Q4 2023 Morgan Stanley Earnings Call
Good morning on behalf of Morgan Stanley I will begin the call with the following disclaimer. This call is being recorded during today's presentation, we will refer to our earnings release and financial supplement copies of which are available at Morgan Stanley Dotcom.
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But then the strategic update certain reported information has been adjusted as noted.
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I will now turn the call over to Chief Executive Officer, Ted pick.
Ted Pick: Good morning, and thank you for joining us it is a privilege to be with you.
Ted Pick: Today, I will deliver the annual deck there was a hallmark of James Gorman 14. Your tenure, both reaffirm Morgan Stanley's strategy and to provide a level of transparency on our progress you have come to respect.
Ted Pick: Let's turn to the slides turning first to slide three.
Ted Pick: Over the last 15 years, we have transformed the firm's business mix scale profitability and returns.
Ted Pick: Compare versus historical periods, you can see our business evolution each period faced its own challenges.
Ted Pick: In 2009 to 2014 Morgan Stanley was a classic self help story.
Ted Pick: Transformation began with the acquisition and integration of Smith Barney.
Ted Pick: <unk> Bank was reset in the first survived the near Triple credit downgrade and the Euro crisis.
Ted Pick: In 2015 to 19, we weathered the years of financial repression.
Ted Pick: <unk>, our fixed income business and pressing ahead, the top slot in institutional equities.
Ted Pick: During this period, we also acquired sold him which was a step towards leadership in the corporate stock plan space.
Ted Pick: And in 'twenty to 'twenty to 'twenty two the Covid years, we achieved incremental scale in both wealth and investment management with the acquisitions of E trade and Eaton Vance do you mean, it's a leading self directed platform and pushing forward and investment solutions. During this period each of the two major business lines wealth and investment manager.
Ted Pick: In institutional securities generated operating leverage and high returns.
Ted Pick: Transfer on Morgan Stanley's today has tripled client assets and it's durable businesses with significant opportunities for further growth notwithstanding 2020, threes geopolitical macroeconomic and industry challenges the firm's business model generated consistent results.
Ted Pick: In 2023 firm revenues were 54 billion with 12 billion a P. P T double the averages in 2009 to 2014.
Ted Pick: Our return on tangible common equity was a solid 13% inclusive of notable items that reduced returns by over 100 basis points.
Ted Pick: Last year's return profile was triple the post crisis years.
Ted Pick: Combined earnings from wealth and investment management generated 60% of the firm's topline and PBT in our category of one asset gathering strategy sets the stage for continued durable growth.
The institutional securities business also grow over the transformation years with an eye to investing in its leading franchises. The objective has been to create an integrated investment bank of investment banking equities and fixed income to serve leading institutions around the world.
Ted Pick: Taken together the Morgan Stanley business portfolio today is well higher and more stable profitability.
The actions we've taken over the last 15 years organic and inorganic were all within our core strategic footprint.
Ted Pick: <unk> centre is acting as a trusted adviser to clients, helping them raise allocate and manage capital.
Ted Pick: It is what we do we are a global leader and we're really good at this will not change.
Ted Pick: Turning to slide four.
Ted Pick: Since 2010 revenues in wealth and investment management, if more than doubled and today. We're number one in the world among our peers during the same period, our client assets of more than tripled to six six trillion.
We see continued opportunities to drive growth and are steadfast in our goal of reaching 10 trillion and total client assets.
Ted Pick: In wealth management, we have established ourselves as a leading asset gatherer by expanding our business model across three channels advisor led self directed and workplace the business generated a trillion of net new assets over the past three years and we are relentlessly focused on sustainable growth.
Ted Pick: And then a growth to continue to vary quarter by quarter, given seasonality and even year to year given market tone and the cadence of migrating work play got workplace assets and attracting assets held away. We are nevertheless, confident in our ability to continue to grow and deepen our 18 million relationships with the breadth of our <unk>.
Ted Pick: Wealth management offering.
