these really high levels or even maybe -- even the wallet could move higher just as you get a stronger primary issuance market? |
4,887 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: Well, I know that competitive set will naturally speak to areas where integration can be an asset. Here, we have -- we believe, something really special inside of our Institutional Securities business, our so-called integrated investment bank, which has been ongoing for -- now we are getting on seven or eight years. Now under Dan Simkowitz's direction. And this is a sort of critical facet of business strategy at our place because you have now the appropriate and important relationships that have been built across fixed income, equities and banking through our capital markets new issue business. You have those now having been compounded and advanced by the mobilization of some folks from one division to another. So there is real familiarity now with the work product. A lot of the work product, as you know, is not traditional vanilla IPOs. Yes. There are some on the horizon that are quite substantial, and we'd expect that to be an important part of the calendar. But there is also a more bespoke product, whether it be convertibles or products in the private area or products that effectively necessitate high-quality structuring and advice, and that can only be brought to the boardroom if you have world-class investment bankers who can lean on the expertise of their colleagues, not just in the new issue business but as appropriate, in institutional equities and in fixed income. And if you look at our fixed income business, for example and fixed income underwriting, you'll see that the share gains have been quite extraordinary. And that the year-over-year revenue number, I believe is up 71%. That speaks to the fine work that's been done by folks, not just in the debt capital markets business which is housed inside of our new issue business linked to banking, but also working closely with fixed income professionals, whether they are in the securitized products group and our commodities area broader credit or in our macro space, i.e., interest rate and foreign exchange. So when you get into the knitting of |
4,888 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | area broader credit or in our macro space, i.e., interest rate and foreign exchange. So when you get into the knitting of ISG, our Integrated Investment Bank, you see that part of the reason that we are bullish, not just to Mike's earlier question on the denominator, but also on our ability to increase the numerator, is not so much because we think there is a need to deploy a lot more capital. We will do so as appropriate when the markets demand it. But that we are able to get the kind of bespoke advice for clients that comes from the familiarity of our people, the quality of the advice that is differentiated and importantly, that it's global, so that we can bring it to the client base. So that is part of, I think, the secret sauce that we've been working hard on to generate above cost of capital returns, inside the investment bank on a stand-alone basis. And that obviously doesn't include even the synergies that we'd see across the Firm into Wealth and Investment Management. But your question is on the investment bank specifically. And I feel really good about the way it's structured, the leadership that we have within it, the experience set, and then our ability now to tap into this next cycle which will be different than the last one. Rates will be well higher than that of financial repression. We'll be toggling between some bouts of inflation and potential recession. We'll be dealing with the unpredictability going to not only our own cycle, US election cycle, but the world around us. But also the coming of age and the institutionalization of the financial sponsor community, where we have very strong relationships with that leadership group from top to bottom across the Investment Bank, Wealth and Investment Management. |
4,889 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Operator: For our next question, we'll move to Steven Chubak with Wolfe Research. Your line is now open.
Steven Chubak: Hi, good morning.
Ted Pick: Good morning Steve.
Steven Chubak: So maybe just starting off with a question just on operating leverage within ISG. Year-to-date, the incremental margins are quite strong, just north of 80%. You spoke constructively on IB and Trading and inflecting positively. Just want to better understand what you believe is a sustainable incremental margin as activity steadily builds especially given some of the growth, at least from here, may skew a bit more heavily towards Investment Banking, which tends to be more compensable.
Sharon Yeshaya: So when you look at it, I would really focus Steve, on the efficiency ratio targets that we put for the whole firm, right? We think that the firm can run at or below the 70% over time through a durable cycle. The issue with your specific question, as you yourself highlighted is, it depends on where those different revenues are coming from. So there might be periods of time where it's higher BC&E related, there might be periods of time where you have different jurisdictions associated with it. But broadly speaking, the enterprise we've given 30% margins as it relates to Wealth and the sort of Wealth and Investment Management space, and then you have the ISG space. So by definition, if you're running at 70% efficiency ratio more broadly, you look for an entire enterprise to run at somewhere of a 30% margin. |
4,890 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: Yeah. The only thing I would add to that is, of course as you know, there is real seasonality in the business. Fixed income tends to have its strongest quarter, street-wide in the first quarter, Investment Banking typically in the fourth quarter. That's not every year, but that's typically out shakes out. Third quarter tends to be weaker in the summer months, and then it's sort of all about September. And obviously, this September will be one that will be driven in part by sentiment around the upcoming elections. So that's kind of the seasonality piece. The other is just the scale within the businesses, I'd be remiss again, not to sort of underscore the importance of having reached $3 billion in the equities business. This has been a leading business where we have been Number 1 and Number 2 for the last dozen years. And we see the clients are much in demand of our services across cash, derivatives and prime brokerage. And then connecting to Investment Banking, I think that business has too hit an inflection point again where they can continue to prosecute high-margin business through the cycle. All of this, of course is dependent on the economy holding up and general asset price levels. But given where we are right now, we are feeling good about that, too.
