Q1 2023 Morgan Stanley Earnings Call

April 19, 2023

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.

Good morning, everyone and thank you for joining US first quarter 2023 was in <unk>.

Very eventful for our industry, but not so eventful for Morgan Stanley .

<unk> delivered strong results with revenues of over $14 5 billion net income of $3 billion.

TCE of 17% and net new asset flows of 110 billion.

At the same time, we bought back $1 5 billion of stock, while maintaining a CET ratio of 15, 1%.

Many ways. It was an excellent test the Morgan Stanley and the opportunity to show the strength and stability of our business model.

Let me just touch briefly on the turmoil in the banking sector.

In my view, we are not in a banking crisis, but we have had and may still have a crisis among some banks.

I believe strong regulatory intervention on both sides of the Atlantic led to the characterization of the damage.

I consider the current issues is not remotely comparable to 2008.

I was pleased that Morgan Stanley along with the other large U S. Banks became part of the solution by providing an uninsured deposit line of $30 billion to first Republic Bank.

Someone who lived through the darkest days of 2008, when Morgan Stanley was seen as part of the problem. It's indeed rewarding to be here 14 years later as part of the solution.

Turning back to our own.

While the performance of the overall business was strong the results reflected the impact of the environment.

Wealth management positive flows of 110 being a very strong result reflect continued growth in the model together with a flight to quality.

This obviously gives us a good start to our one tree and every three years target.

Investment management also had benefit from diversification as long term outflows moderated and we saw strength in parametric and also in the liquid product.

Overall margin in the wealth management business was 26% impacted by modest increases in credit reserves slightly low growth of NII versus forecast and ongoing integration expenses.

We continue to focus on the levers within our control with an eye towards expense management.

ISG underwriting and M&A remains very subdued.

As I've said previously these are revenues delayed nowadays.

Already we are seeing a growing M&A pipeline and some spring like signs of new issuance emerging.

That said it largely remains a back half 2023 and full year 2024 story.

On the positive side at fixed income and equity trading teams performed very well in managing through some historic rate moves.

Trading revenues was solid.

I expect the market to remain choppy through this earning season and for the next several months.

However, absent any geopolitical surprise or limited progress on bringing down inflation I think 2023 is likely to wind on a constructive note in most areas.

Morgan Stanley is very well positioned not just for 2023, but for several years ahead as we see significant growth opportunities across all three of our client platforms.

I'll now pass it over to Sharon for more details on the first call. It. Thank you and good morning. The firm produced revenues of $14 $5 billion in the first quarter. Our EPS was $1 77, and our R. A T T. He was 16, 9%.

Firm's results demonstrated the durability of our business model evidenced by the resilient, our TCE robust asset consolidation and well and our stable capital and liquidity levels.

In institutional securities fixed income and equities supported our clients, while navigating volatile markets wealth.

Wealth management showcased $110 billion of net new asset and investment management continued to benefit from the investments we have made to diversify our offerings.

The firm's first quarter efficiency ratio was 72%.

Third cash based compensation plans negatively impacted our firm's efficiency ratio by approximately 60 basis points.

Ongoing technology, and marketing and business development investments as well as higher litigation costs increased operational expenses versus the prior year.

Given the broader market uncertainty and the inflationary environment expense management remains a priority, although we continue to prioritize investments in our long term goals.

Now to the businesses.

Institutional Securities revenues were $6 8 billion, an 11% decline from the very strong prior year.

Fixed income and equity results, partially offset weakness in banking.

We helped our clients intermediate markets through this period of heightened uncertainty.

Our regional perspective Asia delivered its third highest quarter ever with strength in areas of both fixed income and equity.

And by the policy dynamics in Japan, and China reopening.

Investment banking revenues decreased year over year to $1 $2 billion.

Solid revenue and advisory supported results, while ongoing market volatility continue to pressure equity and non investment grade underwriting.

Advisory revenues were $638 million benefiting from the completion of previously announced transactions.

Revenues were down versus the strong prior year on the back of lower announced volumes in 2022.

Equity underwriting revenues were $202 million down 22% largely as a result of depressed IPO activity.

While IPO and follow on activity remained muted issuers selectively access market windows.

Fixed income underwriting revenues were $407 million.

Results were supported by an open investment grade market and opportunistic loan activity.

Clients are engaged as we help them navigate an uncertain backdrop and our investment banking backlog is building financial sponsors continue to look for opportunities to invest within underwriting we are encouraged by the issuance activity during constructive windows.

Of course further conversion from pipeline to realized is predicated on clarity around macroeconomic conditions.

Stable financing markets and increased corporate confidence.

Equity revenues were $2 $7 billion.

Solid quarter against an uncertain and volatile backdrop.

We continue to be a leader in this business and the results reflect our global and diversified footprint.

Cash revenues decrease versus the prior first quarter on lower global volumes.

Derivative results were solid compared to a strong quarter last year as we help navigate talent as we help clients navigate challenging markets.

Prime brokerage revenues were down as the equity market levels declined.

<unk> remained engaged and balances increased steadily throughout the quarter.

Fixed income revenues of $2 $6 billion were strong so lower versus the prior year's elevated result, which was impacted by the beginning of the fed rate hiking cycle and the start of the war in Ukraine.

This quarters performance was driven by rates and credit.

Macro revenues were down modestly year over year with relative strength in rates versus foreign exchange in the comparison period.

Volatility created by varying expectations around global Central Bank policy aided results across the region.

Micro results were up versus the prior year.

Courted by client engagement.

Commodity revenues moderated meaningfully compared to the robust results in the previous first quarter, largely due to reduced volatility in European markets and the mild weather in the U S.

Other revenues of $245 million improved versus the prior year, largely driven by higher revenues on corporate lending activity and gains related to DCP.

Turning to ISG lending and provisions our allowance for credit losses on ISG loans in London commitments increased to $1 $3 billion.

In the quarter ISG provisions were $189 million and net charge offs were $70 million.

The increase in provisions was driven by the higher recessionary probability and worsening outlook for commercial real estate. The charge offs were substantially all from a handful of specific loan.

Turning to wealth management revenues were $6 $6 billion movements in D. C. P positively impacted revenues by approximately $100 million compared to a negative impact of nearly $300 million in last year's first quarter.

Net new asset growth of $110 billion was a standout as we continue to execute on our long term strategy.

Pretax profit was $1 $7 billion and the PBT margin was 26, 1%.

The margin reflects a more favorable revenue mix offset by higher credit provisions and an increase in expenses as we continue to invest in our business inclusive of integration related expenses.

Credit provisions were $78 million, including those that impacted revenue and the integration related expenses for the quarter were $53 million in line with our expectations.

Forward growth drivers remain robust net new assets were very strong at $110 billion for the quarter, representing a 10% annualized growth rate of beginning period assets.

Well M&A will be lumpy and should be looked at on a full year basis.

Our results illustrate our ability to attract assets and the pay off of our investments to support growth we.

We saw contribution from all channels with notable strengths in the advisor channel, particularly amongst existing clients.

The events in March and the rising interest rate environment over the past year impacted client behavior.

You have to increase their allocation to cash equivalents, such as money market funds and U S treasuries by over 60% versus last year at.

At the same time deposits declined in the quarter by 3% to $341 billion.

We believe investable assets stayed within Morgan Stanley as our clients work with advisors to help navigate the volatile markets.

De advisor led assets invested in cash and cash equivalents and at a peak of 23% compared to historical average of approximately 18%.

Overtime, we believe clients will reinvest these balances across more assets when the market outlook in fruit and.

In the interim given our broad product offering clients are choosing to invest in cash with Morgan Stanley during the cycle positioning us to provide them with more reinvestment choices down the road.

Net interest income was $2 2 billion up 40% year over year results reflect the impact of higher interest rates and lower sweep balances.

Base flows of $22 billion with strong asset management.

<unk> revenues were $3 4 billion down 7% versus last year, reflecting lower market levels.

Transactional revenues were $921 million, excluding the impact of D. C. P revenues were down 12% versus last year due to fewer new issuance opportunities and reduced activity levels compared to the beginning of 2022.

Lending balances declined this quarter to $144 billion led by Paydowns and securities based lending, reflecting the higher interest rate environment.