Ted Pick: Over time, our ability to attract deepen and retain client relationships with our differentiated platform allows us to drive revenue growth and operating leverage enabling 30% margins.
Given some of the recent macro headwinds and our continued investments for growth, it's reasonable to expect reported margins to consolidate in the mid twenties range over the near term the underlying businesses achieved 30% margins before and we intend to deliver that return profile again in the long term against the higher base of revenue.
Our wealth platform is complemented by investment management.
Ted Pick: <unk> added a number of new capabilities to our strong public market Alpha engines. This business is well aligned to key areas, where we see secular growth, including customization, such as parametric private markets and value add credit.
Ted Pick: At a holistic level the wealth and investment management business has achieved the kind of scale, which enables us to invest in what matters, most declines and to take further market share through cycles.
Ted Pick: Turning to slide five.
Ted Pick: Morgan Stanley's institutional Securities group, our integrated investment bank as a preeminent global franchise, our capability set extensive client footprint and premier brand put us in a position to be the trusted adviser to every important corporation public or private asset manager and asset owner our teams across.
Ted Pick: Thiago feeds businesses and client segments position us at the center of global capital allocation of formation over the last decade, we've advised our nearly nine trillion and M&A transactions raised nearly 13 trillion of capital for clients and as indication of our market presence in a single trading session last month.
Our equities business transacted, roughly 250 billion of notional value.
Our leadership position outside the U S acting as a true global investment Bank is critical and the Morgan Stanley franchise.
Ted Pick: After more than five years, managing our integrated investment bank I'd add that it is clear from client visits around the world that the barriers to entry to becoming a global investment bank. Our real today. There are fewer competitors and we are one of those very few can provide the full breadth of capabilities.
Ted Pick: We expect the next economic and financial cycle to be led by corporate finance activity, which will drive investment banking growth and as such are particularly focused on expanding our 15% wallet share and that advice driven business.
Ted Pick: Turning to slide six.
Ted Pick: When you combine our wealth and investment management platform with our leading institutional franchise you see the power of what we will call the integrated firm.
Ted Pick: Our capacity to source, new client opportunities efficiently facilitate the flow of capital and deliver Morgan Stanley firm wide solutions has never been stronger.
Ted Pick: Looking at the right side of the slide more specifically our premier corporate franchise spans every business segment with clients at the center of everything we do we cover their broad range of needs advising the C suite on strategy to helping them raise capital and had risks on through to advising our broader employee base through our workplace offer.
Ted Pick: Sure.
Ted Pick: Second we have a unique capability to serve individuals who range from self directed up through into the ultra high net worth and small institutions, who sit between the traditional segments. We can deliver best in class institutional capabilities paired with sophisticated wealth management solutions in an integrated service model.
Third we continued to invest in our ability to deliver investment and client solutions. As we are at the center of financial innovation and grow our global integrated investment Bank is core to our ability to source and structure optimize opportunities for corporations and financial sponsors are structuring capabilities are augmented by scaled distribution.
Ted Pick: <unk> channels extending from the largest institutions through the individual retail client set with a central focus on our clients, we see significant opportunities and delivering the integrated firm.
Ted Pick: Turning to slide seven.
Ted Pick: Ultimately the firm's success relies on our human capital and maintaining a differentiated partnership culture with James as executive Chairman together with Andy Safferstein, Dan simple, which is our co presidents our highest priority is delivering the integrated firm to our clients our third Morgan Stanley experience, having all lived through the <unk>.
Ted Pick: 15 year transformation gives us a lens into where we come from and where we're going.
Ted Pick: Intentional mobility of our leadership engineered by James over these many years is particularly important.
Ted Pick: Andy in his expanded role as head of both wealth and investment management is well situated to leverages deep knowledge of retail distribution and products to drive client opportunities across the business.
Ted Pick: Dan having successfully revitalized investment management for nearly a decade is returning to lead institutional securities where he spent 25 years will play a critical role in connecting the firm around sourcing opportunities structuring financing and distributing capital for our clients. Both these gentlemen have furnished the brand and successfully integrated.
