Q3 2021 Morgan Stanley Earnings Call
Good morning on behalf of Morgan Stanley I'll 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 at 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 will now turn the call over to Chairman and Chief Executive Officer, James Gorman.
Thank you good morning, everyone. Thanks for joining us.
It was an exceptional third quarter. This defend deliberate and it's contributed to year to date revenues of 45 billion to put this in context, our year to date revenues surpassed full year 2019 revenues by nearly 10% as of this stage our business model continues to generate durable revenues high returns.
And strong operating leverage and we produced in our OTC above 20% both in the quarter and on a year to date basis institutional securities continues to gain share it performed strongly across all regions and all three major businesses.
We have done to integrate our businesses across the investment bank is clearly paying dividends of note investment banking had its best quarter in history and within that M&A also produced its own record quarter.
Equities are extremely strong and fixed income was stable.
The wealth management business, which includes E trade now of course is growing assets at levels far beyond what we've seen through the first nine months. This business added over 300 billion of net new assets compounding growth on our client asset base of over $4 six trillion and we believe this is going to be an economic engine for Morgan Stanley.
It's to come.
The majority of our advisers had positive net new assets year to date and it's this broad based strength that is key to driving these asset levels, we're seeing them I mentioned, though across all our newer channels self directed and workplace.
Self direct decline engagement remains elevated U S corporate stock plan wins increased 19% versus last year.
In the in the quarter, we continued to broaden our reach especially through Morgan Stanley at work, where we now have in excess of 14 million unique relationships.
Well, it's early days, we believe that overtime Morgan Stanley at work will be a meaningful growth driver for the overall business, providing additional connectivity to a wider range of prospective clients for brought up wealth management services.
In investment management fee based asset management revenues were $6.0 billion in the quarter by the way that's nearly triple the average quarterly level of five years ago.
At $1 five trillion of assets under management represents a more diverse as it makes further enhancing the range of value. We can provide clients expanded solutions and customization sustainability and value added fixed income along with house sizable and growing alternatives platform position us well to capitalize on ongoing secular.
<unk> growth trends.
Year to date net flows within investment management have exceeded $100 million.
Finally, as it relates to capital we bought back $9.0 billion of stock consistent with our overall capital plan and doubled our dividend, thereby delivering shareholders nearly 3% return.
All that said, we're not complacent in what is obviously a slightly more turbulent market environment. We do expect the federal reserve will begin tapering soon and that will be followed by increasing rates in 2022.
We remain optimistic about <unk> position and business outlook, but we will exercise more caution if we see a significant uptick in volatility.
Throughout we remain committed to our core values that drive our culture and ensure we do business the right way.
A final word on capital as you know circa the standardized counterparty credit risk regulatory changes beginning next year for the largest banks.
It impacts the calculation of counterparty credit risk and thus risk weighted assets, we've decided to early adopt in the fourth quarter that of course increases iwa's them with that low is the implied CET one ratio.
Our current CET, one ratio, which includes the impact of our recently double dividend and buyback because third quarter is 16%.
The pro forma impact of circa absent further mitigation could theoretically reduce that by approximately 120 basis points.
Of course, we have a lot of flexibility to mitigate and that work has already begun.
Early adoption that allows us to pick up a benefit in future CCAR tests, which made self offset a part of this impact overtime.
I'm now going to turn the call over to Sharon and discuss that she will discuss the quota in greater detail and then we'll both take your questions. Thank you.
Thank you and good morning.
The firm produced revenues of $22.0 billion in the third quarter once again, representing one of the top three quarters of the last decade, excluding integration related expenses, our EPS was $2 <unk>.
And our Aro TCE was 22%.
Year to date revenues reached a record of $47.0 billion institutional Securities continues to power performance with particular strength in investment banking and equities.
Wealth management and investment management, each set year to date records.
While investing for growth our business model demonstrated operating leverage.
<unk> year to date efficiency ratio improved to 67%.
Now to the businesses.
