Q2 2021 Morgan Stanley Earnings Call
Good morning, and.
On behalf of Morgan Stanley I will begin the call with the following disclaimer.
During today's presentation, we will refer to our earnings release and financial supplement copies of which are available and Morgan Stanley Dot com.
Today's presentation May include forward looking statements that are subject to risks and uncertainties that may cause actual results to differ materially.
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 would now and turn the call over to Chairman and Chief Executive Officer, James Gorman.
Hi, Good morning, everyone and thank you for joining us on the phone delivered another strong quarter and a record first half with year to date revenues in excess of $30 billion.
We had strong inflows across wealth and investment management and and the first 6 months of the year. We added over 250 billion of net new assets across both of those businesses.
We now have over 13 million unique relationships and wealth management and.
And then as some investment management, our assets makes us increasingly diverse and well positioned and.
Key secular growth areas, such as customization and private alternatives and sustainability.
Finally, institutional Securities also had a tremendous performance.
Equity remains the preeminent leader and the industry fixed income and has maintained share gains and a leading investment banking franchise performed strongly.
Our business is further enhanced by our acquisitions of E trade and Eaton Vance and the progress on our integration.
Since the respective announcement of <unk> acquisition, both businesses and performed better than we expected.
Not only did the standard merge and metrics such as synergies and funding benefits read positive, but much more importantly, we're seeing long term business growth driven by exceptional client engagement.
This quarter, our our TCE was 19% and year to date were over 20%.
Obviously, we're exceeding our longer term targets of 7.9% plus.
We intend to formally revisit our goals next gen rate.
And I will not revisit targets midyear I wanted to assure you we are as focused on delivering top performance as ever.
And we're always subject to the broader macro environment, we will strive for continued outperformance.
Now, let me talk about the decision we announced 2 weeks ago on further capital distribution.
During the financial crisis, we reduced debt by back to zero and cut our dividend quarterly to 5 cents per share.
Over the past decade, it has been a slow steady path of improvement as we grow dividend from 5 cents ultimately to 35 cents and increase that buyback from zero to $5 billion.
I have said for a number of years that wealth and investment management contributed durable earnings and enable us to pay our shareholders substantially.
And that is what we are doing.
As a result, we reset our dividend doubling it to <unk> 70 per share and also increased our buyback up to $12 billion over the next 12 months.
We made this decision because of the confidence we have and that business model and our performance over the past 3 federal reserve stress test.
These tests confirmed what we've said for many years Morgan Stanley has built a significant amount of excess capital and we have the ability to invest and our business do acquisitions maintained a very healthy dividend yield and increase our buybacks.
Given our current earnings momentum it might take some time to fully distributed net capital, but we feel strongly that.
And this year is the time to make a big start now.
Sharon New Shire is here with me today and her new role as Chief Financial Officer, John <unk>, who was CFO up until midway through the second quarter is also here with us and as you know John took on additional responsibilities as Chief operating officer. Since June 1st So, let me turn debt, but as Sharon will discuss the quarter and detail and we look forward to all of you quit.
Thank you thank you and good morning.
From produced revenues of $14.8 billion and the second quarter, representing 1 of the top 3 quarters on record.
Performance continued to be very strong, reflecting high levels of client activity across our businesses.
Excluding integration related expenses, our EPS was a dollar and 89% of dollar and John Sutton.
Our our OTC he was 19%.
Year to date revenues of $35 billion were a new record highlighting the power of our firm which has been further enhanced by our recent acquisition.
Investing for growth remains a priority while also managing our expenses.
On a year to date basis total expenses were $26 billion on.
Which non compensation expenses were $7.4 billion and compensation expenses were $13.2 billion.
The increase in expenses versus the prior year reflects the addition of E trade and Eaton Vance and the integration related costs.
Year to date, our firm efficiency ratio declined to 67% excluding integration related expenses underscoring the operating leverage of our business.
Now to the businesses.
Institutional securities revenue of over $7 billion demonstrates the power of the integrated investment bank.
Revenues declined by 14% from the exceptionally strong prior year.
Revenues and investment banking and equities were offset by lower fixed income results underwriting with particularly robust as issuance remained elevated and despite lower volatility across asset classes, our sales and trading clients remained engaged.
We ended the period on a strong footing as clients were active through June.
Investment banking revenues were $2.4 billion, the 16% increase from the prior year was driven by advisory and continued strength and equity underwriting.
From a geographical perspective.
Perspective results in Europe, and Asia were the strongest and over a decade, and well technology and health care remain areas of core strength activity and financial institutions financial sponsors and real estate and other sector supported higher revenues.
Advisory revenues were $664 million, reflecting increased completed M&A activity versus the prior year.
Year to date announced industry volume reached record levels and cash.
<unk> continue to look for strategic opportunities as markets remain open and constructive.
Equity underwriting revenues of $1.1 billion were the second highest on record and the third consecutive quarter over $1 billion.