Speaker Change: <unk> James.
Speaker Change: James Dan and Andy as partners to open in 2024 speaks to the enduring strength of our culture.
Speaker Change: Our broader leadership team has worked together since the financial crisis through the strategic transformation and today, our unified advancing toward our goals the operating and management committees of the firm each have an average tenure of more than 20 years long tenure is one element that maintains the strength of a learning culture of serving clients and a first class way.
In addition to back in the Morgan Stanley experienced set of our longstanding leaders were enhanced by the injection of some key lateral hires in joiners via our acquisitions.
Speaker Change: Our businesses are supported by World class technology, and infrastructure organization and by 2000, and 320 talented managing directors 155 of whom we promoted the partnership last week.
Our 80000 people are what makes Morgan Stanley's culture and drives us to be excellent on behalf of our clients to be prudent fiduciaries of capital and to maintain a keen awareness of the road we've traveled to achieve the firm we have today.
Speaker Change: Turning to slide eight.
Speaker Change: In addition to one the performance of the business to driving integrated firm and three maintaining our culture. We are for highly focused on the state of our financial capital given our deliberate growth in durable durable earnings over the last several years, our capital position is strong owing to the finalization of Basel III.
Speaker Change: Game.
Speaker Change: Our regulatory requirements as measured within our stressed capital buffer have steadily come down since 2020, reflecting the improved resilience of our businesses.
Speaker Change: With respect to Basel III end game, we continue to believe after a fulsome industry comment in further valuation of economic and competitive impacts that the final rule will result in a well more constructive outcome than originally proposed particularly as it pertains to matters that are driving our estimated <unk> inflation okay.
Speaker Change: Looking ahead, we remain committed to the dividend as is at the core of our business model is durability.
Speaker Change: We will toggle among opportunities to support our clients grow our businesses and repurchase our stock the core strengths and strategic decisions over the last 15 years are reflected in our quarterly dividend, which we have gone from five to 85 per share. The continued sustainability of that dividend is paramount.
Speaker Change: But the firm coming together, we will drive toward our performance goals slide nine reiterate our confidence in them.
Speaker Change: Our strategy and long term value proposition remain intact.
Four firm wide goals are in place hitting 10 trillion in client assets, achieving a 30% wealth management pre tax margin.
<unk>, 70% firm wide efficiency ratio and achieving 20% returns on tangible equity.
Speaker Change: Our management team is steeled execute against our priorities to reach these goals.
Speaker Change: We entered 2024 with confidence in our base case for the coming year is constructive.
Speaker Change: Two major downside risks for <unk>.
Speaker Change: First as geopolitical that global conflicts intensify and conflict right. The second is the state of the U S economy over the course of 2024.
Speaker Change: Base cases, benign, namely that of a soft landing, but if the economy weakens dramatically in the quarters to come and the fed has to move rapidly to avoid a hard landing that would likely result in lower asset prices and activity levels on the other hand, if inflation in fact has not been beaten back and continues to challenge consumers and suppliers.
Speaker Change: Hi chain that could result in a stickier fed and the resulting higher for longer we'll have to absorbed in the way of a higher than expected cost of capital and the dangers of a bifurcated economy. These risks the geopolitical and that of the U S economy presents some uncertainty as we start 2024, Nevertheless, as we've.
Speaker Change: This morning, the Morgan Stanley today is meant to perform through the cycle and based on the evidence we see our building M&A and IPO pipelines, improving boardroom confidence and an increasingly positive tone from our retail and institutional clients. We remain constructive on the year ahead.
Speaker Change: We will execute on our clear and consistent strategy.
Speaker Change: We have a global business, a world class wealth and investment manager alongside a leading investment bank the growth.
Speaker Change: Opportunities are extraordinary, especially given how our businesses and regions intersect and support the business strategy.