Institutional securities delivered an extremely strong quarter with $12.0 million in revenues year to date, the revenues of $25.0 billion were the strongest in over a decade.
The integrated investment bank is working seamlessly to serve our clients and to gain share.
Balanced revenue supported overall results.
<unk> in particular was a standout with record quarterly and year to date performance importantly.
Importantly, institutional securities is delivering remarkable operating leverage the pretax margin, which was 38% year to date has significantly contributed to the firm's strong efficiency ratio this year.
<unk> banking revenues were a record of $10.0 billion increasing.
Increasing 67% from the prior year exceptional performance in advisory and continued strength in underwriting drove the quarter's results.
The Americas and Europe led the year over year increase.
Advisory revenues were a record $4.0 billion.
Reflecting increase completed M&A activity versus the prior year.
<unk> were supported by greater sector diversification compared to last year.
Equity underwriting revenues were $1 billion, marking the fourth consecutive quarter at or above this level. The increase from the prior year was driven by strength across products.
Fixed income underwriting revenues were $567 million.
Year over year increase was driven by strength in non investment grade loans supported by the combination of the rate environment and elevated levels of event driven activity.
Investment banking pipelines remain healthy across sectors and regions and.
And activity is expected to continue on the back of current momentum financial sponsors are deploying capital and corporate clients are looking for strategic opportunities as a source for growth.
Equity revenues were very strong increasing 24% from the prior year to $11.0 billion.
Our equities business remains a global leader.
<unk> benefited from sustained client activity throughout the quarter.
Revenues in Asia were particularly strong underscoring the importance of our diversified global footprint.
Cash and derivatives derivative revenues were both higher versus the prior year Rod.
Broad based client engagement continued through the summer months.
Brokerage revenues increased versus last year on higher equity market levels.
Fixed income revenues declined from a strong prior year to $7.0 billion.
The business delivered a solid third quarter.
Micro results remain above historical averages, but reflected lower revenues in securitized products and credit corporates compared to the prior year, which benefited from wider bid offer spreads.
The macro also declined versus last year with lower revenues in both rates and foreign exchange.
Commodities was strong and revenues improved versus the prior year as North America power and gas benefited from robust client activity.
Turning to wealth management, the prior quarter will be a more relevant benchmark as a comparison period given the acquisition of E trade.
Revenues were $14.0 billion.
Down 3% from the prior quarter.
However, excluding the impact of DCP, which declined by approximately $300 million the revenues increased 2%.
Integration related costs were $113 million, excluding integration related expenses PBT was $7.0 billion.
And the margin was 27, 7%.
We realized a record of $135 billion of net new assets, which underscores the power of the asset gathering platform. We have built net new assets in the quarter was strong and balanced inclusive of assets from existing clients and new clients stockpile investing events and net recruiting.
Year to date M&A exceeds 300 billion.
Representing a 10% annualized growth rate of beginning period assets.
In the quarter, we added $43 billion of predominantly retirement assets through an asset acquisition. These.
These incremental assets are reflected in total client assets fee based assets net new assets and fee based flows.
We are particularly excited about the approximately 600000 participants associated with these retirement assets, who will now have access to educational content and analytical tools delivered through the financial wellness platform deepened.
Deepening these relationships and ultimately converting workplace relationships to advisor led or self directed clients based on their individual needs is at the core of our expansion strategy.
The workplace channel serves as an asset acquisition funnel that will fuel our growth over time.
We are excited by the momentum in the workplace.
Year to date, new stock plan participants have more than doubled we have nearly $500 billion in invested assets.
In the quarter transactional revenues were $832 million, excluding the impact of DCP revenues declined 4% in line with seasonal patterns.
Self directed daily average tradings were approximately 960000 in the quarter in line with the average level for for the full year of 2020.
While moderating from the exceptionally high activity seen earlier this year client engagement remains high darts. This quarter were three times above E trade pre acquisition record.
Asset management revenues were $9.0 billion up.