Increased from the prior year was driven by traditional Ipos, where activity remains robust globally.
Fixed income underwriting revenues of $640 million. We're also the second highest after a record.
Quarter of last year.
And banking pipelines remain healthy across products and regions.
Oh confidence remains high as companies look for strategic opportunities for growth.
Equity revenues increased 8% from the prior year to $2.8 billion, we are number 1 and this business globally.
Revenues were the second highest and over a decade results and Asia were particularly strong reflecting increased interest and the region from both Asia and non Asia based clients.
Cash and derivative results were robust, but declined versus the prior year against the backdrop of lower volatility crime.
Prime brokerage revenues were strong and increased versus last year as average balances reached new highs.
Fixed income revenues were $1.7 billion revenue has declined from the exceptional prior year as wider bid offer spreads normalized across products.
This quarter's results were broad based across the region.
Micro results were.
Robust compared to historical averages, but declined from the prior year.
And credit markets were relatively range bound and bid offer spreads compressed Mack.
Macro also declined versus last year with lower revenue and both rates and foreign exchange on the back of lower volatility.
Other revenues of $207 million declined versus the prior year. The decrease primarily reflects lower mark to market gains on corporate loans net of related hedges.
Prior year results benefited from significant credit credit spread tightening.
Turning to ISG lending, our allowance for loan for credit losses, and ISG loans and lending commitments was essentially flat and the second quarter at $1 billion IFC provisions were $70 million and net charge offs were $92 million primarily related to 1 facility.
Total ISG loans were flat.
And corporate loans was almost entirely offset by growth and all other lending categories.
Lending commitments increased by approximately $6 billion relative to the prior quarter.
Turning to wealth management.
Quarter will be a more relevant benchmark as a comparison period rather than the prior year given the acquisition of E trade.
Revenues were a record $6.1 billion.
Excluding integration related costs of $60 million PBT was also a record of $1.7 billion with a margin of 27, 8% from.
And with drivers of this business remain robust net new assets were $71 billion and the <unk> in the quarter, bringing year to date and then a 2.176 billion of which represents a 9% annualized growth rate of beginning period assets for the first half.
Net new client asset consolidation from existing clients and stock plan and retention all contributed to the strong results.
Further we continue to see strength and net recruiting and retention also contributing to N a.
Well and then they will be lumpy and should be looked at on a full year basis. The first half of this year illustrates the tremendous growth potential inherent in this business.
Transactional revenues were $1.2 billion.
Excluding the impact of D. C. P revenues declined 16% from the exceptional prior quarter.
And activity moderated from the first quarter's torrid pace, but engagement remained high.
Self directed daily average trades, where 1 million and the second quarter, approximately 10% above average levels for full year, 2020 out.
Our client base continues to expand and our households reached 7.4 million in the self directed channel.
Asset management revenues increased 8% sequentially to $3.4 billion year to date these revenues increased 28%.
Fee based flows were $34 billion, bringing year to date fee based flows to $71 billion almost matching the amount for the full year of 2020.
Fee based assets are now 1.7 trillion or more than double the level of only 5 years ago.
Bank lending balances grew by a record 10 billion and balances reached 115 billion and the second quarter year.
Year to date balances have grown by 17% exceeding our full year expectation of 10%.
This was driven by strong demand for securities based lending.
Net interest income.
Was $1.3 billion excluding.
Excluding prepayment amortization, which declined approximately $150 million sequentially NII was up slightly.
The benefit of incremental loan growth was offset by the downward movement in the middle of the curve.
We have realized the fully phased in synergies that we expected for 2020.1.
I and II going forward $1.3 billion is a reasonable exit rate to inform the back half of the year.
We expect NII to build from this level as we anticipate loans to grow more in line with 2020 levels.
The integration of EE trade is going well and we continue to prioritize the client experience.
While early we are encouraged by continued client engagement and excited about the potential of our pilot programs around referral.
The workplace channel continues to show momentum as we went equity plans and our number of participants now stands at $5.2 million.
Financial Wellness plans are also gaining traction we had 4 times as many wins year over year.
Moving to investment management.
Because the timing of the close of the Eaton Vance acquisition makes comparisons to prior periods difficult I will review the quarter, mainly on an absolute basis.
Revenues were $1.7 billion total AUM reached 1.5 trillion dollars and total net flows were over $48 billion.
Since we announced the acquisition at the beginning of October pro forma net flows were approximately $150 billion.
The increased diversification of this business was a significant driver of results.
Total AUM increased 7% from the prior quarter and stands at a record high of which long term AUM reached 1.1 trillion dollars.
Benefit of our broadened product offering and positioning and secular growth areas supported our net flows this quarter.
Inflows across products resulted in over $13 billion of long term net flows.
We saw particular strength and alternatives and solutions driven primarily by demand for parametric customized portfolios.
As well as a $1 billion strategic multi asset partnership mandate.