Speaker Change: We will continue to lead with asset consolidation across wealth and investment management and remain committed to growing high quality share in institutional securities to consistently deliver our integrated firm to clients around the world in so deep and so doing we will continue to execute towards our key objectives.
Speaker Change: And to deliver for shareholders.
Speaker Change: I will now turn the call over to Sharon will discuss our fourth quarter and annual results and then together we will take your questions. Thank you.
Sharon: Thank you and good morning, the firm produced revenues of $54.1 billion in 2023 and ended the year with fourth quarter revenues of $12 9 billion.
Sharon: For the full year, our OTC was 12, 8% and EPS was $5.18 and for the fourth quarter. Our TCE was eight 4% and EPS was <unk> 85 cents.
Sharon: All your efficiency ratio was 77, 2%.
Sharon: A number of factors impacted our annual and quarterly results.
Sharon: The full year results include nearly $900 million of notable items.
Sharon: Half of these items were reflected in the fourth quarter it.
Sharon: $286 million FDIC special assessment charge and a legal settlement of <unk>.
Sharon: $249 million were both realized in the fourth quarter.
Sharon: In addition, the full year results include $353 million of severance expenses, primarily related to our may employ action.
Sharon: Combination of these three items negatively impacted full year EPS by <unk> 44 said, our OTC E by 105 basis points and the efficiency ratio by 164 basis points.
Sharon: Total integration related expenses for the year were $293 million, nearly 70% of which was related to a trade with.
Sharon: With the E trade integration now complete we remain focused on continuing to manage our expense base.
Sharon: Supporting our long term efficiency goals, while still investing in growth.
Sharon: Now to the businesses.
Sharon: Institutional securities full year revenues were $23 $1 billion and quarterly revenues were $4 $9 billion.
Sharon: Full year results were impacted by the weak investment banking environment that began with the onset of the hiking cycle and geopolitical events in early 2022 and persisted through most of the past year.
Sharon: Fourth quarter revenues reflect reflected stronger investment banking results and prudent risk management across fixed income and equities.
Sharon: Investment banking revenues were $4 6 billion for the full year lower completed M&A transactions, followed a dearth of announcements in the back half of 2022 in early 2023, which weighed on results. However, optimism began to rise mid year, followed by a notable increase.
Sharon: And Morgan Stanley's announced volumes, starting in the third quarter and continuing into the fourth quarter.
Sharon: Fourth quarter revenues were $1 $3 billion results were supported mostly by fixed income underwriting as the investment grade market remained open if a regular way issuance and was supported by event driven activity.
Sharon: Advisory revenues has begun to recover versus recent quarters and were roughly flat year over year.
Sharon: Equity underwriting revenues were also flat as activity remained muted.
Sharon: As we enter 'twenty 'twenty four we are positioned to capitalize on the opportunities that well downside risks are linked to the consumer with the right path NGL and geopolitics has two key determinants, we expect the U S will lead the recovery globally corporate confidence will ultimately drive the cycle forward and we are.
Sharon: Courage by signs as the CEO and board room optimism is growing evidenced by the build of our advisory and IPO pipeline.
Sharon: Our integrated investment bank is well positioned to capitalize on the recovering backdrop, particularly where the institution works across the businesses, we see Oh I see.
Sharon: Cfos and treasurers on corporate solutions.
Sharon: Strength in sentiment should support broad M&A, and new capital market issuance and eventually feed through to the broader market activity.
Sharon: Equity full year revenues were $10 billion, reflecting lower revenues across the region.
Sharon: Tempered client engagement was reflective of broad market uncertainty.
Sharon: Revenues were $2 $2 billion in the fourth quarter.
Sharon: Prime brokerage revenues in the fourth quarter were solid results reflected narrower spreads and the geographic mix of client balances.
Sharon: Cash results declined versus last year's fourth quarter, reflecting lower volumes, particularly in Asia ex Japan.
Sharon: Derivative results were up versus last year's fourth quarter as the business continue to grow the client base.