Up 5% sequentially year to date. These revenues increased 29% to a record $13.0 billion. The strength in fee based flows supports our view that clients versus consolidated assets onto our platform and then migrate these assets to advisory.
Bank lending balances grew $7 billion sequentially to $121 billion and have grown 23% year to date.
Growth in securities based lending and mortgages drove the increase reflecting strong client demand for new lines and increased household participation.
Net interest income was $4.0 billion prepayment and amortization was negligible in the quarter, but it did impact the sequential move excluding for prepay for both quarters NII was up 4% benefiting from the incremental growth in lending balances and decreased deposit.
Okay.
For the remainder of the year, we expect NII to build sequentially on the back of loan growth at a pace slightly below the third quarter.
The integration of E trade remains on track today to our clients with E trade and Morgan Stanley can choose to provide their Morgan Stanley adviser with visibility into their E. Trade accounts by year end clients will be able to link their self directed accounts via a single sign on building on our digital client experience.
Moving to investment management, and the timing of Eaton Vance acquisition makes the prior quarter a more relevant benchmark.
Revenues were $6.0 billion declining, 15%, while asset management and related fees rose sequentially. The increase was offset by lower performance based income and other revenue.
Total AUM remained strong at $1 five trillion.
Net total net flows were $15.0 billion in the quarter, driven by liquidity and overlay services.
Long term flows reflected a single redemption of $12.0 billion and our solutions business by a large asset manager the redemption.
<unk> was approximately half of the asset manager's AUM with us and we expect the remainder of the AUM to be redeemed in the first half of 2022 as the asset manager brings its equity trading implementation in house. Excluding this idiosyncratic outflow. We saw positive long term net flows with continued demand for <unk>.
Metric customized portfolios private real estate.
And private credit and sustainable strategies through both Calvert and some fun.
Asset management and related fees were $6.0 billion, reflecting the high proportion of durable and recurring revenues in this business.
Performance based income and other revenues were a loss of $17 million in the quarter gains across the platform were offset by lower accrued carried interest in our Asia private equity business, primarily driven by a single underlying public investment in one of the funds.
<unk> of our growing alternative portfolio helped mitigate the overall impact.
Finally, the integration with Eaton Vance remains on pace, we continue to invest in secular growth areas, particularly sustainability alternative and customization for wealth management platforms and clients.
Turning to the balance sheet total spot assets increased to $1 two trillion dollars risk weighted assets grew by approximately $11 billion, primarily driven by increased client activity in the quarter.
We continue to deliver on our commitment to return capital to shareholders and are executing on our $12 billion buyback authorization buying back $9.0 billion of stock in the quarter, our standardized CET one ratio now stands at 16%.
As James mentioned, we intend to early adopt soccer during the fourth quarter. This year after taking into consideration the potential benefits to certain capital metrics such as the future FCB calculations with our current portfolio size and mix. The adoption would imply an estimated increase to our risk weighted assets of approximately 35.
$45 billion.
This would also apply a reduction to our CET one ratio by approximately 120 basis points upon adoption.
We have commenced mitigation efforts, which should offset some of the impact to our CET one ratio.
We will continue to remain well capitalized post the adoption of soccer.
We continue to benefit from the diversification of our franchise.
<unk> is firing on all cylinders as we enter the end of the year on a strong footing.
We are capturing share in institutional securities clients remain engaged and pipelines are healthy we are excited by the momentum we see in wealth management's ability to attract and consolidate assets and the benefits of the improved diversification and investment management importantly, we are meaningfully investing in technology across all.
Of our businesses.
With that we will now open the lineup for questions.
Thank you.
To ask a question you will need to press Star then one on your telephone.
Draw. Your question. Please press the pound key and the interest of time, we ask that you. Please limit yourself to one question and one follow up.
Our first question comes from the line of Glenn Schorr with Evercore ISI. Your line is now open.
Hi, Thanks very much.
I'm curious.