Importantly, our strategy is working and we are seeing channel migration from workplace to advisor led advisor led flows originating from workplace relationships reached $28 billion in this quarter alone double versus this time last year and this compares to the approximate $50 billion we saw.

Annually over the past three years.

Furthermore, almost 90% of these flows were from assets held away also consistent with what we have seen historically.

Our strategy remains in place to best serve our clients and support the firm's path to reach $10 billion in client assets.

Moving to investment management revenues of $1 $3 billion declined 3% year over year, primarily on lower due to the decline of asset values and the cumulative effect of outflows over the prior year.

Total U N ended at one four trillion dollars.

Long term net outflows were $2 $4 billion as equity outflows moderated in the quarter in.

In fixed income outflows in floating rate loans were partially offset by high yield and emerging markets.

Finally alternatives and solutions delivered strength, driven mostly by demand for parametric fixed income I stopped customized portfolios as well as inflows into private credit.

Liquidity and overlay services had inflows of $13 $9 billion.

Positive liquidity inflows of $37 billion were partially offset by outflows related to a single client relationship.

Asset management and related fees decreased versus the prior year, the $1 $2 billion due to lower average AUM, partially offset by higher liquidity see revenue.

Performance based income and other revenues were $41 million results were supported by gains in our private alternatives portfolio, reflecting the diversity of the platform.

Integration related expenses were $24 million in the quarter inline with expectation.

A key focus area remains maximizing our global distribution capabilities and we continue to see momentum internationally, particularly from the Eaton Vance fixed income teams.

Our investments across a broad array of strategies and capabilities, including active Etfs, parametric customization and alternatives position us well to benefit from the diversification as well as to serve our global client base.

Turning to the balance sheet Scott.

Bought assets were $1 two trillion dollars largely in line with the prior quarter, our standardized CET one ratio stands at 15, 1% and SLR at five 5%.

Standardize our W as increase quarter over quarter, primarily on client activity consistent with seasonal patterns.

We continue to deliver on our commitment to return capital to our shareholders, including buying back $1 $5 billion of common stock.

Our tax rate was 19, 3% for the quarter. The vast majority of share based award conversion takes place in the first quarter, creating a tax benefit.

We continue to expect our full year tax rate to be approximately 23%, which will exhibit some quarter to quarter volatility.

As James discussed.

Fallout, resulting from the events in March is not indicative of the systemic stress that the industry faced during the global financial crisis.

Our clear and consistent strategy allowed us to enter this environment well positioned.

The outlook for the remainder of this year, it's difficult to predict we are keenly aware that opening and functioning markets and economic stability are integral and aiding confidence moving forward in the interim we remain focused on supporting our clients and attracting assets to our platform.

We will now open up the line to questions.

Thank you if you would like to ask a question. Please signal by pressing the Starkey followed by the digit one we do ask that you limit yourself to one question and one follow up we will pause for a moment to assemble the queue.

We will take your first question from Daniel Fannon from Jefferies.

Thanks, Good morning.

Just thinking about the environment and the opportunity can you talk about advisor recruitment.

I assume retention is high but if you think about the opportunity given some of the fallout with some of the regional banks in the current environment, maybe talk about how you are positioned and maybe how that differentiate us differentiate versus say a year ago.

Certainly the advisor recruiting pipeline remains healthy we continue to see assets aggregated from all channels are as I mentioned are both recruiting advisor led and workplace and when we compare it to a year ago I think that what we continue to see is that we remain a destination of choice.

Joyce not only for new advisors, but also obviously as we stated from the assets held away that we continue to aggregate in both in net new assets from existing and from new clients.

And then just as a follow up.

With NII.

Generally probably a little more challenged versus where.

Where we were last year, how do you think about wealth management margin expansion in this environment and maybe specifically can you talk to the NII trends as you think about this year and how we should think about that given the deposits Amex you mentioned as well as the current rate environment.

So first let's take NII are as we said what we've been looking at is we've been thinking about it in terms of modeled client behavior. Obviously March itself had a different model of client behavior than we probably would have expected for other months within the quarter, but when we look ahead, we're currently not expecting it.

Spansion of quarterly NII as we go forward now as that relates to the margin of 26% margin, obviously still impacted by certain things such as integration related expenses. We mentioned also litigation and we continue to really invest in the model as we go as we have and also as we.

Go forward all of that being said our eyes are still onto the 30% goal that we had set forth.

And we will continue to achieve as we move through time to progress to those goals.

If you limit yourself to one question and one follow up.

We'll hear next from Glenn Schorr from Evercore.

We'll pause for a moment to assemble the queue.

Hello. Thanks.

Maybe we could follow up on on that conversation I'm. Just curious you mentioned that interesting stat of 23% sitting in cash and cash equivalents up from 18% historically.

We will take your first question from Daniel Fannon from Jefferies.

Thanks, Good morning.

Just thinking about the environment and the opportunity can you talk about advisor recruitment.

If we leave that into normalizing over time, but also deposits were down 3% in cost of funds is up a bunch.

I assume retention is high but as you think about the opportunity given some of the fallout with some of the regional banks in the current environment, maybe talk about how you are positioned and maybe how that differentiate us differentiate versus say a year ago.

As we go through the year do you anticipate.

Certainly the advisor recruiting pipeline remains healthy we continue to see assets aggregated from all channels as I mentioned, both recruiting advisor led and workplace and when we compare it to a year ago I think that what we continue to see is that we remain a destination of.

The normalization of the cash component at the same time.

<unk> could you just continue.

Continues to come down in migration continues.

The yield seeking like Ken I guess my question with all that Ramble is is in the margin get back into that range.

Choice not only for new advisors, but also obviously as we stated from the assets held away that we continue to aggregate in both in net new assets from existing and from new clients.

While we have these.

Cash seeking and yield seeking behavior is happening.

So I think that for us to predict exactly what the behavior will be obviously, if we think about what happened in March that's a very difficult thing to predict but I think what you're highlighting in your question Glenn as I parse out the very beginning of it is right now cash and cash equivalents are at a higher level a higher level than we have ever.

And then just as a follow up with NII.

Generally probably a little more challenged versus.

Where we were last year, how do you think about wealth management margin expansion in this environment and maybe specifically can you talk to the NII trend as you think about this year and how we should think about that given some of the deposit dynamics, you mentioned as well as the current rate environment.

And historically as we begin to see those assets be deployed into different types of products that ability and that advice will obviously be accretive. It will also help us as you see asset levels rise. So there is a pull push factor as you think about those things. In addition to that as we continue to add.

So first let's take NII as we said what we've been looking at is we've been thinking about it in terms of modeled client behavior. Obviously March itself had a different model of client behavior than we probably would have expected for other months within the quarter, but when we look ahead, we're currently not expecting it.

Regain assets, we will gain from scale the more assets that we see the more we will see imbalances. The more of that will probably help as you think about just what the cash balances are and more broadly because the assets are being attracted to the platform and in addition to that we will gain for the longer objectives of what that might mean for the margin and for the wealth management business.

Spansion of the quarterly NII as we go forward now as that relates to the margin of 26% margin. Obviously, it's still impacted by certain things such as integration related expenses. We mentioned also litigation and we continue to really invest in the model as we go as we have and also as we.

More broadly.

If I could.

And excuse my voice of a chest cold.

And you know on the simple math.

To take the margin that business from 26% to 28% is about $120 million.

Go forward all of that being said our eyes are still on the 30% goal that we had set forth are and we will continue to achieve as we move through time to progress to those goals.

Obviously, we're still absorbing some integration stuff relating to.

The platform that will be done this year.

We had slightly higher reserves, we've been investing pretty aggressively in the business and frankly, I think prudent appropriately.

We'll hear next from Glenn Schorr from Evercore.

Hello. Thanks.

Maybe we could follow up on that conversation I'm. Just curious you mentioned that interesting stat of 23% sitting in cash and cash equivalents up from 18% historically.

The payoff is 110 P M, which is a net U S organic growth of 10%, so I'll take that any day long.

Yes, it sustain the buildings. So yeah, we have a lot of levers to push that margin around a couple of at the same point. So it's that's not frankly.