Sharon: Fixed income revenues were $7 $7 billion for the full year declining from 2022 strong result, the full year decline was driven by lower client activity in foreign exchange and commodities, which were impacted by greater uncertainty around the rate outlook and less volatile energy market.
Sharon: Quarterly revenues were $1 $4 billion macro performance was down versus the prior fourth quarter results reflected fewer monetization opportunities, particularly in Asia compared to heighten engagement in the region last year.
Sharon: Micro is down year over year, driven by lower revenues in credit corporate which was negatively impacted by movements in credit spreads on the back of geopolitical events.
Sharon: Results in commodities were up versus last year's fourth quarter, primarily reflecting improved performance in the power and gas business.
Sharon: Turning to wealth management.
Sharon: For the full year wealth management revenues were $26 $3 billion and the pretax profit was $6 $5 billion, which resulted in a PBT margin of 24, 9%.
Sharon: <unk> results reflect the complex macro backdrop as well as several idiosyncratic events.
Sharon: The unprecedented rise in the absolute level of interest rates were particularly consequential as this subsequent shifts in client behavior impacted the revenue mix and margin.
Sharon: In addition, there were several expense items that impacted the margin including integration related expenses.
Sharon: I see I see special assessment severance charges and the impact of D. C P, which saw meaningful swings compared to last year.
Sharon: Taken together these four items impacted the full year margin by over 250 basis points.
Sharon: Total client assets ended the year at a new high reaching five one trillion dollars of assets.
Sharon: All year fee based flows were $109 billion.
Sharon: These flows and associated fees upset the market levels and changes in interest mix of client portfolios.
Sharon: Supporting the year over year increase in asset management revenues.
Sharon: Fourth quarter revenues were $6 $6 billion and the reported PBT margin was 21, 5% yeah aforementioned notable expenses negatively impacted the fourth quarter margin by over 400 basis points.
Sharon: Asset management revenues in the quarter were $3 $6 billion up approximately $200 million from the prior year's fourth quarter.
Sharon: Quarterly fee based flows were strong at $42 billion underscoring the value clients are seeing in our advice based model.
Sharon: Hi, and allocation to higher yielding cash alternatives remained elevated and clients continue to deploy monthly inflows into equity markets from sweep balances yes.
The eventual return of the new issuance calendar and improved retail sentiment should provide a tailwind as clients look to redeploy into broader asset classes.
Net new assets of $282 billion for the year, representing 7% annual growth rate of beginning period assets.
Sharon: Fourth quarter net new assets were $47 billion for the full year net new asset growth was driven by the advisor life channel across existing clients, new clients and net recruiting.
Sharon: Transactional revenues in the fourth quarter were $1.1 billion.
Sharon: Putting the impact of D. C. P transactional revenues increased slightly year over year as clients invested in structured products and fixed income products.
Sharon: Bank lending balances of $147 billion remained roughly flat consistent with the environment.
Sharon: Total deposits increased 2% quarter over quarter to $346 billion driven by continued demand for our savings offering from our wealth management channel and a modest increase in sweep balances.
Sharon: Net interest income was $1 $9 billion in the quarter.
Sharon: The sequential decrease was primarily driven by the mix of average deposits and a blended deposit costs in the quarter.
Sharon: Looking ahead to the first quarter of 'twenty 'twenty four the deposit mix will continue to be the primary driver of net interest income.
Sharon: Modest sequential build in suites was promising and suggests we are nearing a level of frictional sweeps and client accounts.
Sharon: Assuming that the forward.
Sharon: Curve holds and that our assumptions around client behavior materialize, we would expect NII in the first quarter to be roughly in line with the fourth quarter.
Sharon: Our asset gathering strategy remains unchanged.
Sharon: And we expect it to deliver margin expansion over time.
Sharon: That's clear and includes the following objectives first.
Sharon: Increased relationships through our channel.
Sharon: Can migrate assets to advice.
Sharon: Third deepen existing client relationships with enhanced capabilities, including new products and solutions and finally realize scale benefits of our investments over time.