The flows in the wealth management channel continue to impress I think you guys are by far the largest.
Distributor of alternative assets and as as that space grows and as that becomes a bigger part of client portfolio I Wonder if you could help us frame have you ever broken out.
Either the asset level or percentage of high net worth portfolios that you have today versus where you think that can grow to.
I think hi, Glen it's Sharon.
Think if memory serves me there was a strategy deck that we did in 2017 or 18.
Does give a portfolio mix that you can see for advisory let assets.
So it Couldnt give you some sense rough sense from those documents what.
What I would say, though that I had also noticed this trend.
When we go through it there has been a slight shift, but you're obviously talking about a very large asset base, but I would definitely say that both anecdotally and it does bear out in some of the numbers that you see a slight increase towards alternatives as a composition of the portfolio.
Okay, maybe just a quick follow up on your soccer comments, because they have a reasonably comprehensive which specific assets.
Our most impacted just so I can think through mitigation and how much of an impact it can make and then I'm curious what does early adoption do for you. Besides like brownie points like how does that possibly help in future in future CCAR.
Sure.
Yes.
Glenn in case, you're confused this is James.
[laughter] CX.
<unk> is so different.
Second it takes counterparty credit risks there were models that were in place.
That Basel has been working on replacing they actually started in 2014 and the idea was to implemented in 2017 and they relate to most of the derivative contracts and the determination where the margin not margin how to treat that from a risk weighted asset perspective. So there's a complicated formula that applies a waiting too.
Default risk and then the MPV of future <unk>.
<unk> obligations under various contracts.
So it's taken a while for them to get it done.
They actually deferred I think during COVID-19.
They've given the banks until the beginning of next year to get to put it in place and they're allowing banks to.
Pre announced the benefit of starting early is that a fix the peak to trough in your CCAR calculations.
During the CCAR cycle, so there'll be some offsets later and we just felt we need to get we needed to get into it sooner rather than later most of it is in ISG I think about let's say the the <unk> number I think we've got it at 35% to 45 billion honestly, that's moving around a little bit because we're this is complicated.
Good stuff.
But we certainly done it's worse and hopefully it's the lower end of that.
Some of it.
As in the wealth business because of all the options in that business, but it's a relatively small part of it I think like 10% 15%.
Our next question comes from the line of Brennan Hawken with UBS. Your line is now open.
Good morning, Thanks for taking my questions.
Wanted to start on the net new assets in wealth.
Sharon I believe you flagged a and.
<unk> of our retirement business.
Number one.
This is basically just a team right of consultants that will sit within wealth. So.
It could be called the large scale recruiting is that fair and number two is the idea that you guys are interested in getting more importantly, and more sort of strategically is the idea that that you guys wanted to get a little bit more aggressive in.
401, K DC plans in order to complement the stock plan business and enhance the workplace offering.
So both I would say in a holistically Brennan nice to speak to it.
It's fair I think that it is a large scale team that you can consider in terms of that asset acquisition I think that as you rightly pointed out it is an extension of our strategy and what you're really trying to think about is how do you get more participants that you can touch you can begin to sell.
Both.
Products and assets that are appropriate for them, but more than that offer them true services like financial wellness that we're already doing through the stock plan business. So if you think of retirement assets and then you think of who is the actual holder of those retirement assets and those are the participants so through municipalities pensions et cetera, then all of a sudden you have it.
Another layer of people that you first offer financial wellness and education too and then you can introduce them to the services that Morgan Stanley has the same way that you would introduce the services to a workplace clients. So an extension of the strategy and a continuation of the concept of the funnel.
I mean, my Mic key takeaway on because this is a very important topic broadly Mike key takeaway on it as we used to have a very monolithic model for asset gathering you had existing clients, who maybe brought new money to from other institutions or accumulated wealth. They also spent well so that would go up and down you had financial by.
Those who left and who you recruited and for many years, we were frankly net deficit of financial adviser says with frankly, most of the broker dealers in my 30 years of doing this.