If we leave that into normalizing over time, but also deposits were down 3% in cost of funds is up a bunch.

It's a source of great anxiety to me at this point.

And I think you'll see us probably a push you feel those levers as we get through this year and certainly next year. So the tradeoff is I think we all want to keep investing for growth, we see a real window here.

As we go through the year do you anticipate.

The normalization of the cash component at the same time.

<unk> could you tell me.

We continue to come down in migration continues to yield seeking like Ken I guess my question with all of that Ramble is is in the margin get back into that range.

This 10 trillion dollars target is for real.

The tree and every three years is 300 and whatever it is 330 million a year 333, I guess and.

While we have these.

Starting up with 110, I think we have pretty good visibility to net new money. So.

Cash seeking and yield seeking behavior is happening.

It's a balance, but but as we get through this integration as its finally completed some of those costs roll off we get a little you know, we'll get a little tighter in the expense management and the wealth business I know, Andy and his team already focus on that so.

And then the deposit stuff will kind of going to be what it's going to be depending on where rates go in and what the fed does.

Historically as we begin to see those assets be deployed into different types of products that ability and that advice will obviously be accretive. It will also help us as you see asset levels right. So there is a pull push factor as you think about those things. In addition to that as we continue to add.

I appreciate that and thank you for fixing my question.

Follow up.

I have a simpler on commercial real estate can you just help us just dimensionalize the portfolio what exposure do you have and how do we.

Get comfortable that this isn't the gift that keeps on giving like I'm.

I'm sure there's details within the provision that you took that can help us. Thanks.

Brigade assets, we will gain from scale the more assets that we see the more we will see imbalances. The more of that will probably help as you think about just what the cash balances are and more broadly because assets are being attracted to the platform and in addition to that we will gain for the longer objective of what that might mean for the margin and for the wealth management business.

Absolutely.

It wasn't important about that portfolio is that it is diversified in.

In addition to that we have been reducing the exposure in the ISG direct our CRE portfolio over the course of the last year or so so obviously, we keep our eyes on it as you know I see still has a life of loan concept and so as you see economic deterioration are you do you need to account for that and the same goes for what we're seeing.

More broadly.

If I could.

Just add an excuse my voice of a chest cold.

And the commercial real estate market. So I think that those are the two main points I would I would point you to is that it is diversified and we have been continuing to reduce that direct exposure.

And you know on the simple math.

To take the margin that business from 26% to 28% is about $120 million.

Obviously, we're still absorbing some integration stuff relating to.

Well hear next from Ebrahim <unk> from Bank of America.

The platform that will be done this year.

We had slightly higher reserves, we've been investing pretty aggressively in the business and frankly, I think prudent appropriately.

Good morning.

I guess just first question wanted to follow up on <unk>.

James a comment you made about <unk>.

Are you expecting 2022 and on a constructive note Oh I was wondering if you can elaborate on that just in terms of a lot of this is.

The payoff is 110 billion, which is a net U S organic growth of 10% so.

Take that any day long.

Yes, it sustain the building so yeah, we have a lot of levers to push that margin around a couple at the same point.

Tied to macro how do you think the economy is paying off in terms of the fetch fight against inflation.

Frankly.

It does to the economy in the market.

A source of great anxiety to me at this point.

As you think about <unk> 23.

And I think you'll see us probably.

Do we think where do you think will be on all these fronts by the time the year ends.

Bush feel those levers as we get through this year and certainly next year. So the tradeoff is I think we all want to keep investing for growth, we see a real window here.

Well, our house call up with the market, so and about flat.

From where they started at the beginning of the year and I suddenly support that I think you know the.

This 10 trillion dollars target is for real.

Two wildcards out there are geopolitical risk rich.

The tree and every three years is 300 and whatever it is 330 million a year.

We can't really handicapped by.

333, I guess and.

Starting off with 110, I think we have pretty good visibility to net new money. So it's a balance but but as we get through this integration as its finally completed some of those costs roll off we'll get a little we'll get a little tighter in the expense management and the wealth business I know Andy and his team we're really focus on that so.

Is that the unit U S China relations.

Well, having their moments of tension remain overall stable through this year and global trade remains stable, but second risk of course is that the fed's actions doesn't bring down inflation will the evidence. So far is it is bringing down inflation, but they probably not.

And then the deposit stuff will kind of going to be what it's going to be depending where rates go in and what the fed does.

It's likely we will see at least one more and I'll pass.

Possibly two more rate increases that gets you to sort of high fives to 6% type interest rates, which is not shocking.

I appreciate that and thank you for fixing my question.

Uh huh.

I have a simpler on commercial real estate can you just help us dimensionalize the portfolio what exposure do you have and how do we get.

And if we get through that you know again, many people are calling for a modest recession it might be.

Get comfortable that this isn't the gift that keeps on giving.

I don't know obviously, but.

I'm sure there's details within the provision that you took that could help us. Thanks.

Got it is whether it's a modest recession or we dodged that bullet sort of doesn't matter that much what really wouldnt matter as if inflation, sometimes it has to go much higher than people are expecting you go into a much deeper recession, it's certainly not a likely outcome at this point. So that's why I say that I think I used the words constructive but Morgan Stanley .

Absolutely.

It wasn't important about that portfolio is that it is diversified.

You know if if the sort of green shoots we are starting to see again I don't think there are Q2.

Type event, but back half of the year and next year in banking in underwriting.

In the commercial real estate market. So I think that those are the two main points I would I would point you to is that it is diversified and we have been continuing to reduce that direct exposure.

We just had a global risk committee yesterday discussed some of this stuff and suddenly the underwriting calendar it looks like its picking up a little bit you know through the back half of the year.

I think the wealth management, what well try and put it to the 23% in cash like securities moving into active investments that will happen I.

We'll hear next from Ebrahim <unk> from Bank of America.

Good morning.

I mean through the long history of this business that people don't hold a quarter that money in cash. So it just is not real so.

I guess just first question wanted to follow up on James' comment you made about <unk>.

Thank God.

And I suspect once we pass this sort of inflation.

<unk> 2022 and on a constructive note.

I was wondering if you could elaborate on that just in terms of.

Action there'll be a long pause would be my gosh, followed by some rate cuts starting in 2024 I do not expect that this year. So when I put it all together relative to sort of other periods that I've been through my career I think it feels.

This is ty.

Tied to macro how do you think the economy being up in terms of defense fight against inflation.

It does to the economy in the market.

As you think about ending 2023, where.

You know given the land war, given the geopolitical stuff given the inflation surge given COVID-19 it actually feels surprisingly benign.

Where do we think where do you think will be on all these fronts by the time the year ends.

Well, our house call up when the market's worried about flat.

From what it could've been no that's not denying there I clear stresses the commercial real estate that I think Glenn just asked about.

From where they started at the beginning of the year and I suddenly support that I think.

The two wildcards out there are geopolitical risk rich.

Across the banking sector, what's going on in some of those banks with very idiosyncratic portfolios that frankly didn't merge.

We can't really handicapped my.

Scott is the unit U S China relations.

Duration and interest rate risk well as you know were issues.

Well, having their moments of tension remain overall stable through this year and global trade remains stable, but second risk of course is that the fed's actions doesn't bring down inflation, while the evidence. So far is it is bringing down inflation, but theyre probably not.

There are parts of the world that are still having solid growth. So it's not it's not a perfect.

It kind of reminds me of the Rolling Stones song you can't always get what you want.

But you get what you need and are thinking about Morgan Stanley coming out of this and we're kind of getting what we need we're getting a 15% CET one beginning of 17% R. A T C.

I think it's likely we will see at least one more in public possibly two more rate increases that gets you to sort of high 5% to 6% type interest rates, which is not shocking.

Decent revenue decent earnings obviously opportunity to take some costs out.

And I think very well positioned on a go forward basis, So that's where the word constructive came from.

And if we get through that you know again, many people are calling for a modest recession it might be.

Alright.

Wood.

I appreciate the color and just as a follow up when we think about.

I don't know obviously, but.

Capital return in terms of one the pace of buybacks given the macro uncertainty any perspective, there and just Opportunistically do you see this is creating opportunities inorganically in many ways for Morgan Stanley as you look forward.