We continue to see strong client momentum and our private credit and core real estate platforms loan strategies and fixed income were particularly robust.
Asset management and related fees were $1.4 billion more than doubling from the prior year driven by strong AUM growth and the addition of Eaton Vance.
Performance based income and other revenues were $284 million and the quarter, reflecting broad based strength across the private alternatives portfolio.
With the integration on pace, our very strong position and customization sustainability alternatives value added fixed income and high conviction equity investing business.
Hitting us all as a critical partner to global clients.
Turning to the balance sheet bought assets were essentially flat.
Standardized our double UAS increased to $461 billion.
And our standardized CET, 1 ratio was flat to the prior quarter at $16.7 per cent compared to our CET, 1 requirement, including the SCB of 13, 2%.
During the second quarter, we repurchased approximately $2.9 billion of common stock for 34 million shares.
Our tax rate for the quarter was 23 per cent.
The second quarter results were strong and balanced looking ahead, while we are cognizant of the typical summer slowdown we are starting the third quarter from a position of strength investment banking pipelines are healthy dialogues are active and markets are open and wealth.
Wealth management continues to retain and attract new clients, New advisors and new assets investment management should continue to benefit from the increased diversification of the platform.
With that we will now open the line to questions.
Thank you.
To ask a question you will need to press Star then 1 on your telephone to withdraw your question. Please press the pound key and the interest of time, we ask that you. Please limit yourself to 1 question and 1 follow up.
Our first question comes from the line of Glenn Schorr with Evercore. Your line is now open.
Yeah.
Hi, Thanks very much.
Good.
And you piqued My interest you you made a comment from Oh.
Interestingly for growth remains a priority and seen so much Duffy on the cross asset Los Angeles pick my questions and I S. T E.
Goodness, GAAP, I think and in equities and and M&A.
Where do you see opportunities to invest and.
Capture share across I see right now.
Hey, Glenn I'm, you know I.
Firstly, I wouldn't I, certainly wouldn't and I'll come back to it and in a minute discount growth opportunities across.
I am and wealth, even though we've just on these huge acquisition so I'll come back to that in the institutional business listen, there's more consolidation going on and prime brokerage and.
With the you know the market leader and that we will pick up share over time.
Clearly and M&A, there's opportunity for us to grow I think there are a lot of the middle market M&A.
Spaces very first of all the different parts of the World. We still think we can punch, a herb and white. So I actually think both of those the equities business as good as it is and M&A. Just go to the Cid is I should think theres real upside and both of those and the fixed income space. You know aspiration years ago was to do a b and a quota we raised it to be and the hub and <unk>.
And here, we are and it sort of so so quota the b and 7.
As rates normalize and as the fixed income fee pool will inevitably grow I see a lot of space, there and E. S. P. G. SPG credit side, we've got a world class business, there again, continuing to grow share and our commodity business is doing very well. So the ICU franchise has gone from sort of <unk>.
At 5 B and a quota to this quarter was 7 was a little it was frankly better than we'd expected coming into it which is terrific, but it's very interesting I mean, the the the share gains across and it's not just on some of the other big plays and the U S are real and I think enduring and as the global economies recover.
And the people increases you, you'll just see more of that so I feel very confident about the ISG business.
I appreciate that and and I hear you loud and clear on and I said wealth management I do have a quick follow up within wealth management, obviously share works.
And Ms opportunity 1 day, if you could just give us a little mark to market and in terms of what's going on in terms of conversions and the core business and then what is going on in terms of leading towards.
Are they paying patients today and.
Morgan Stanley.
I couldn't hear the last part of your question, but I think you said referrals and throw out and how the integration on workplaces.
So that I'd say that you started starting with infrastructure, it's going very well as James said, but the core is start with infrastructure make sure that everyone has companion accounts as you go through so we've said we're at 50% right now where our clients have companion accounts by the back half of next year.
Should be around 90% and we started pilot programs, where you do have that companion and account and we do see it working we see the retention of assets. We see clients on you know moving over to actually get advice when they look and want advice. So we're working with the clients and we're trying out new technologies and will.
Go from there so it's really about conversion of clients and on the retention of assets, but it all seems to be working very well.
And I'd, just say something hum sort of off.
Off piece still a little bit here because it wasn't your question, but you're giving me an opportunity to come and.
Based on share works.
Thank you know every now and then and business you look and you sort of see a wave coming and you catch the wave and it's a beautiful thing.
The whole workplace space to me is the next major growth area in financial services I think of the next 10 years will look back a bed solely and transaction, which at the time some people thought it was expensive and it was.
And I think we spent 800 or 900 on it might've been Canadian dollars, so somewhere around there and it was trading at about 500 value.
That gave us the opportunity to do so.
E trade transaction with confidence because we knew we could merge the our workplace businesses and create share works and I really believe that this is very fertile ground and convert those millions of clients hopefully into being a Morgan Stanley and E trade clients as we had.