Steven Chubak: Thanks for that perspective. And just a follow-up on the deposit discussion. Both you and your wirehouse peers announced similar actions on deposits, which you noted, Sharon. You mentioned it was informed by competitive dynamics. But I wanted to better understand if there's any feedback you or your peers had received from regulators that prompted the decision? Because from our vantage point, the timing of these pricing actions at this stage of the rate cycle is simply difficult to reconcile?
Sharon Yeshaya: I'm sorry, Steve, we don't comment, as you know on regular matters.
Steven Chubak : Okay, fair enough. [I had to try] (ph) thanks for taking my questions. |
4,891 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Steven Chubak : Okay, fair enough. [I had to try] (ph) thanks for taking my questions.
Operator: We'll move to our next question from Gerard Cassidy with RBC. Your line is now open. Please go ahead.
Gerard Cassidy: Good morning Ted, good morning Sharon.
Ted Pick: Good morning, Gerard. How are you?
Sharon Yeshaya: Good morning.
Gerard Cassidy: Good. Thank you. You gave us good insights into your thinking about what the capital markets could bring, especially Investment Banking. And I think you touched on it in your comments with Ted, or maybe you Sharon, that the transactional numbers could benefit from a stronger ECM business. Can you then take the next second derivative and share with us from your experience of Solium, should we -- that business pick up the workplace channel, if more of these maybe private equity sponsor companies go public. Should the workplace channel see stronger revenues potentially in a stronger Investment Banking market over the next 12 months to 18 months?
Sharon Yeshaya: I think that's a great question. I know, Gerard a few years ago, you also asked me about different values of those assets associated with what the underlying is. I completely agree with you. As you have workplace assets rise, the value of those client assets rise. New corporations issue their employees more stock. They also grow their employee base. It should absolutely add participants. It should add new corporates. It will add new net flows. And now that we have all of that -- when you just have Solium, now you also have E*TRADE and workplace, and the platforms are integrated. So as those flows -- flow into an E*TRADE account, people can transact on that. And then, as Ted said, we can also offer financial wellness. So absolutely, it helps that ecosystem begin to work. |
4,892 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Gerard Cassidy: Very good. And just as a follow-up, Ted, if I take a step back, obviously you guys have done a very good job in the last 10 years of growing organically, but then complementing that growth with acquisitions. Once we get the Basel III end game final proposal, maybe some G-SIB relief, can you share with us, as you look out over the next two, three years -- is there any parts of the picture today that you'd like to enhance possibly with acquisitions? Or -- are you good where you are today? |
4,893 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: I will take the opportunity to sort of give a brief view on capital, if I could, Gerard, and link that to potential external opportunities. We anticipated or we believe it was possible that we could have a tougher annual CCAR test, and indeed it was. And what we've prioritized in potential uses of capital, above all things has been dividend policy. And as you know, we are increasing the dividend again to [$0.925] (ph), which at spot offers a 3.5% dividend yield. So that is the continued highest priority on use of capital. If you include of course, use of capital to inorganic opportunity. Second our clients. We have continued to lean in for clients, across the business segments as appropriate, and you see the operating leverage across the businesses, particularly across the investment bank. But we've also thought about the buyback opportunistically and have been buying stock back and returning capital. This past quarter, more than $2 billion between the dividend and the buyback, in a way that has been reflective of offering us that optionality. As we sit here today, we are 170 basis points above the buffer. And importantly, we continue to be in the 3.0 G-SIB buffer, which in one context would normally get much attention, but does get attention in the context of your question, which is sort of forward-looking strategic opportunity. It is worth noting if we can manage to stay at 3.0, assuming the framework holds through whatever Basel brings, that will be our buffer in 2026. So we are [170 basis points] (ph) over and we accreted $1.5 billion this quarter. External, i.e., inorganic, therefore, is something we can think about. It's just not something we're going to think about in the short term. The reality is we've got our forced hierarchy, the forced hierarchy is dividend first, investing in clients as appropriate, achieving operating returns against that second. And then third, the buyback opportunistically. Down the road, two, three, four years out, if opportunities come across the horizon, importantly |
4,894 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | the buyback opportunistically. Down the road, two, three, four years out, if opportunities come across the horizon, importantly after we have some definition around Basel and continued potential refinement of what we understand to be inside CCAR formulation, so just general regulatory uncertainty, sure, we might look at stuff. But I would tell you in the short-term, we're very happy with the acquisitions that we've made over the last 10 years, 12 years. And we are determined to generate operating leverage in each of the two major segments; Wealth and Investment Management and the Integrated Investment Bank, and then to obviously hit our efficiency ratios of 70% and the margins and returns that we've talked about. |
4,895 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Operator: We'll move to our next question from Saul Martinez with HSBC. Please go ahead.