My gut is whether it's a modest recession or we dodged that bullet sort of doesn't matter that much what really wouldnt matter as if inflation, sometimes it has to go much higher than people are expecting you go into a much deeper recession.

Certainly not a likely outcome at this point. So that's why I say that I think I use the words constructive but Morgan Stanley .

We've maintained its a very good question I'll.

I'll deal with sort of what the capital position is now and what the opportunities outbreaks as capital on the capital position now C. T. One is running at 15, 1%, we obviously have control over that dialogue to a large extent.

You know if if the sort of green shoots we starting to see again I don't think they're a Q2.

Type event, but back half of the year and next year in banking in underwriting.

So and we have.

We just had a global risk committee yesterday discussed some of this stuff and suddenly the underwriting calendar it looks like its picking up a little bit you know through the back half of the year.

We have tilted conservative.

It's fair to say I haven't seen all the numbers, but I'm pretty sure. We're at the top or above all of our competitive set again and we've been that way for quite a while so.

I think the wealth management, what shrunk pointed to the 23% in cash like securities moving into active investments that will happen.

On current capital requirements with the you know the last stress test, where it's at eight 2% I think of 33 somewhere around there.

I mean through the long history of this business that people don't hold a quarter their money in cash that just is not real so and I suspect.

So 15 is a very healthy buffer.

We've got a new stress test coming out so.

<unk> once we pass this sort of inflation.

You know many people who feel that it's going to be a little tougher than what it was last year it might be in.

Fed action there'll be a long pause would be my gosh, followed by some rate cuts starting in 2024 I do not expect that this year. So when I put it all together relative to sort of other periods that I've been through my career I think it feels.

Obviously, you got plenty of capital towards an unexpected any issues whatsoever, and then we have Basel III coming out and I think sort of late May June time period, where and again that'll be implemented probably 2025, it looks like the earliest.

Given the land war, given the geopolitical stuff given the inflation surge given COVID-19 it actually feels surprisingly benign.

So again this time to the banks to adjust their capital position. So we.

We will have much better visibility as to what we're dealing with by say July 1st and I again, I don't I suspect it might drive some changes in how we run our balance sheet, but I don't think it's going to involve anything particularly draconian.

From what it could've been now that's not denying there I clear stresses the commercial real estate that I think Glenn just asked about.

Across the banking sector, what's going on in some of those banks with very idiosyncratic portfolios that frankly didn't match.

Now given that we.

Duration and interest rate risk well as you know were issues.

We like to maintain a healthy buffer we have done obviously the deals we did in the last couple of years E trade need minutes rich.

There are parts of the world that are still having solid growth. So it's not it's not a perfect.

I would just say that couldnt be more happy with both.

It kind of reminds me of the Rolling Stones song you can't always get what you want.

The timing of those deals the pricing of those deals and the performance of the businesses.

But you get what you need and are thinking about Morgan Stanley coming out of this and we're kind of getting what we need we're getting a 15% CET one beginning of 17% R. A T C.

And when we see a really robust market environment, you'll see that even more so in spades.

We've had a very healthy dividend yield I think it's over three and a half with centura and somebody like that now.

Decent revenue decent earnings obviously opportunity to take some costs out.

And I think very well positioned on a go forward basis, So that's where the word constructive came from.

We believe the dividend I've said for years that I think of the wealth management business as a dividend stock and we clearly making more money in that business and we are paying out a dividend.

Alright, so long and I think for one wood.

I appreciate the color and just as a follow up when we think about.

And we're buying back I mean, we dialed the buyback down a little bit I think to one of the happy and we would probably run a two and a half of that peak last year on a quarterly basis and we did that just.

So it was it was an interesting environment I mean, let's just say you had two of the biggest banks fail in the last 15 years, so being a little prudent low conservative watching that going on you don't want to be too grabby as my attitude. So.

We've maintained its a very good question I'll deal with sort of what the capital position is now and what the opportunities outbreaks as capital on the capital position now C. T. One is running at 15, 1%, we obviously have control over that dialed to a large extent.

We have lots of flexibility there is no doubt, we can and over the years will do more acquisitions in my mind. There is no doubt about that whatsoever, and it will be in the wealth and asset management space and we constantly keep a list of who is attractive and it would be a good fit but obviously I couldnt say, if there was something imminent.

So and we have.

We have tilted conservative.

I mean, it's fair to say I haven't seen all the numbers, but I'm pretty sure. We're at the top or above all of our competitive set again and we've been that way for quite a while so.

There's nothing imminent.

But it's something we focus on so I again, I'm, sorry, I'm, giving long answers. This morning, you must be this cold off guard.

On current capital requirements with the you know the last stress test. We're at 13, 2% I think of 33 somewhere around there.

So 15 is a very healthy buffer.

Well move next to Steven <unk> from Wolfe Research.

We've got a new stress test coming out so.

Hi, good morning.

Many people feel that it's going to be a little tougher than what it was last year it might be in.

So I wanted to start off just unpacking, the and then the clothes that you saw in the quarter. I mean, 10% is really an impressive result, the fee based flows continue to lag brokerage and just wanted to better understand what you see as a sustainable fee based flow rate and just as we try to evaluate the durability.

Obviously, you got plenty of capital for it sudden unexpected any issues whatsoever, and then we have Basel III coming out and I think sort of late May June time period, where and again that'll be implemented probably 2025, it looks like the earliest.

The 10% how much of the quarterly inflows were from FRC, where you're clearly a destination of choice for some of those are trading advisors.

So again this time for the banks to adjust their capital position. So we will have much better visibility as to what we're dealing with by say July 1st and I again, I don't I suspect it might drive some changes in how we run our balance sheet that I I don't think it's going to involve anything particularly.

I'm going to try and remember all of your questions. Stephen order, so far I forgot one just a just remind me the first point on FRC I'll take first.

In terms of the regionals and more broadly as I mentioned in the prepared remarks, I believe we had about $90 billion that came in without any relationship to those regionals and so that shows the cases to you that's well above the average that we've seen so I think it just continues to show that the investment.

Connie now given that.

We like to maintain a healthy buffer we have done obviously the deals we did in the last couple of years. He tried need man switch.

You know just said I couldnt be more happy with both.

The timing of those deals the pricing of those deals and the performance of the businesses.

And when we see a really robust market environment, you'll see that even more so in spades.

It's that we have made are really working as we move forward. So that's sort of point number one the second point that I mentioned and I think you asked where are where are those assets coming from it's really in this particular quarter within that advisor led space both.

We've had a very healthy dividend yield I think it's over three and a half with centura and something like that now.

We believe the dividend I've said for years, and I think of the wealth management business as a dividend stock and we clearly making more money in that business and we are paying out a dividend.

Both from existing accounts and new client to me what was the most remarkable when I was going through the diligence materials really was what we're seeing from an existing client. So the idea that we continue to be a destination of choice for our existing clients and attracting assets held away again speak to all of the car.

And we are buying back I mean, we dialed the buyback down a little bit I think to one of the happy and we're probably running two and a half of that peak last year on a quarterly basis and we did that just you know.

No. It was it was an interesting environment I mean, let's just say you had two of the biggest banks fell in the last 15 years, so being a little prudent low conservative watching that going on you don't want to be too grabby as my attitude. So.

<unk> that we've all had over the course of the last seven years or so talking about investments to give our advisers more time to service their clients as we move forward.

Then the final question that you asked around the fee based flows actually a very strong fee based for a number to be honest from our perspective in an environment, where individuals we think about it cash and cash equivalents are high youre thinking about putting your money into managed kind of accounts associated with it from that.

We have lots of flexibility there is no doubt.

We can and over the years will do more acquisitions in my mind. There is no doubt about that whatsoever, and it will be in the wealth and asset management space.

And we constantly keep a list of who is attractive and it would be a good fit but obviously I couldnt say, if there was something imminent, but theres nothing imminent.

You bet concept, you're unlikely to do that in a period of time, where you think that your cash and cash equivalents and safety might be what you're looking for right now and so that is in fact, the dry powder that we have it over time could move into the fee based assets. So I think it's actually a strong number given the.

But it's something we focus on so I again, I'm, sorry, I'm, giving long answers. This morning, you must be this cold up got it.