A couple of years ago, the net deficit changed materially for us.
We are seeing net positive attrition very few advisers, leaving insignificant advisers coming particularly large teams from across the street in the banking industry. So that's a positive the channel that the workplace is opened up.
And the opportunity together assets, which was a part of the driver between behind this quota numbers is basically new channel and then obviously the trade channel as a new channel and now you've seen this sort of acquisition of of Alright, a type teams of which this is one so it's gone from sort of a one model of deferred.
And attack model of keep your people and try and get some of the marketplace to a multi pronged.
All of which obviously, we can't predict the future, but it looks like this is set up to have multiple channels of growth in the years ahead, which is the strategy.
Our next question comes from the line of Steven <unk> with Wolfe Research. Your line is now open.
Hi, good morning.
So sticking along the same topic of just the corporate stock plan business. It looks like the organic growth continues to be.
Sustained really strong momentum.
In terms of new corporate stock plan adds and I was just curious how client conversion levels are tracking today.
Within your ecosystem relative to the levels you were seeing prior to the trade deal.
And I was hoping you can just provide a broader update not just on the corporate stock plan momentum, but even just how you're tracking with the revenue synergy targets from the trades into announced the deal.
Sure it's nice to speak to you Steve So I would just echo what you said, yes. We saw you know U S stock plan wins increased 90% over last year. So just to put that out there and put it in perspective as you think about conversion, we're still working through some of the metrics as it relates to retention, but anecdotally we are seeing strong retention, obviously there were different metrics.
As you think about what each redefined as retention and how you might define retention going forward given the new structure, but I think that the synergies as they've played out are very strong. We obviously never gave a direct revenues target, but if you think about what E. Trade was doing its the concept was always well how do you think about the <unk>.
Whole spectrum of client wealth and so we're seeing our teams work very closely together, we're thinking about new ways to offer Morgan Stanley's services like research et cetera, and advice that you would see through your advisor author also through your E trade portal and all of that is really much in tracking on on we continue to think about meeting.
Our companion accounts for example, which was 50% right now at 90% in the U S accounts by next year. So all of those sort of touch points and milestones. We are on track and we look forward to giving you I think more detail as you think about the January deck next year.
Our next question comes from the line of Matt O'connor with Deutsche Bank. Your line is now open.
Yes, hi, good morning. This is actually Bernie long as Vicki on from Matt's team. Thanks for taking my question. So my question relates to the investment banking backdrop, and how it relates to direct listings.
Banking results were very strong and as you previously noted pipelines remain healthy across sectors and regions and momentum should continue so with that said there have been a number of direct listings this year versus just one in 2018.
Morgan Stanley has been an advisor on a number of these deals could you share your observations if the increase of these private to public structures, although small numbers still had been more of a byproduct of a favorable market backdrop or is it more of a structural change in the private markets and any comments you could share on future industry.
Clients for direct listings.
Sure I think that the.
Key point that we've always said about direct listings is that it's another tool in the toolkit and it's really dependent on the client situation and the needs at that point in time. So these are specific situations, but I would say that that while potentially can be a contributor to the advisory results. What I would focus you on for advisory are two things one is.
The diversification across the sectors and the geography. So what we're seeing is not just one product necessarily driving results.
Or one sector driving results, but rather that the pipeline <unk> are healthy and as James said last year, we continue to invest in this business. So I think that's sort of where we how we think about the business going forward.
Okay.
Our next question comes from the line of Gerard Cassidy with RBC capital. Your line is now open.
Thank you good morning, Sharon James.
Can you guys share with US obviously the markets have been very strong you guys have done a great job, obviously in capturing that growth along with some of your peers do you have any sense.
What normal.
What normalization would be in the markets and how you would.
And what kind of market share you could maintain in a more normalized market, whether thats somewhere between 2019 and today, but any color. There and then second James you talked about increased volatility what are some of the metrics you're looking at to measure if the markets became more volatile than you guys would maybe get a little more difficult.