Sharon: These efforts are well underway in the year, we grew client relationships by over 600000 across the franchise. This was led by success in the workplace channel as we continue to win corporate plans and add participants in stock plan.
Sharon: In the prior three years, we saw an average of $50 billion of workplace assets migrate to the investor lunch. The advisor led channel on an annual basis.
Sharon: This your client migration was up 25% year over year, despite economic headwinds and on the product side, our financial advisors are offering clients investment opportunities such as private credit private equity and all the other alternatives, bringing wealth and investment management closer together will create greater opportunities.
Sharon: For on growing product creation.
Sharon: As we move forward and transition from integration to optimization for client experience, we expect to see greater scale benefits from our investments overtime.
Sharon: Investment management reported full year results of $5 $4 billion and fourth quarter revenues of $1 $5 billion.
Sharon: <unk> increased year over year to $1 five trillion supported by higher asset values.
Long term net inflows of approximately $7 billion excuse me long term net outflows of approximately $7 billion were driven by headwinds in our M. Some active equity growth strategies.
Sharon: We then alternatives and solutions, we continue to see demand for parametric customized portfolios across both equity and fixed income strategies as more retail clients seek a customized solutions.
Sharon: Liquidity overlay services had outflows of $6 $6 billion.
Sharon: Weaker institutional liquidity flows were partially offset by demand for parametric overlay product <unk>.
And the combined parametric brand inclusive of overlay and its retail offering had net inflows of over $5 billion again this quarter.
Sharon: Their scoring the strength of our differentiated customized offering.
Sharon: Fourth quarter asset management and related fees of $1 $4 billion increased slightly versus last year.
Sharon: Quarterly performance based income and other revenues were $61 million.
Sharon: <unk> in the U S private equity and infrastructure offset losses in real estate.
Sharon: <unk> the benefits of diversification in the franchise.
Sharon: Turning to the balance sheet.
Sharon: Total spot assets for one two trillion dollars.
Standardize our W. As increased by $13 billion sequentially to $457 billion as we actively supported clients with.
We prudently managed our capital profile and ended the year with a standardized CET one ratio was 15, 2%, while focusing on our strategic priorities, including our commitment to return capital to our shareholders.
Sharon: Utilizing the flexibility of our repurchase authorization, we were opportunistic at the start of the fourth quarter and we bought back one $3 billion of common stock.
Sharon: The full year tax rate was 21, 9%, reflecting the realization of certain tax benefits earlier in the year. The fourth quarter's tax rate was 26, 5%, primarily reflecting the tax implications of a specific legal matter.
Sharon: We expect the 'twenty 'twenty four tax rate to be approximately 23% consistent with prior years, we continue to expect some quarterly volatility.
Sharon: A number of idiosyncratic and macro headwinds added complexity to the backdrop over the last year.
Notwithstanding these challenges we are.
Sharon: We ended the year better than where we started we now have $6 six trillion dollars of client assets and we successfully completed our E trade integration as it relates to capital markets boardroom confidence is rising and our calendar is building we.
Sharon: We approach 2024 with optimism keenly aware of the dynamic environment, we operate in as we continue to drive towards our performance goals with that we will now open the line up to questions.
Sharon: We are now ready to take any questions to get in the queue. You May press star and the number one on your Touchtone telephone.
Sharon: Your question has been answered or you wish to remove yourself from the queue. Please press star and the number two on your Touchtone telephone.
Speaker Change: You're allowed to ask one question and one follow up and then we'll move to the next person in the queue.
Speaker Change: Standby, while we compile the Q&A roster.
We will take our first question from Dan Fannon with Jefferies. Your line is now open. Please go ahead.
Daniel Thomas Fannon: Hope it looks like we've lost and we'll move to Glenn Schorr with Evercore.
Glenn Schorr: Hi, Thanks very much.
Glenn Schorr: So sure.
Glenn Schorr: I love, how you've laid out the picture on the wealth management margin potential.
Glenn Schorr: I do like that sweeps have settled in.