And the accounts that fold into our own in house accounts. So that's 1 way parametric the customization space I think is a second wave.
Calvert funds and everything we've done through our own sustainability and street efforts combined with now Kelvin and products and then the digitalization and how we're going to take the trade platform, both domestically and internationally I think there's incredible opportunity. So it's pretty rare to sit here and you know having done this for a little while there are a lot of things that you can do.
To just improve your business, but these are things, where I think we have fundamental market forces.
Wishing these waves and we're right on top of them. So it's very exciting.
Thank you.
Our next question comes from the line of Brennan Hawken with UBS. Your line is now open.
Good morning, Thanks for taking my questions.
And.
I'd like to just start by saying congrats to Sharon.
Welcome to the calls in and in a different role [laughter] quarterly quarterly dance here.
Congrats.
Sure. So so I like that and maybe start with the integrations and sort of taking a step back.
You've got 2 pretty substantial deals under your belt.
They're now closed and so you're you're working on integrating those businesses.
What are the.
Milestones that we should think about as you.
Proceed with that work.
And what kind of timeframe should we think about around update or is it are we going to just get back to the annual strategic update where it's the fourth quarter call or they are going to be.
More regular updates, where we're gonna be able to hear about the work that you're doing you know James you made reference to the to the workplace, which is obviously a key part of E trade, but but how should we think about those from here I know, it's kind of a broad question, but just wanted to try and level set.
Sure I think that it's a it's a fair question and in terms of where that comes out it will likely be the next step will be the annual deck, but then from that point on I think there'll be a more regular cadence. So obviously most investors here know Jed Finn for example on who can begin to take us through some of that.
Workplace, but there's also I think the goal will eventually be to better understand where their participant migration. So how do you think about the question that Glenn asked which is referrals. How do you see that referral channel and going through in terms of dollars et cetera. How are you thinking about proceeds and the proceeds falling through.
From those companion accounts, but the integration is a 3 year process, which we put out there at the very beginning so I think right now what we're looking to do is make sure that the pilot programs are going well and understand the client reaction as you think about some of the technology and what is working and what isn't working.
So to give you things piecemeal or to give it a little bit too early I think would also be a mistake because we'd like to ensure that it is the right client experience and that's what we're focused on right now.
Okay. Thanks for that and then.
When we think about net new assets you know the the growth there has been really pretty impressive.
We have seen some acceleration across the industry, though and I think you know most investors thinking it's going to slow this past year has been a little unusual but.
When we look at what's been happening at Morgan Stanley.
Things are already work celebrating before we entered into this period.
And so 1 of the debates.
Debt has been coming up more regularly has been what is the right.
Right for the wealth business on a go forward basis.
And you know I'll I'll, maybe maybe throw out a range and and from my perspective, it feels like somewhere in the mid to upper single digits, and a 5% to 7% feels fair.
Fair.
On a long run basis, but.
Number 1 I'd love to hear your reaction to that and then number 2.
What I'm, how do you think about that that growth rate that you guys have something in mind is there something that you're targeting.
Any color on that would be it would be really helpful.
Sharon sudden and I've got a few thoughts about that yeah. I mean, I think we're we started Brennan and if we look back to the beginning of the year. We gave you guys a very long historical.
Average chart and then we showed you on the 7% of the pro forma when you include a day trade now what we have said is we don't think we'd go back to a 3 to 4 per cent sort of on a sustainable basis, so that 5% to 6% is where James spoke to this audience Ah at the beginning of the year when we talked.
About the deck, obviously as you look forward, we're doing a lot on both on net on net asset consolidation net recruiting and all of these new channels and so I don't think we have the same way that James level set with the targets at the beginning of his introductory remarks, I'd say, we don't you know.
And that's probably the same way you can think about this we're 5% to 6% and maybe that's the right place to start, but we're obviously not going to try to underachieve Ah that number.
Yeah Brendan.
It's really the it's the the question right because if we can generate growth and the.
High teens, I mean, and I think we're what are we none per cent year to date organic I mean. This is this is just we've never seen this and I've been doing this for a very long time.
There the 3 industry segments, basically the wire houses and sort of independents I shall rise and the direct channel.
For years, the direct and has grown the Iraqis have grown and a large part because they've taken advisors and moved out of the traditional channel and to the array of channels and probably the growth has just been a shift if you will out of its being organic and the white house's of sort of struggled and they've struck.
And for a couple of reasons..1 is poor training too is very high attrition tree is lack of looming the clients and through the mortgage and the banking products at the you know the.
<unk> have et cetera, and I think what you're seeing now we think we're kind of creating and you know not to be arrogant about it but it's a new mouse trap.
And we are creating and advisor channel, which actually has a deep organic growth flavors and it and if you look at our attrition numbers and the weekly hiring numbers I mean, they're fantastic.
And with that you know, we're getting tremendous asset growth and then you combine that with having the direct platform and then combine that with having the workplace platform. You've got you know 3 legitimate channels pouring assets into the house.