Thank you.
Well the on the normalized markets.
It's.
Clearly being a major shift between the U S and non U S institutions post crisis.
I'm talking about capital markets.
Hey, Gerard.
It's the the barriers to entry for those businesses. If you look at a lot of the regional banks and investment banks had tried to be global investment banks and it didn't work out so well.
The scale economics over the barriers to entry just so large and frankly the technologies, so demanding and complex, but it's pretty hard to be a wanna be or a new entrant trying to break into the group that is dominating the sort of the global fluff.
Capital market, so and within that we're obviously performing very well we've picked up a lot of share consistently across fixed income and equities and increasingly in banking over the last several years I don't see that abating.
Don't see compelling reason why that would change.
In the wealth and asset management space again scale is your friend a we've done two huge deals in the last year, and then Smith Barney a decade ago.
Six and a half ish trillion clearly.
At scale, we one of the biggest asset managers and wealth managers in the world and that generates about 30 billion revenue again.
It's hard to pick up advisors, one by one.
And there aren't that many firms out there of size that really move the needle on scale and there aren't really any direct firms of size. You know you saw the children Ameritrade deal, which combined to competitors you got fidelity you got a couple of small ones, but E trade was kind of the last big one that that was available so I'm pretty confident about.
Our market position I don't see why it would deteriorate at this point.
Doesn't mean, it can't I mean, but that would be more internal what we've done to ourselves and external what the market does kind of due to US is my gut got on that.
Volatility I mean, you're just looking at all sorts of stuff you're looking at day to day movements in market prices, you're looking at you know when when the fed starts tapering what the impact of the market is what they thought signaling in terms of how many does suggest there'll be rate increases next year. Its gone from I think four to nine and that's going to introduce volatility some of the geopolitical.
<unk> discussions around obviously U S China relationships Taiwan.
That didn't jake's volatility so like anything we look at sort of monetary policy.
Inflation numbers, Joe politics, and then see how that bleeds into back of activity and from that we get we sort of dial up or down on.
On the margin rich than Youre looking you look at specific transactions you look at multiples of EBITDA. The deals are done that you're looking at.
Days of distribution on syndicated deals I mean, there's a lot of sort of more tactical stuff, but I try and take a thematic fueled my thematic view is.
It's good to be watchful right now, but it's certainly nothing to suggest there are any issues, but it's you know the markets are bouncing a little bit and you know.
Over the next 18 months, we will see more of that as the fed starts to move.
Our next question comes from the line of Mike Mayo with Wells Fargo Securities. Your line is now open.
Hi can you hear me.
Yes, hi.
Hey, How're you doing well during the quarter you made what seemed like a pretty significant announcement.
The partnership with Microsoft and I'm, not really sure about the ramifications of that it looks like youre going to use Microsoft.
To transition more to the public cloud if I have that correctly and then you're also going to be providing services to Microsoft to help them position their business, but I wasn't really clear on that so if you could get dimension that talk about maybe efficiency benefits by using the cloud how much do you want to transition.
Your workload to the cloud and then what is it that you'd be doing in return.
Yeah. It was it was an important deal obviously, Microsoft as you know.
One of the great companies in the World if not.
The largest company in the world. So a fantastic partner for US we did do a multi year deal with them I won't give you the financials as you would understand but a multi year deal with them and by the way they're not the only cloud provider. We use we use that there are there are great players and AWS and Google and we have relationships with all of them, but we wanted to make a significant move.
It gives us more capacity to process and analyze data gives us time to market tools as more resilience and flexibility in the cloud.
You know obviously some of the digital initiatives that we're using to improve our client experience we do through the cloud. So it's one of the pillars of our technology strategy.
We've tried to drive more innovation across our businesses. If you look at what we've done in wealth management with some of the virtual financial advisor the lead IQ platform.