Well move next to Steven <unk> from Wolfe Research.

Hi, good morning.

Okay.

Environment that we have on the backdrop.

I wanted to start off just unpacking the and then the flows that you saw in the quarter. I mean, 10% is really an impressive result, the fee based flows continue to lag brokerage and just wanted to better understand what you see as a sustainable fee based flow rate and just as we try to evaluate the durability of the 10 per se.

That's really helpful color, Sharon and just for my follow up with on sweep deposits those are.

Now running below 4% of our U M. That's historically been a strong support level for transactional cash within the advisory space broadly I was hoping you can give some perspective on.

And how much of the quarterly inflows were from FRC, where youre clearly a destination of choice for some of those are trading advisors.

How we could think about where sweep cash could potentially bottom.

And have you seen any continued mix shift into sweep or deposit pressures in April so far.

I'm going to try and remember all of your questions. Stephen order. So if I forget one just the just remind me the first point on FRC I'll take first.

As it relates to April I talked a little bit and one of the earlier questions about modelled client behavior and then what we did see is that in March we really deviated from some of that mother model to client behavior. Now in April we have been more in line with modeled client behavior. So that does speak to your point as maybe we are in.

In a position where from a transactional cash level, where there, but again as James said it is an uncertain environment and so from that perspective, we'll have to wait and see how we move through time from here.

And that we have made are really working as we move forward. So that's sort of point number one the second point that I mentioned and I think you asked where are where are those assets coming from it's really in this particular quarter within that advisor led space both.

Moving next to Brennan Hawken from UBS.

Yeah.

Good morning, Thanks for taking my questions I'd actually love to follow up on that last question from Stephen.

So.

April is more modeled.

April was typically a tax payment month, which is a headwind. So are you seeing where are the cash getting funded from are you seeing some of the taxes tax payments coming out of pulse sweep and the other higher cost deposit sources is it more bias to the higher cost could that provide some relief.

<unk> that we've all had over the course of the last seven years or so talking about investments to give our advisers more time to service their clients as we move forward.

And when we put all that into the mix and think about NII going forward should we be thinking about stable NII, but we know it's not growing but.

The final question that you asked around the fee based flows actually a very strong fee based for a number to be honest from our perspective in an environment, where individuals we think about it cash and cash equivalents are high youre thinking about putting your money into managed it kind of accounts associated with it from that ebay.

Funding, there's funding cost elevation, maybe could lead to some downside. So curious how we should be thinking about that.

I think that your question in terms of April in terms of where it's coming from you know the exact breakdown is challenging to see in terms of exactly where it's coming from from all of the deposits perspective, because there's could as you know cash is fungible. So you could take something and then move it into a different.

Concept, you're unlikely to do that in a period of time, where you think that cash and cash equivalents and safety might be what you're looking for right now and so that is in fact, the dry powder that we had it over time could move into the fee based assets. So I think it's actually a strong number given the environment.

Carey or a different asset to parse that out it's challenging I do think that what's more important as you highlight is that it is tax season, and so to not see an acceleration is obviously one of the more optimistic signs that you are moving through more amount of client behavior now what it means from funding and we obviously have many funding different place.

<unk> that we have on the backdrop.

That's really helpful color, Sharon and just for my follow up with on sweep deposits.

Those are now running below 4% of the U M. That's historically been a strong support level for transactional cash within the advisory space broadly.

I don't think that funding is a concern as you mentioned it does matter from an NII perspective, but it will be a function of two things. The front end as you know rate expectations have also changed since January and so the our NII forecast and predictions are based on models client behavior in terms of.

Hoping you can give some perspective on how.

How we could think about where sweep cash could potentially bottom and have you seen any continued mix shift into sweep or deposit pressures in April so far.

As it relates to April I talked a little bit and one of the earlier questions about modelled client behavior.

Cash sweeps et cetera, and also where interest rates are and where the forward curve is for fed funds and so as you begin to see if that changes that could change. Your NII forecast. We are still if you look at models client behavior asset sensitive and so from that perspective, I think that gives you a few different pieces to put together in terms of.

And then what we did see is that in March we really deviated from some of that mother models client behavior now in April we have been more in line with modeled client behavior. So that does speak to your plane is maybe we are in a position where from a transactional cash level, where there, but again as James said it is an uncertain environment and so from that perspective.

How to think about the forward look based on different assumptions.

Okay.

Very much obviously a lot of uncertainty so I appreciate that color.

We'll have to wait and see how we move through time from here.

And then one more on the net new asset.

Component tree you guys have a an offer for a promotional offer and it's tied to a higher yielding cash alternatives what percentage of the net new assets came in to from that promotion this quarter.

Moving next to Brennan Hawken from UBS.

Yeah.

Good morning, Thanks for taking my questions I'd actually love to follow up on that last question from Stephen.

So.

April is more modeled.

And in the past you've spoken about how when you bring that cash and it is a majority of it stays in the system.

April is typically a tax payment month, which is a headwind. So are you seeing where are the cash getting funded from are you seeing some of the taxes tax payments coming out of pulse sweep and the other higher cost deposit sources is it more biased to the higher cost could that provide some relief.

Do you have any more granular.

Statistics on what portion of that stays in the system. That's obviously good that it comes into the system, but kind of curious when we think about stickiness and how much is hot money and how much is actually.

And when we put all of that into the mix and think about NII going forward should we be thinking about stable NII, we know it's not growing but.

Durable. Thanks, so the best way to think about the stickiness within the system is actually M&A right, because youre going to see the outflows would be a net negative to the M&A more broadly and so the consistent growth over time, if you look at it all the way back even to when we saw promotional levels back I remember.

Funding, there's funding cost elevation, maybe could lead to some downside. So curious how we should be thinking about that.

I think that.

Your question in terms of April in terms of where it's coming from you know the exact breakdown is challenging to see in terms of exactly where it's coming from from all of the deposits perspective, because there's could as you know cash is fungible. So you could take something and then move it into a different carry or a different asset.

Silke about this in 18 and in that and I think it was 17 and 18 in those early years that was still seeing net new asset inflows over time. So for me. The most important thing as well what's the net the net continues to be positive and continues to ramp higher in terms of the C. D exact offerings and what that would mean for them.

Parsed that out it's challenging I do think that what's more important as you highlight is that it is tax season, and so to not see an acceleration is obviously one of the more optimistic signs that you are moving through more amount of client behavior now what it means from funding. We obviously have many funding different places.

It's considered a N a if it's brought out for outside of the firm and again, what's important here is that we continue to see more on the advisor led space and that over time again think about the channel migration from workplace into the advisor space. What's important here is that when people begin to see money into.

Funding is a concern as you mentioned it does matter from an NII perspective, but it will be a function of two things Brennan as you know rate expectations have also changed since January and so the our NII forecast and predictions are based on models client behavior in terms of cash sweep.

Adviser lives, we actually see more money from assets held away. So I know that doesn't answer your question directly but I think it's important to highlight as people begin to work with an advisor what we said to you is 90% of the assets that doesn't come are from assets held away outside the building. So just again another proof point that once they understand what the advisor.

And also where interest rates are and where the forward curve is for fed funds and so as you begin to see if that changes that could change. Your NII forecast. We are still if you look at models client behavior asset sensitive and so from that perspective, I think that gives you a few different pieces to put together in terms of how to think about that.

To offer it helps aggregate new assets into our system.

Well hear next from Gerard Cassidy with RBC capital markets.

Thank you good morning, Sharon can you share with us when you guys talked about.

I think James said around 25% of your wealth management.

Where it looks based on different assumptions.

Okay.

Thanks, very much obviously a lot of uncertainty so I appreciate that color.

Customers assets are in cash or cash equivalents, which is high of course.

And then one more on the net new asset.

What interest rate do you guys sense, meaning do rates at the fall of 100 or 200 basis points for that money to move back into more.

Component tree you guys have a an offer for a promotional offer and it's tied to a higher yielding cash alternatives what percentage of the net new assets came in to from from that promotion this quarter.

Traditional assets.

So I don't actually know that it's the absolute value of the right level and I will answer it in two different ways. At first you have to remember that the events in March didn't make people I mean, we all read the popular press and most individuals' begin to think about what is the most.