Glenn Schorr: So I'm curious in the big picture.
Glenn Schorr: Has S a and client behavior changed.
Glenn Schorr: A bunch of Sean on the cash management front, such that that's a potential driver of margin potential.
Glenn Schorr: Why are you you know.
Glenn Schorr: Leaning towards that mid Twenty's near term versus the 30%, where we were kind of hanging out when rates were lower in deposits were higher is that the primary driver of the margin thought and do you think behaviors changed like permanently.
Speaker Change: So I can't speak to behavior permanently, but I. Appreciate the question Glenn It would take a step back it was always a idea of the premise of our sustainable growth and margin was really about ensuring that we continue to see growth in our fee based assets and we seek.
Speaker Change: Growth in that migration towards the advice based channel and in fact that is what you've begun to see look at our fee based flows this quarter alone and think about the fee based flows that we've had over the course of the year. We continue to educate our clients. So when we think through the funnel have more participants we'd be.
Again to see more assets and then those assets will over time migrate to advice you point out as we think about the cash and what some might call cash sorting et cetera is that we still have that 'twenty two 'twenty, 3% sitting in cash equivalents, so not necessarily.
D P, but rather cash equivalents it don't necessarily earn a fee rate money markets think of a savings product overtime et cetera that you might see as individuals begin to take that money and deploy it into markets or deploy it into fee base that will be accretive to the margin overtime and that to your point.
Speaker Change: <unk> is a place where you should begin to see a margin build and something that becomes more sustainable as we both grow our asset base and grow the advice and the client migration towards advice in those fee based assets.
Speaker Change: It makes sense I appreciate that maybe just a follow up.
Speaker Change: In wealth, if I could.
Speaker Change: It certainly doesn't show in your flows this quarter. So I guess I know, where you're going to go with this but you should definitely hearing a lot more from the bank on wealth management companies that are turning up the heat a little bit on recruiting and a lot more on their intent to better penetrate their banking wallet a client's wallet. So.
Speaker Change: Curious if you feel any of that.
Speaker Change: Your franchise any of that and where you compete and whether or not that.
Speaker Change: That impacts your thought process on your ability to attract some of the trillions of dollars held away that is always part of the growth story.
So the first point I'd say is obviously always a competitive market, but we're very well positioned given the tools that we've given to our advisors a couple of points that I would make two the first is when we look forward into the first quarter that our recruiting pipeline is healthy. So when we think about January and what we're seeing we see there.
Speaker Change: Our recruiting being healthy the second point that I'd mentioned is what I find to be most encouraging when you look under the N and a data is that we're seeing new clients come to Morgan Stanley. So it's not just attracting assets held away, but rather youre actually getting new clients from those participants and then youre seeing conversion. So when you think about.
Speaker Change: Some of the statistics that I gave you around a workplace that we've talked about these statistics the workplace assets that move over 80.
Speaker Change: 80% of those assets are actually assets that are coming from outside the institution, so you're bringing new clients in and then they're bringing their assets that are sitting away into the institution. So I think we're well positioned to capture those opportunities final point that I'd make is on your banking product actually this idea the E trade integral.
Speaker Change: Asian, right and we talked about we've completed the integration and I said, we're looking towards the forward or the front office integration some of that will be around banking products et cetera, as we think and we look ahead over a multi year journey.
Speaker Change: We'll take our next question from Dan Fannon with Jefferies. Your line is now open. Please go ahead.
Daniel Thomas Fannon: Oh, Thanks, good morning, Congrats on the new role Ted I was hoping you could elaborate on the current environment and maybe a little bit more and maybe what you see as the biggest opportunities for growth as you look to make progress against our longer term targets that you've outlined.
Ted Pick: Thanks for your question I think.
As you heard from my comments are generally constructive about what 2024 brings and it should be beneficial to both arms of the firm.
Some of the.
Daniel Thomas Fannon: Reorientation of our cash equivalents, whether they be in money markets, where treasuries are alike.
Daniel Thomas Fannon: Ron referred to and redeploy by our wealth clients into the markets.