Saul Martinez: Hi, good morning. Thank you for taking my question.
Ted Pick: Good morning Saul.
Saul Martinez: Good morning. I wanted to follow-up on an earlier question on the outlook for your sales and trading businesses. You've kind of consistently done about into $18 billion to $20 billion of annual revenue in the post-pandemic period, in [fixed and equities] (ph). And right now, we have a backdrop where we're going to see rate cuts, markets are strong, issuance activity may pick up. At the same time, you have perhaps more competition from foreign banks who have lost share. So how do you see -- do you have a view on how you see the wallet evolving for these businesses, your ability to maintain or gain share in this backdrop? And then I guess, ultimately, do you think you can grow revenues here from a base that is materially higher than what it was pre-pandemic? |
4,896 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Ted Pick: I think the answer to that is that we would like to grow share that is durable. We want to grow share in businesses that are connected to the core client base, whether it be global asset managers, the leading alternative asset managers, private equity and private credit players that have come to the floor, and then our lead corporate and sovereign clients. There are products that can be offered. There are very few firms that can do that globally. We continue to have a world-class market space, for example in Asia, where I believe we have the largest equities business. We've been growing the business quite assiduously on the continent in the UK, where our senior management has been putting in a lot of time and attention. And as you know, we have a differentiated joint venture with our friends and partners at MUFG in Tokyo. So if you consider the global footprint of the firm -- in a world that continues to be equities-based. It continues to be an equities world. You see it in the asset price momentum in the US. You see now the potential for that to broaden to more names and more sectors. And that obviously gives opportunity for folks in the stock picking business for example, where we've been very strong traditionally in equities, to do the [cash rise] (ph) and prime brokerage suite that we offer. You could see continued uncertainty based on how the next administration handles the significant macro challenges facing the US, whether you'll see a steeper yield curve, where you'll see activity on the front and to the belly of the curve. That of course, offers all kinds of opportunities for the rates business. And connected to corporate catalyst activity, where, on an M&A acquisition, the acquirer may wish to inoculate themselves from rate or foreign exchange risk, and that's the service that we offer. Again, I like the idea of growing durably inside the integrated investment bank. I like the idea that we are working in sandboxes with the appropriate capital controls around that. But that we are allowing |
4,897 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | I like the idea that we are working in sandboxes with the appropriate capital controls around that. But that we are allowing enough breathing space so that when our lead clients are looking to engage in a -- once in every few years catalyst event, that we can fully offer the entirety of the advice and financing spectrum to them on demand. So the answer would be to grow and grow responsibly. I'd like to think we can inch up the numerator along with the denominator, and then you would see that almost imperceptibly over the course of quarters and years. |
4,898 | MS | 2 | 2,024 | 2024-07-16 09:30:00 | Morgan Stanley | 472,898 | Saul Martinez: That's helpful. Thank you. Just I guess a quick follow-up, related follow-up. The ROE, 14% in ISG in the first half of the year early on, as you highlighted, in Investment Banking cycle. Do you have a view on where the ISG -- Institutional Securities ROE can get to as the Investment Banking cycle kind of plays out? Is there a view on sort of what a normalized ROE would be here.
Ted Pick: We're still early. We're still early in the cycle. We're watching it of course. To the earlier question on when the green [shoes] (ph) come through on the high-margin M&A product, the reality of seasonality, the uncertainty of rate path, geopolitics, US elections, it's hard to put a pin on what the returns will be in a given forward quarter until we kind of see some normalization in those uncertainties, not to mention some of the regulatory stuff that we are dealing with as we speak, Basel namely. But yes, you're right to point out that we are seeing some real operating leverage in the Investment Bank. And over the course of a number of years, as we think about not just the integrated firm, but the returns generated inside of Wealth and Investment Management. And then we look at the returns inside the Investment Bank, we are measuring that. And we are looking to have that contribute to the overall sustainable 70% efficiency of the firm.
Operator: There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you everyone for participating. You may now disconnect and have a great day. |
4,899 | MS | 1 | 2,024 | 2024-04-16 09:30:00 | Morgan Stanley | 472,898 | Operator: Good morning. Welcome to Morgan Stanley's First Quarter 2024 Earnings Call. On behalf of Morgan Stanley, I will begin the call with the following information and disclaimer. This call is being recorded. During today's presentation, we will refer to our earnings release and financial supplements, copies of which are available at morganstanley.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Morgan Stanley does not undertake to update the forward-looking statements in this discussion. Please refer to our notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release. This presentation may not be duplicated or reproduced without our consent. I will now turn the call over to Chief Executive Officer, Ted Pick. |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.