And in the past you've spoken about how when you bring that cash and it is a majority of it stays in the system.

Do you have any more granular.

<unk> on what portion of that stays in the system. It's obviously good that it comes into the system.

Risk free asset that being a U S. Treasuries. So one should not be surprised if they begin to move assets into U S. Treasury. So I do think that it's a function also of uncertainty and not just the absolute level of where interest rates are right now as I said to you. We have these moments that are opportunistic.

Kind of curious when we think about stickiness and how much is hot money and how much is actually yes.

Terrible. Thanks, so the best way to think about the stickiness within the system is actually M&A right, because youre going to see the outflows would be a net negative to the M&A more broadly and so the consistent growth over time, if you look at it all the way back even to when we saw promotional levels back I remember.

Both when you think about the corporate activity and then when you think about the individual activities for ISG and in wealth management and that was evidenced last August last October and then earlier in January and February that when markets become com that you begin to see movements into us.

Talk about this in ATM and I think it was 17 and 18 in those early years that was still seeing net new asset inflows over time. So for me. The most important thing as well what's the net the net continues to be positive and continues to ramp higher in terms of the C. D exact offerings and what that would mean for them.

Classes and further activity as evidenced by our self directed channel as well. So I don't know that there's an absolute level of rates, but I would say it's related to confidence in our system more broadly and a belief in asset levels being in a place that will bottom and then you know potentially will rise as we go forward I I totally agree with that I think Gerard.

It's considered M&A, if it's brought out for outside of the firm and again, what's important here is that we continue to see more in the advisory space and that over time again think about the channel migration from workplace into the advisor space. What's important here is that when people begin to see money into.

If people can get a four ish percent return in a very uncertain environment. That's that's not a bad thing to have in your portfolio at least for.

Adviser lives, we actually see more money from assets held away. So I know that doesn't answer your question directly but I think it's important to highlight as people begin to work with an advisor what we said to you in 90% of the assets the den com or from assets held away outside the building. So just again another proof point that once they understand what the advisor.

25% of the portfolio is.

They get better visibility as we all get better visibility of when the fed stops moving and did we go into this recession that sum of theory or NAS.

Or if it's modest then I think you'll start seeing more engagement I mean, it's just.

We've all been through this is human behavior, we've had a pretty significant shock to the system in the last few months, which thankfully the world kind of financial will go through but could've could've turned sideways on you know high rates came in at a time of increased uncertainty. So it's entirely rational that people would take advantage of higher rates and increased uncertainty.

As to offer it helps aggregate new assets into our system.

Well hear next from Gerard Cassidy with RBC capital market.

Thank you good morning.

<unk> can you share with us when you guys talked about.

I think James said around 25% of your wealth management.

By parking in cash, but they're not gonna stay in cash it at 4% for it but that's not going to happen.

Customers assets are in cash or cash equivalents, which is high of course.

No. Thank you I appreciate that and then just as a follow up question Sharon you talked about the credit provision and linking into commercial real estate.

What interest rate do you guys sense, meaning do rates have to fall 100, or 200 basis points for that money to move back into more.

Of the total loan portfolio what percentage of that is in commercial real estate mortgages and are there any construction loans in that portfolio.

Traditional assets.

So I don't actually know that it's the absolute value of the right level and I will answer it in two different ways. At first you have to remember that the events in March I Didnt make people I mean, we all read the popular press and most individuals' begin to think about what is the most.

As it relates specifically.

So they are construction loans.

I don't know about the exact construction loans that you might have I'm certain that somewhere there could be a construction loan, but more broadly I think the absolute level, we do disclose from the ISG side are around that $10 billion and that was in our.

With free asset that being a U S. Treasuries. So one should not be surprised if they begin to move assets into U S. Treasury. So I do think that it's a function also of uncertainty and not just the absolute level of where interest rates are right now as I said to you. We have these moments that are opportunistic.

Our filings from last quarter.

Devin Ryan from JMP Securities. Your line is open.

Hey, Thank you good morning.

Both when you think about the corporate activity and then when you think about the individual activities there both for ISG and in wealth management and that was evidenced last August last October and then earlier in January and February that when markets become com that you begin to see movements into us.

I wanted to start just on market share opportunities that maybe are accelerating here you touched on some on the call.

But.

One of your peers highlighted.

Private banking in Europe , just on the heels of some of the banking stress or potentially even just opportunities where youre going to get paid more for committing capital when capital is becoming more scarce in the system. So just love to maybe think about some of the things that youre seeing just over the last month or so that might be.

And going forward.

Capital opportunities in Europe right.

Sorry could you repeat what's the question.

Yes. The question is just where there's opportunities to take market share kind of born in the wake of the.

If people can get a four ish percent return in a very uncertain environment. That's that's not a bad thing to have in your portfolio at least for.

Banking turmoil. So one period highlighted private banking in Europe is one example, but just whether there's others as well here just on the heels of recent.

25% of the portfolio.

They get better visibility as we all get better visibility of when the fed stops moving and did we go into this recession that some appearing on us.

The recent stress.

Yeah, Devin let me have a go at that because it probably built up the capital discussion away with it but.

Or if it's modest then I think you'll start seeing more engagement I mean, it's just.

We do not have an appetite for private banking in Europe and in fact, we sold our private banking in Europe to credit Suisse. Several years ago as one of the first things I did because we'd had an unhappy experience we'd owned the business for 21 years, and we lost money for 'twenty, one and I kind of took a fairly simple view that if you lose 20 out of 21.

We've all been through this is human behavior, we've had a pretty significant shock to the system in the last few months, which thankfully.

Well kind of the financial World got through but could've could've turned sideways.

Hi, Hi rates came at a time of increased uncertainty. So it's entirely rational that people would take advantage of higher rates and increased uncertainty by parking in cash, but they're not gonna stay in cash it at 4% forever, but that's not going to happen.

Gotta losers, so we got out you need scale.

And frankly, it's not a good fit.

I believe with the current regulatory structure that we operate on it so.

No. Thank you I appreciate that and then just as a follow up question Sharon you talked about the credit provision and linking into commercial real estate.

I'm much more interested in the U S and Asia and some in Latam.

You know the U S business, it's it's just going to be an asset gathering the monster.

The total loan portfolio what percentage of that is in commercial real estate mortgages and are there any construction loans in that portfolio.

And are there to bring in 110 being in one quarter and the trading over the last three years there aren't many companies in the world and have a trillion assets under management.

As it relates specifically.

So they are construction loans.

So I think we've got a keep our eye on the prize here.

We don't know the exact construction loans that you might have I'm certain that somewhere there could be a construction loan.

And not get distracted by you know going down some rabbit hole.

But more broadly I think the absolute level, we do disclose from the ISG side around that $10 billion and that was in our.

Because somebody else's in stress, maybe somebody else's in stressed because it's not a very attractive rabbit hole when you get down inside of it we know what we've got here and it's it's a kilo machine.

Our filings from last quarter.

Asia is growing nicely again, Latam some but the workplace conversion is a massive opportunity now that we're focused on.

Devin Ryan from JMP Securities. Your line is open.

Obviously, we're attracting financial advisers from.

Hey, Thank you good morning.

I wanted to start just on market share opportunities that maybe are accelerating here you touched on some on the call.

You have a somewhat of a safe harbor I guess across the industry and our organic flows if you compare them to our traditional competitors the wire houses or the online brokers are getting close I think are on an annualized basis.

But.

One of your peers highlighted.

Significantly higher than the traditional players and high than anybody in the industry. So you.

You know that that's how we think about it again.

Again Asia more interesting Europe not interesting.

Last time, a little bit interesting in U S definitely interesting.

On capital opportunities in Europe right.

Sorry could you repeat what's the question.

Got it okay. Thank you helpful. Just a follow up it sounds like you're starting to see maybe a little bit better momentum with financial sponsor clients. So lumpy, maybe just touch on those specifically and kind of what the appetite is to do deals or to sell assets and kind of what you think the trigger.

Yes. The question is just where there's opportunities to take market share kind of born in the wake of the.

Banking turmoil. So one period highlighted private banking in Europe is one example, but just whether there's others as well here or something else.