And you know it wasn't so long ago that if we did you know 10, b and a quarter, we thought were pretty good.
And you know, we just had a $70 billion quoted during tax season, and you know it's it's it's good I mean, it's very good.
But we you know we.
We don't think it was a fluke.
So I don't know where the ultimate number is going to settle I think our assets and wealth and now around a little over $4.5 trillion.
<unk> 500 billion 12, 14 years ago. So we're at $4.5 tree and we've gone up 9 times compounding on a big number is a pretty potent force as you know so I don't know if it's going to say it won't be below 5% I mean, any individual quota you have stuff going on but it won't be below 5%, whether it's 678.
No, where we land on that we'll see over a few years, but it feels good.
Thank you on.
Our next question comes from the line of Stupid and Steven <unk> with Wolfe Research. Your line is now open.
Hi, Good morning, and welcome Sharon and nice to have you on the call wanted to start off with just a 2 parter on wealth management NII.
You noted that the E trade funding synergies have been captured for 2020, 1 and the deposit costs and wealth management and still feel a bit elevated at 16, bips, especially when and benchmarking versus peers and fish.
Wondering if there's potential to drive those funding costs lower if rates remain at zero and then just as a second part maybe just speak to the environmental factors supporting such strong SPL growth and the sustainability of that trend.
Sure I would just mentioned that we did see the planned run off right of wholesale deposits and we continue to expect another 13 billion of wholesale deposits to run off by year and as we see some of that higher cost funding roll down. So just to note there I don't have an exact.
Target on sort of BD piece off but that will give you a sense and.
In addition to that I would just highlight the SPL question that you asked but that product is resonating with our clients and so that's the point there and as James has always said you know, it's a product and which you and wealthy clients their money back and this is something that is resonating it's structured very well.
We've historically seen minimal losses and it has a 337 per cent L. T V right now on that portfolio. So from that perspective, I think it's a good product to offer and it's also something that works, especially in a season like this where you generally see on.
A lot of that product and tax season, and so there is an elevated number and the second quarter on generally speaking.
And just for my follow up on capital management, and the dividend increase that we saw was much higher than anticipated. It looks like you're now running with the highest dividend yield amongst all of the G. Sibs I know James you had alluded to the improved stress test outcomes the higher contribution from recurring revenues, but just to remind.
And our philosophy around and setting the dividend and buyback and where you're running on your cap, where you're comfortable running on your capital ratios on a through the cycle basis.
I mean, there's there's a lot and that save.
So it might take a little while get yourself a cup of coffee put your feet up on the stool.
Okay.
No.
Oh, so let's just start with you know I think we're.
We're a company that is going to produce durable revenues for ever and.
And we go and screw it up and basically if you look at the daily numbers coming out of the fee based businesses and the wealth business and the fee based businesses and asset management, there for real and there every day and they're not you know 10 me and they're 100 me and so you've kind of locked in a 25 billion dollar business.
Right from day, 1 and the beginning of the year and our view on that is unless we spend our way into trouble on and it will generate very consistent earnings and just philosophically. It doesn't mean I'm right, but my view was.
Suddenly the wealth business and the fee based part of the asset management business, which is so predictable we'd think of it as like a yield stock and the investment banking and trading businesses and capital market businesses and some other carry businesses and asset management and we think is like the.
And I'll put the other businesses and a growth stock, but that provides the capital to fund the engine to do buybacks et cetera et cetera.
We've been carrying a buffer of C. T..1 of over 17% we have to be at I think the latest C covers rent sitting 2 ish.
You know I I don't know what the exact buffer we should carry internally as we've said 50 basis points it wouldn't be less and that but just pretend. It's you know 80 basis point, you're at 14, and you've got 300 plus basis points to play with we're generating net income and the first half of this year was $7 billion.
We are less than that and the second harpoon and you know just because who knows.
But we're certainly not going to be on the champion for the year and probably not under 12 P and so you're talking about a buyback and 5 of 12 P and a dividend of 5 debt gets you to 17.
General and at least 12, you're in the hole for 5 but you've got 300 basis points of access it's going to take a bunch of used to eat into that and we felt as shareholders deserve to get.
The earning stream up the predictability of the businesses that we've got we're not a traditional investment bank as traditional investment banks used to be and the vast majority of them. If not all of them went out of business. So merged we are a combined the best from bank with a massive wealth and asset management business. So we think shareholders should get the benefit of that.
And different profile 14 point, whatever it was 8 billion and revenue this quarter, a little over 7 over whats institutional and little over 7 of it was wealth and asset management. So it's exactly what we hoped it's sort of balance that.
What's the philosophy now.
It would take us a bunch of years and let's see kind of changes dramatically for us to get close to a buffer and you know we were buying the stock back and the stocks you know of and $90. We're very happy buying at this level, but at some point, obviously that gets expensive.