The next best idea as these kinds of things, they're all AI, driven and I think what you're seeing is with first the acquisition of solely them and then an E trade our wealth businesses have a much much stronger technology backbone.
And we've been driving a lot of innovation in that space. The cloud decision with Microsoft There's really a corporate one and I think we would just lead to a much more efficient.
Sandy and more resilient by the way, but it's not it's not it's all totally with Microsoft we are very proud of that partnership with them, but we're you know we're a huge company and we're going to keep evolving we have developed a special relationship with them on some other things that we're working on but you know I don't want to go into obviously, all Nicole that's between us and Microsoft, but it's a great.
Moved Mike, we're really happy about it.
So could you dimension, what you think the potential savings are or how much workload, you might move or give us some sense I think what we're finding is.
Some banks like capital, one or a 100% on the public cloud and then there's a series of other banks that don't really want to be on the public cloud where are you in that continuum do you want to have more of a private cloud or do you want to be more in the public cloud and what kind of savings.
Yeah.
Yeah.
I can't dimension savings, obviously, we're balancing it between both private and public capital one is a very different business model. They don't do M&A. They don't underwrite equity deals that have global trading businesses. So it's really a function of you you drive your technology decisions based upon.
The path to innovation and what your business model needs to support different technologies, you know one of the programs, Rob Rooney and the team set up several years ago. It was something we call a distinguished engineers, we have some unbelievably capable engineers software engineers computer scientists around the world, who work with us and we've created a co.
What were they basically driving and feeding innovation across the firm. So no I can't I can't break it down to a simple you go to the cloud and it will improve improve our efficiency ratio by 1.2%. It does it just I can't do that but I do know that when you drive it down into the actual business activities, it's making us both.
A more efficient more resilient and fast moving player and frankly being in partnership with Microsoft is a very good thing for Morgan Stanley They best in class.
As a company as a tech company.
Our next question comes from the line of Dan Fannon with Jefferies. Your line is now open.
Thanks, Good morning, I was hoping you could expand a bit on the advisor trends you talked about larger adviser groups coming over the recruiting could you maybe.
Put some numbers around that in the context of kind of maybe previous periods, a year ago or something prior to that and then maybe the backlog or the outlook for adviser growth as you think about the next kind of.
The 12 month time period.
Yeah. We don't we don't then we don't put out numbers on.
Agile teams that we bring them we have a weekly report, which I get every Friday night about 715.
And scrutinize, it pretty close and it shows which which people we've recruited what their trailing 12 months revenue are what their assets are.
And then which funds so we lose to different competition and what the sources are where they're going to and as I said I've been doing this a long time and at my previous firm and here for most of that period. We were net deficit, we were losing advisers to alright. So we're moving that sometimes two private banks you were losing some of the smaller producers to places like.
Let's go private ledger that is all turned and I think the power of the brand I mean, if you're at the beauty of having this integrated investment bank combined with this wealth and asset management businesses, you've now got won't cause parametric Cal.
Calvert sustainability funds to offer advisers would cause a whole platform through infrastructure Miss finance private equity real estate, but you've also got new issuance I mean were so active in the equity market. So if you're a world class adviser managing some of our advisors have teams of managing books of 20th 30 billion.
I mean, they are enormous operations themselves. So if do you want to take a book of several billion dollars to firm that is not a global leader in the equities markets and is not a global leader in underwriting I don't think so so we've got a huge competitive advantage by having such a world class investment bank, which feeds he buys.
As part of the research, which we amortize across the cost of all the three platforms.
Enables us to invest more in research then you do a few just a wealth shop, how you're adjusting institutional shop.
So you know again, we don't break down individual teams, but and it's more than anecdotal I have the numbers. Obviously in front of me will not literally in front of me, but in my office and it's real you know we were getting very big teams coming in.
Our next question comes from the line of Devin Ryan with JMP Securities. Your line is now open.
Great. Good morning, I want to come back to some of the comments on investment banking strength and obviously the expected ongoing momentum there.
It feels like.