Recent stress.

One is to kind of engage them further.

Yeah, Devin let me have a go at that because it probably built up the capital discussion away with it but we do not have to pay an appetite or private banking in Europe . In fact, we sold our private bank in Europe to credit Suisse. Several years ago. That's one of the first things I did because.

Certainly I mentioned is actually when I spoke at our February conference. This year, which is that when you think about financial sponsors they may be in a different position than what we would consider traditional M&A I E, they're faster to market and they.

We'd had an unhappy experience we'd owned the business for 21 years, and we lost money for 'twenty one.

They are in a position where you might not have the same level of activity from our board and because of the size you might have different regulatory restrictions and so from that perspective, we would expect that they might be first before we see really traditional activity up and up and that is that remains kind of the view that we have and also.

And I kind of took a fairly simple view that if you lose 20 out of 21, you're probably going to lose it. So we got out you need scale.

And frankly, it's not a good fit.

I believe with the current regulatory structure that we operate on it so.

As the pipeline begins to build that's also what we're seeing in order for that to move forward and become realized it's really about the opening of the markets in terms of the financing activity as we have seen some of the backlog is clear that's clearly very helpful. But again, it's about stabilization.

I'm much more interested in the U S and Asia and some in Latam.

You know the U S business, it's it's just going to be an asset gathering monster.

There to bring in 110 being in one quarter and a tree and over the last three years there aren't many companies in the world and have a tree and assets under management.

And it's about confidence.

So I think we've got to keep our eye on the prize here and not get distracted by you know going down some rabbit hole.

Well move next to Mike Mayo from Wells Fargo.

Oh hi.

One is going so right what is going so right in Asia that it's your third best quarter.

Because somebody else's in stress, maybe somebody else's in stressed because it's not a very attractive rabbit hole when you get down inside it.

And in an environment like this and then what is going so wrong and investment management.

What we've got here and it's it's a kilo machine.

Asia is growing nicely again, Latam some but the workplace conversion is a massive opportunity now that we're focused on.

Since you've closed Eaton Vance the first full quarter with second quarter 'twenty, one if I have that correctly investment management revenues were down almost one four so.

Obviously, we're attracting financial advisers from.

Shout out to you know certainly E trade and well doing well, but in terms of investment management like it just looks from the outside like Eaton Vance It panning out the way you expected, but first the positive on the on the Asia, What's going right and then the negative one what's not going right and investment management.

<unk> is somewhat of a safe harbor, I guess across the industry and our organic flows if you compare them to our traditional competitors the wire houses or the online brokers are getting close I think are on an annualized basis significantly higher than the traditional players and high than anybody in the industry. So.

Certainly so let's take Asia first what we saw over the course of the quarter was China reopening are obviously supporting us from the equities side in perspective in terms of client engagement and what's going right also from Asia has been than what we have a franchise that we've really built in Japan.

You know that that's how we think about it again.

Again Asia more interesting Europe not interesting.

Lead time, a little bit interesting in U S definitely interesting.

Got it okay. Thank you helpful. Just a follow up it sounds like you're starting to see maybe a little bit better momentum with financial sponsor clients to lump. It maybe just touch on those specifically and kind of what the appetite is to do deals or to sell assets and kind of what you think the trigger.

And in an environment, where interest rate dynamics change such as what's going on within Japan, and that certainly helped us from the macro perspective in the macro business within fixed income. So I think that where that's very important and critical is that it speaks to the global perspective, and it clearly it speaks to our go.

Point is to kind of engage them further.

Certainly I mentioned is actually when I spoke at our February conference. This year, which is when you think about financial sponsors they may be in a different position than what we would consider a traditional M&A I E. They are faster to market.

Franchise why that is important when you think about investment management and I will tie. The two together is that you have to invest more broadly to be able to create an environment of diversification and so Asia might be asleep for Japan. For example could be asleep for many years and all of a sudden central bank activity picks up.

And you were there to support your clients with that global franchise think about investment management quite similarly, what we're doing as we continue to build our franchise, where we're able to have diversified products that are there to capture our client assets you highlighted what's gone on with an investment management well asset levels are down tremendously.

So as the pipeline begins to build that's also what we're seeing in order for that to move forward and become realized it's really about the opening of the markets in terms of the financing activity as we have seen some of the backlog is clear that's clearly very helpful. But again, it's about stabilization.

Ever since we've purchased and we announced the deal associated with Eaton Vance look at parametric, we have raised over $45 billion and that product alone again diversification of the portfolio diversification of product to be there in a period of time, where you see activity. That's what we're trying to do.

And it's about confidence.

And failed.

Well move next to Mike Mayo from Wells Fargo.

Yeah I mean.

Oh hi.

Ed.

I wouldn't.

One is going so right what is going so right in Asia that it's your third best quarter.

Frankly render a judgment yet on the Eaton Vance deal I think it's a little soon through it challenging market environment I would tell you I'm personally thrilled with it.

And in an environment like this and then what is going so wrong and investment management.

And I'm highly confident that five years from now we're going to look back and be filled with a lot of people said the Smith Barney deal was a dumb idea.

Since you closed Eaton Vance the first full quarter with second quarter 'twenty, one if I have that correctly investment management revenues were down almost one four so it's.

People sit E trade was a dumb idea and a lot of people said, we haven't paid for solely them in.

Shout out to you know certainly E trade, well doing well, but in terms of investment management like it just looks from the outside like Eaton Vance It panning out the way you expected, but first the positive on the on the Asia, What's going right and then the negative one what's not going right and investment management.

These things have have moments of sort of settling if you will.

It's like you know good house, its foundations have to settle and in a very challenging environment. I think the business is holding upgrades. So I'm I'm very happy with that transaction great people Great company.

Certainly so let's take Asia first what we saw over the course of the quarter was China reopening are obviously supporting from the equities side in perspective in terms of client engagement and whats going right also from Asia has been than what we have a franchise that we've really built in Japan.

Some fabulous brands and I think Mike if you'd come back and answer questions in three Years' time, hopefully you won't reverse the questions.

But maybe you'll say well, it's going right with Eaton Vance and an asset manager and what's going wrong in some other place because I'm sure as I said on the Rolling Stones on you can't always get what you want given the environment something must be working.

And in an environment, where interest rate dynamics change such as what's going on within Japan. That's certainly helped us from the macro perspective on the macro business within fixed income. So I think that where that's very important and critical is that it speaks to the global perspective, and it speaks to our go.

But yeah, I'm I'm pretty relaxed about that one.

I appreciate the answer just a short follow up it looks like youre not getting any any.

NII guide or if you did I missed it and you know we just want some help with our models here. If you want to kind of guide us in a certain direction I mean clearly.

Mobile franchise why that is important when you think about investment management and I will tie. The two together is that you have to invest more broadly to be able to create an environment of diversification and so asia might be asleep in Japan. For example could be asleep for many years and all of a sudden central bank activity picks up.

Funding cost is not up to the industry.

I mean super hard, but I'll be bumpy, you sort of guided a little higher on growth in the first quarter and came in plus 1%, which I guess it was better than most but just super hard so, let's let's get through Ah I think let's get through this quarter, we'll learn a lot tax season as Sharon said, you know it's kind of.

And you were there to support your clients with that global franchise think about investment management quite similarly, what we're doing as we continue to build that franchise, where we're able to have diversified products that are there to capture our client assets you highlighted what's gone on with an investment management well asset levels are down tremendously.

The numbers have reverted back to what we're modeling which is good.

We will see that we'll see how much of this cash starts moving.

We'll see whether there's further deposit outflows or not I mean, it's just super hard to guide right now so I don't I don't think I know, it's sort of not not.

Ever since we've purchased and we announced the deal associated with Eaton Vance look at parametric we have raised over $45 billion in that product alone again diversification of the portfolio diversification of product to be there in a period of time, where you see activity. That's what we're trying to do.

I don't know, if it's fair or not but it makes you modeling hotter, which I appreciate.

But also I don't I don't want to give guidance that we don't really have a an intellectual basis effect basis, we're doing it's just too hard.

You know, we're not stressed about it that much guidance I would give you, but I just don't want to put numbers on a sheet of paper at this point.

And belt.