We do think we can do more deals over time, and where we will actively look at that and we want to keep investing and the business that but the reality is and this is like the ultimate conundrum.
We can do all full buyback dividend invest and acquisitions and still run and excess buffer.
And you know the only way out of that problem is not Ted good earnings and that's not my solution currently.
So.
Lets play this out over a few years I'm really happy we got the dividend as we called it a reset and you know we had the authorization from the board for up to 12 billion and we'll go hard at that particular per stop what have you know if if we saw a big move and the market, but that's that's how I'm thinking about it and how the board thinking about it.
Thank you.
Our next question comes from the line of Matt O'connor with Deutsche Bank. Your line is now open.
Hi, Good morning, John This is actually Bert Ivanka sticky on for Matt. So my questions are on investment management and the inclusion of Eaton Vance.
And last quarter's 10-Q, you noted that certain Eaton Vance products, which have lower average fee rates and the stand alone Morgan Stanley investment management platform I know you've made some revisions to the AUR and disclosures and you know Eaton Vance and we had 1 month of performance and the data and once you are could.
Could you just talk about the expectations on fee rate and the combined asset management platform as you diversify the product mix.
Yeah, I think that's right and obviously that's in the and some of the overlay products. For example will have lower fee rates are it will obviously be a mixed product also if you think about it just across the platform you might see other gives and takes but I think that what we're.
On is not necessarily the fee rate of 1 individual product, it's creating and ability to service the client more broadly so while the overall fee rate might come down as we've disclosed there are secular growth trends that should continue to bring assets to the platform, which would offset parts.
That on a total basis rate a rate times volume kind of concept and particular you have the parametric product, which we discussed which is obviously has its own secular growth trends. The Calvert product and then there are cyclical trends that could eventually turn into secular trends I E.
S. G I E on what's going on with changes to tax legislation and how people think about customized portfolios. All of those things are reasons that we might see changes and growth and are you on and in addition to that I think that the fixed income products offered to clients and ability to bring their entire portfolio to Morgan.
Stanley and so from that perspective, again rate times volume over time, and so there will be a difference and those fees more broadly on that portfolio, but assets should continue to come in.
Okay. Thank you that's helpful. And then just my follow up.
And you know again I know, it's just the first full quarter of Eaton Vance just combined on the platform, but just any color you can share about the integration efforts around like putting them in.
Eaton Vance has products on your international distribution channel and then vice versa, putting some of your core products on Eaton Vance as domestic retail platform, just just trying to get a sense of anything with net flows showed up.
We have and I'd say, we've aligned the sales forces on but as you noted and it's you know it has not been that long we're working through it I think we see and we expect to invest and the various businesses to deliver the customization for a better client experience, but also open the new workplaces, so not just international but also.
As it relates to workplace et cetera. So we're still working through that and we should have an update over the course of the rest of the year, but the short answer on the flows as zero of the flows to my knowledge. There was a result of exactly what you just said, putting the men's product and international and putting a product through the wholesalers and <unk>.
And Eaton Vance, they're terrific terrific teams.
There'll be a lot of upside on that going from zero or it has appeared yet.
Thank you.
Our next question comes from the line of Christian Ballou with Autonomous your line is now open.
Good morning, James and Sharon and just echo the sentiment a big Congrats you Sharon.
James maybe actually a couple of follow up some things you've said on the prior questions. I think you just said.
We have a couple of quick.
Couple of questions before that you mentioned you could do more M&A deals I'm, just trying to get a sense of what you're thinking there or was that a dog.
And the doubling down on wealth management or was it consolidates and traditional asset management space as you look to groups, who tend to any client assets.
And with a Christian good morning, we've done I think 5 deals acquisition since the crisis and we've had a lot of our dispositions are disposals, I guess and <unk>.
Transmontane a high demand we spun off M. S. C. I, obviously, but for this we spun off discover.
P D T. The setup business from point, we shot so you know and folks are focused on the acquisition side, but we've also done and a huge number of deals in and getting rid of businesses that are better on by somebody else or.
Just wanted to FID.
No you know as always and in Spain, I remember a quote her and the U K.
European private banking business, we sold et cetera. So on the on the deal side, we've done and you know Smith Barney obviously was the big 1 and Mesa West was supposed sort of tone on the water.
And investment management, and the sodium deal and the workplace suppose followed by E trade and and Eaton Vance. So all I'm, saying is we don't have you know, we don't have big transactions and line upside at this point in time, but we are.
And we're a big enough company, we're generating you know I do.
And no we're running run rate I guess is 60 billion and revenues this year.
Hundred and 70 puppy and market cap, finding the right things to fit and particularly internationally and particularly on the digital and technology side is very interesting to us now.
Now pricing is always you've got to be disciplined.
But it's just it's something that we we're very watchful oven.
We're not shy about it but major transactions on highly unlikely that happened and these are more bolt ons.
And so they feel right.
Great. Thanks, and then just a follow up you keep mentioning and international I think you said.