A number of the areas are still actually seeing acceleration even in the third quarter like advisory and so that's driving investor questions around how much of this is structural versus just being in a great cycle and as we think about I guess your own some of the comments you made about sponsors playing a bigger role I'm just curious like how you guys could quantify.
How much bigger part of your business is today.
Relative to maybe a few years ago, because clearly that's an area where theres more capital and sponsors are kind of always transacting. So just love to get some sense of how much bigger that is and whether that could continue.
Sure I think that if you think about sponsors.
And but if you really think about everything right. What's gone on is you have cash that you've raised in that in other parts of the market given where the industry was at the beginning of the pandemic and so you have the cash that needs to be deployed we that either from a corporate or from a sponsor et cetera, and as you push that through the CIS.
People are looking for opportunities for growth I E that from the corporate loans or from the financial sponsors lines. So I would say that is an active part of the business. It's not the only part of the business, though and that's the point that I was trying to make on before when I mentioned sector diversification. So you might look at a financial sponsor as a sector.
Also think about all all different types of materials or retail or consumer discretionary et cetera. All of that does that pie in terms of where it's coming from is changing and that diversification. I think is what's helping the activity and I think that corporations are looking for growth and so I'd say that it's not.
Just one sleeve that is driving the results that you saw at least over the course of this quarter and the future pipeline.
Sure. Okay. I appreciate that and then just a follow up your wealth management terrific momentum on the lending side as we think about just the evolution here of Morgan Stanley winning a higher percentage of the overall customer's balance sheet or the wallet, where do you guys feel like you are at the moment on the liability side.
Relative to kind of the potential.
Are there any other products there that could be an interesting kind of extension or kind of a focus for growth.
I think that it continues to be the beginning of that process and so when you think about where we came from and then the penetration that we've seen from the household side the numbers are still.
Small and so while there is a loan growth momentum and we've obviously done quite well there is technology that James mentioned, that's also in the lung space. So if you are an advisor and you see somebody or you receive information that they've looked that your client is looked at our mortgage calculator.
Later for example, you'll get notified you'll speak to your client about the product that you might have and so I think that that extension of how you use technology to service your client better and then also just the sheer numbers given that we became a bank later in our lifecycle provides a further runway for <unk>.
Growth along that space.
I would just add that when we bought E trade.
I had a relatively small loan book and that was for good reason I don't know if you remember the Devon, but I forget exactly what year was it was probably a $5 six when they have problems with this large HELOC portfolio, they had and that made them very gun shy about the lending space.
So just a mortgage product alone has enormous capacity with E trade clients thing that's even before you get to start to think about the stock plan.
Ultimately, we just thinking about converting their you know their their equity grants into accounts said sort of project number one the project number two is obviously managing the full liability side as well so a lot of space to go.
Okay terrific. Thank you.
Our last question comes from the line of Andrew Lim with <unk>. Your line is now open.
Hi, good morning, Thanks for taking my question.
So.
It has been in the news lately and just wanted to get your view on.
How you expect that space developing in your strategy and how to put us to declines.
How do you expect to use to engage with clients in the crypto space.
Well, we're not directly trading crypto for retail clients and there are other players who are choosing to do that.
We give access into for them to buy crypto through various funds and things, but listen I've said it publicly before I'll say it again I don't think I don't think cryptos or fed doesn't mean, it's going to go away I don't know what the value of <unk>.
I don't know what the value of bitcoin should or shouldn't be but it's you know these.
These things aren't going away in the blockchain technology supporting is obviously very real and powerful so it remain central working space, but for US honestly, it's just not a huge part of the business demand from our clients and that may evolve and will evolve with it but right now it's not it's certainly not what's driving our economics, one way or the other but.
We're watchful of it be respectful and you know, we'll wait and see how the regulators handle it.
That's great. Thanks, a lot for that.
Thank you.
Ladies and gentlemen, this concludes today's conference call. We thank you for your participation you may now disconnect.
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