Yeah I mean.

Well move next to Matt O'connor from Deutsche Bank.

You know I wouldn't.

Frankly render a judgment yet on the Eaton Vance deal I think it's a little soon through it challenging market environment I would tell you I'm personally thrilled with it.

Hi, Good morning can you talk about the sustainability of the strong fixed income trading revenues, obviously on an absolute basis very good down from a really strong year ago level and benefited from rate volatility, but at the same time advisory in D. C are much longer so how do you think about this.

And I'm highly confident that five years from now we're going to look back and be filled with a lot of people said the Smith Barney deal was a dumb idea.

Lot of people city trade was a dumb idea and a lot of people said, we've ever paid for solely them in.

Kind of not just <unk>, but the next several quarters and the kind of environment that we're in.

These things have have moments of sort of settling if you will.

And maybe some improvement in an IV.

It's like you know good house, its foundations have to settle and in a very challenging environment. I think the business is holding up great. So I'm I'm very happy with that transaction great people Great company.

So the our business is done I think management has done a phenomenal job and really transforming this business to be a client a client centric model focused on velocity of assets focused on supporting our clients. The deeper we've gotten into that the more we've been able to grow our wallet share more broadly.

Some fabulous brands and I think Mike if you'd come back and answer questions in three Years' time, hopefully you won't reverse the questions.

And we've been able to be in and around that 10% number. So that's clearly based on the activity that we've seen now to your point should we see an opening up of markets could there be greater activity that would also obviously support the wallet more broadly, but we would expect to be there to continue to gain our per.

But maybe you'll say well, it's going right with Eaton Vance in an asset manager and what's going wrong in some other place because I'm sure as I said of the Rolling Stones on you can't always get what you want given the environment something must be working.

But yeah, I'm I'm pretty relaxed about that one.

I appreciate the answer just a short follow up it looks like youre not getting any any.

Preet chair of that client activity.

NII guide or if you did I missed it and we just want some help with our models here. If you want to kind of guide us in a certain direction I mean clearly.

Okay, and then maybe just broadly speaking like how do you think about client brokerage in both stick and equity like what's your thought there in terms of committing capital kind of on an incremental basis looks like you know providing more or less from here or are not really any change.

Funding cost is not up to the industry.

I mean super hard, but I'll be bump, we sort of guided a little higher on growth in the first quarter and came in plus 1%, which I guess it was better than most but just super hard so but lets get through our I think let's get through this quarter, we'll learn a lot tax season as Sharon said, you know it's kind of.

We continue to invest in that business more broadly you can see that even on the technology side, we're really proud of the equity franchise in business and the transformation that tied for well over a decade being a market leader clearly as we think about committing capital. It's also again about our clients being active.

The numbers have reverted back to what we're modeling which is good.

We will see that we'll see how much of this cash starts moving.

In that market as we see and I highlighted this in my prepared remarks as you see client balances increase we've also are.

We'll see whether there's further deposit outflows or not I mean, it's just super hard to guide right now so I don't I don't think I know, it's sort of not not.

We've been there to support our clients and we are looking for the appropriate risk adjusted return as we continue to invest in that business.

I don't know, if it's fair or not but it makes you modeling hotter, which I appreciate.

But also I don't I don't want to give guidance that we don't really have a an intellectual basis effect basis, we're doing it's just too hard.

I just I'd just add if you step back from this sort of over a five year view, firstly, just take hats off to them.

We don't we're not stressed about it that much guidance I would give you, but I just don't want to put numbers on a sheet of paper at this point.

To the team led by Ted and Sam Kellie Smith, and then Jay Helicon Jakob put her in fixed income.

You know it's come a long way from I think a 6% share I think we trough that I didn't even know blood cry off the crisis might be much lower but sort of six ish percent share for half of the last decade and then.

Well move next to Matt O'connor from Deutsche Bank.

Hi, Good morning can you talk about the sustainability of the strong fixed income trading revenues, obviously on an absolute basis very good down from a really strong year ago level.

Italy moved up to 10% and pretty stable, it's kind of what we want it you know what I mean and on the equity side.

<unk> benefited from rate volatility, but at the same time advisory and ECM was sluggish. So now how do you think about this kind of not just <unk>, but the next several quarters and the kind of environment that we're in.

You know you can buy shares for sure more but you want to be in the part of the prime brokerage business that we want to be and we don't want to be in that sort of the the broker of last resort. So.

And maybe some improvement in an IV.

But if you step back from it and what you've really got is kind of an oligopoly type structure emerged out of the financial crisis, where a smaller number of institutions have the global capability for global sales and trading them. We know one of them and that was probably not given.

So that and our business is done I think management has done a phenomenal job and really transforming this business to be a client a client centric model focused on velocity of assets focused on supporting our clients. The deeper we've gotten into that the more we've been able to grow our wallet share more broadly.

10 years ago. It certainly wasn't a given and you've just seen obviously credit suisse's be merged and you know.

That business, you know lots of parts of that business. So I suspect disappear relating to the trading side in the prime brokerage so our position gets stronger not weaker.

All that said we.

A pretty careful about how much balance sheet would want to use to grow aggressively on the margin because we simply have good options in terms of wealth and asset management businesses. So it's a balancing act, but I think the team's done a great job and I feel really good about where they landed the plane this quarter tricky quarter by the way, particularly.

Brigit share of that client activity.

Okay, and then maybe just broadly speaking as you think about client brokerage in both stick and equity like what's your thought there in terms of committing capital kind of on an incremental basis like providing more or less from here or are not really any change.

Rates.

We'll hear next from Jeremy <unk> from BNP.

We continue to invest in that business more broadly you can see that even on the technology side.

Thank you just a quite a specific one actually I thought comp costs were a bit heavy in wealth and investment management and you mentioned the deferred comp plans linked to investment performance is that is that heavier deferred comp costs is that something that stays with us throughout the year or is it does it move around instead of one.

We are proud of the equity franchise in business and the transformation, that's hard for well over a decade being a market leader clearly as we think about committing capital. It's also again about our clients being active in that market as we see and I highlighted this in my prepared remarks as you see client balances increase we've also are all.

<unk> specific where we got stuck with us for the rest of the year as well.

No Jeremy as you'll remember that moves around with the investments you'll see both on the revenue line on the expense line and so you should look at them together and that's why we've enhanced the disclosure. So that you can think about them from both sides understand both the margin and the comp ratio, both historically and as we move forward.

Obviously been there to support our clients and we are looking for the appropriate risk adjusted return as we continue to invest in that business I'd just I'd just add if you step back from this sort of over a five year view, firstly, just take hats off to them.

To the team led by Ted and Sam Kellie Smith, and then Jay Helicon Yucca put her in fixed income.

That's perfect. Thank you.

It's come a long way from I think a 6% share I think we trough that I didn't even know blood cry off the crisis might be much lower but sort of six ish percent share for half of the last decade and then.

There are no further questions at this time, ladies and gentlemen. This concludes today's conference. Thank you everyone for participating you may now disconnect.

Steadily moved up to 10% and pretty stable, it's kind of what we want it you know what I mean and on the equity side.

You can buy shares for sure more but you want to be in the part of the prime brokerage business that we want to be and we don't want to be in that sort of the the broker of last resort. So.

But if you step back from it and what you've really got is kind of an oligopoly type structure emerged out of the financial crisis, where a smaller number of institutions.

The global capability for global sales and trading them, we know one of them and that was probably not a given.

10 years ago. It certainly wasn't a given and you've just seen obviously credit suisse's be merged and you know.

That business, you know lots of parts of that business I suspect disappear relating to the trading side in the prime brokerage so our position gets stronger not weaker.

All that said we.

Rates.

We'll hear next from Jeremy <unk> from BNP.

Thank you just a quite a specific one actually I thought comp costs were a bit heavy in wealth and investment management and you mentioned the deferred comp plans linked to investment performance is that is that have you had deferred comp costs is that something that stays with us throughout the year or is it does it move around.

Is that a <unk> specific where we got stuck with us for the rest of the year as well.

That's perfect. Thank you.

There are no further questions at this time, ladies and gentlemen. This concludes today's conference. Thank you everyone for participating you may now disconnect.

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