<unk> you want to expand that internationally, which I don't think I've heard before and if I remember correctly and the posture, we're always cautious about.
Wealth management International expansion and maybe you just said you divested quilter and each would go with our international.
International businesses.
Prices. So just just can you just talk more about how you think about international and how you would expand the trade what's the sort of like vision here.
Sure I'll try and be brief the international wealth business is complicated because while the U S market is 300 million people and Europe is about 3 under me and people Europe is multiple jurisdictions within that even though it's a euro zone.
Asia people look at and so at some monolith, it's not Vietnam and its not Indonesia, Malaysia has not Thailand. The Philippines is not Australia Korea is not a China et cetera et cetera. So you've got a its very hard to get scale in these markets, but it shouldn't number 1 ish and number 2 they tend to be very hit heavy equity trading.
<unk>.
Our markets are they're not the diversified traditional financial planning might look at Japan, Japan, and the velocity of asset and Japan compared to the U S. It's night and day and Thirdly, obviously, you know know your client money laundering.
No all of the things that 1 has to be careful about cross border type money flows.
The bar is very high and we're you know we're a conservative institution. We just on so my view has been for a long time that you trade very carefully you go where you've got the scale.
We've done that and Latam, because we basically run it out of Miami and New York. So we run it as a region as distinct from single countries and you go and we've done it and Hong Kong, where we deal with a lot of wealthy.
The Asian clients out of Hong Kong and Singapore.
A little bit and Australia, but basically you go where you have scale. So the more attractive path forward is likely to be through digital and electronic under the brand and with good products rather than trying to build up thousands of people and I, Dunno, Malaysia, and Indonesia and E trade becomes a very ill.
Interesting platform for that early days, that's the you know the new strategy team is taking a look at what we can do internationally, but that's something that would be very excited about.
Thank you.
Our next question comes from the line of Mike Mayo with Wells Fargo Securities. Your line is now open.
Hi. This is the first call since you announced the partnership with Microsoft to accelerate your your cloud development and can you talk about what you hope to achieve with that with any concrete metrics possible and ultimately how much do you expect to have up here.
And your processing on the public cloud or private cloud and otherwise and on premise.
Yeah, I don't I don't think and I have off the top of my head on all of those details Mike We do have a major deal with Microsoft.
So.
Working with other cloud providers haven't named him on the call, but we have a long term contract. We've just done with Microsoft that's all part of our.
On the re imagination of AD technology organization, and it's come through some.
And programs that we put in place internally around agile and something we call pace.
Basically designed to move this organization into the century, which I think they've done a fantastic job up we created a group and what we called the distinguished Engineers and.
And interestingly and people don't think of it this way, but I think we've done the biggest move and technology of any of the large banks, maybe in the world by spending $30 billion on a technology company.
Called E trade, which.
And basically technology and brand so the Microsoft deal is a very important 1 but it's not the whole on schelotto from what we're doing with that tech platform. It's just a necessary step to move a large part of our business into the cloud and we've got I think 3 different providers. We just haven't had the largest contract went to Microsoft on this occasion.
Okay, and then a separate question on culture, and I think it was like.
6 or 7 years ago, you made some pretty harsh comments on compensation and people had to take stock.
And they were all upset and I guess that was the right move for you and for them.
And recently moved from other top comments as it relates to employees and needing to be back and the office.
And there's a big debate out there you know do you have a hybrid solution should people be back and the office. If you work outside the office you'd be paid less so I preface my question and saying well you were right whenever that was 6 or 7 years ago about being you know taking a hard stance short term.
For the long term can you elaborate on those comments you made recently.
Well there is certainly not connected and I think it was 9 years ago and think it was 2012, we were barely profitable we cut the dividend of <unk> since we had zero buyback and we had an hour we have about 2 per cent and somebody asked me and T. V interview, how would I feel about people complaining about their bonuses and I said, what I said at the time.
If you don't if you don't reward your shareholders at some point as you've remind us over the years as Mike went out and how are we was well below 10% they pick up they bet and ball and go home and so given we were paying employees a lot and stuff that was in their self interest.
And to hang tough get a lot of stock very cheap and they'd be rewarded and I'm very very happy for our employees. That's in fact, what's what's transpired and the stock has gone from you.
Obviously very low number to where we are today and the comment I made about the workplace you know I fundamentally believe that the way you and I and other sitting in this room, Sharon and John have have developed at cruise is by being mentored by and watching and experiencing.
The professional skills of those who come before us and it's certainly dramatically affected my career and I don't think you can do that sitting and hung by yourself I, just I think theres a limit to how far as good as the zoom technology is how far that can take it. So what I said was that I wanted people to start coming back and the office and certainly by Labor day.
But I also said, which wasn't picked up and the media that we would be flexible way flexibility was code for what we've learned through Covid is that under certain circumstances, having people work from home. It makes great sense. There are individuals who have health issues and there are individuals who look out for family members and posture as we would have said well that's sort of too bad now.
If you have to you know move to be with your family for a couple of months to look out for a healthy share of family issue, we can manage that.
Some people have extraordinary commute and so we can manage some flexibility around that.
And so you know, but the basic premise and right at the beginning of Covid and in February of a what was it 2020 I think I said when I was asked how would they send up I think I said that I felt 80% of all employee hours worked.
We'd be done and.
And 1 of our offices and that's probably where it's going to wind up.
The other 100%, but not zero per cent.
Thank you.
Our next question comes from the line of Ebrahim, Pune Waller with Bank of America. Your line is now open.
Hey, good morning.
Just had a question around.
You mentioned earlier and films and updating the C 17.
And 17% plus or tone and outlook on.
Early next year I was wondering if you can talk about and you think about the next 5 years and just the competitive forces and talk to us and.
How you were thinking about budgeting some investment spend as it relates to R&D or more experimental type investments that could allow you to better compete and gain market share.
You know I.
That's that would take a lot longer than we probably have on this call. What why don't we hold that until we get to the strategy discussion next year, because I'm not trial, the Thai budgeting and investment discussions threshold initiatives, we're undertaking rather and just do it and the abstract here of getting them on.
Yeah.
Thank you.
Our next question comes from the line of Gerard Cassidy with RBC capital markets. Your line is now open.
Good morning, Sharon and James.
Can you guys shared with US you talked about wallet share gains and the eye.
S G group.
And I was wondering if you could elaborate on how you think youre achieving and some of your peers have said the same thing is it because of your people and the amount you invested in technology.
Size or is it some of your competitors or just weaker and and other issues to deal with which gives you. This opening to take wallet share gains.
Hi, Gerard it's nice to hear from you I'd say, it's all of the above them, but more importantly, I also think that there is something that we've we've sandwiches and periods of crisis, which I think you saw over the course of 2020 oftentimes those that you are closest to from a relationship perspective.
And up being your closest relationship and you're gaining share and that regard so very similar to what we've talked a lot about on this call about asset consolidation and a wealth management relationship I think the same goes for the assets. The relationship consolidation. If you think about institutional securities so be that on the <unk>.
Equity underwriting for example, vivat and coming to the equity business, but not forgetting what we've done and fixed income, which has really gained share since 2015 to be a really credible player in that marketplace. So all of those things I think technology and leveraging technology.
The beginning of on site in equities and moving over to the right places and fixed income where it makes sense and investment continues and I think has helped us gain share as well from like you said, probably the Europeans and others that have retreated and certain marketplaces.
Thank you.
Our next question comes from the line of Jeremy Siggi with BNP Paribas. Your line is now open.
Thank you and just really a quick follow up on net interest income and wealth management.
Just wondered whether you were sort of asked a sustainable base level here and you know NII should now grow in line with the volumes that are coming through or are there any further moving parts that you expect to affect that.
Well I would say that the fundamental moving part as rates right. So if you think about it obviously there are certain things where and when we look at giving you guidance or presenting a base case the base case, that's what's price into the marketplace.
And so we use that as the guide and that's why I think for this quarter and while we mentioned was and medium part of the curve did move up more than I think and most had expected or predicted but as you go forward right now at least for 2020. The build is really going to come from on the actual lending, which we've talked about.
Which is at 2020 number is what we've just given you and we said that that ran around $18 billion for that year. So that's 4 to 5 billion a quarter that you can think of for the growth and London per quarter through the end of the year.
Thank you.
Our last question comes from the line of Dan Fannon with Jefferies. Your line is now open.
Thanks, Good morning, So I had a couple of questions just on the investment management and Eaton Vance. So curious I know you mentioned that you're just integrating the sales forces.
For the distribution platforms, but curious about which products you think have the most potential to be sold through the Morgan Stanley distribution on the global side and as you look at the Eaton Vance private product lineup today, and then within ESG you have multiple capabilities now with Calvert and what was legacy Morgan Stanley and how do you think about.
Integrating that more broadly across the investment management segment, given the demand you're seeing you know we're seeing across the industry for those types of products.
Sure. So I would say sort of similar to my last answer which is all of the above I think all products, particularly we've talked a lot about the customization and of parametric I don't think that's just wealth management I think that's a workplace product as well over time, and so not just and advisor led product alternatives private credit.
Is 1 where I think we've seen and interest and we continue to see interest and alternatives from the wealth management franchises more broadly not just our own and as you think about ESG, we had always talked about Eaton Vance and and the old and some being equal perfect fit in terms of the 2 and.
And I think a lot of that came from the distribution and the complementary distribution that you had so ESG products and Calvert.
And Eaton Vance product with a U S. Domestic sales force, we have a strong international sales force and obviously a lot of the interest in the ESG and sustainability products are also coming from Europe and abroad, and so that's where we think that that distribution can really help thinking about taking those products elsewhere.
Thank you.
There are no further questions at this time.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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