Daniel Thomas Fannon: Given increasing sensory stability.
Daniel Thomas Fannon: Good for a phase in for the wealth channel.
Daniel Thomas Fannon: In the investment Bank, we've had a decades long.
Route in Ipos as far as volumes in decades, and as you know we've had very.
Daniel Thomas Fannon: Very light M&A calendar. So that also has been in a trough early cycle type activity from our highest margin products inside of the investment bank specifically inside of investment banking, what we think are in order to our benefit too. So are we quite possibly could have a dynamic where if a if we.
Daniel Thomas Fannon: Our and this a soft landing zone or we could see increased activity.
Daniel Thomas Fannon: Ultimately we are in the tickets business activity based in both channels and a benign economic conditions augur well for both our wealth and investment but also for the investment bank.
Daniel Thomas Fannon: Part of the reason I wanted to talk about the integrated firm today was because the two segments are working together will bring a inevitably additional growth opportunities inside the firm we have folks that have mobilized around the enterprise and are now in a position to talk to clients across the product spectrum and to bring in addition.
Daniel Thomas Fannon: Business, we have a big business as you know in Europe and in Asia. So if economic conditions are better than the.
Daniel Thomas Fannon: The expected, which is that Europe was struggling in China might as well if we do any better than that we would expect to see.
Some some increased activity coming out of those regions too. So it's not just a U S proposition, but a global one as well.
Speaker Change: Great. Thank you and you mentioned margins in within the wealth channel or wealth segment will consolidate around the mid twenties here in the near term can you maybe unpack some of the inputs that will drive that outcome.
Certainly I work through that I think Dan when I actually tried to explain it in the script. So the premise in terms of the growing wealth management margin again is about the conversion to the advice based model over time of course individuals will have a different pieces right, but we have three different channels.
Speaker Change: We've talked about we've talked about self directed we've talked about workplace, we've talked about advice.
Speaker Change: The self directed side, we will continue to attract those clients and those that might be interested in advice will see it as we have different ways to give people a sense of any a connection to Fas. So we've talked about that on the workplace side, we continue to get new participants new corporate relationships and that.
As we educate people with the wellness offering et cetera.
Speaker Change: We've seen evidence of this being bring people yet again to that advice driven model and the fee based flows as you see those those will help us grow the asset management line. Then you can break it down again the transaction align we've talked about you're going to have new products and you're gonna have a deployment of this cash has been sitting on.
Speaker Change: On the sidelines that we've talked a lot about the dry powder that can impact either the transactional line or the asset management line and again, we're encouraged by the signs that we're seeing in NII.
Speaker Change: Not to suggest that we are seeing as of right now it looks like that cash that friction a level of cash is stabilizing but didn't do you have the drivers in each of those lines as we think about the revenue side and then as you think about the expense side. Those we are looking for a place to invest and gain from the scale of those <unk>.
Speaker Change: <unk> and that would be as part of the objectives that Ted laid out when you see 10 trillion dollars of assets.
Speaker Change: So I'll move to our next question from Ebrahim <unk> with Bank of America. Your line is now open. Please go ahead.
Ebrahim: Hey, good morning, and welcome Ted.
Ebrahim: Just going back to the your strategic update going to slide 13, where you sort of lay out very nicely the transformation over the last 15 years.
Ebrahim: We looked at.
Ebrahim: Forward over the next three to five years I was I was wondering if you can help fill in the blanks at all.
Speaker Change: T J clean I mean, he is he has been a key pillar of disinformation as we think about both organic and inorganic one on the M&A side give us a sense of just where you see dealmaking happening over the next few years, we saw a big private.
As a dealer now being announced on Friday, and so would love some perspective, there and then I think the second thing you mentioned in terms of wallet share on the investment banking side, if we can unpack that a little bit in terms of how you expect to achieve a greater wallet share. Thank you.
Thanks.
Speaker Change: Talk to you with you. It's a it's an interesting question you're effectively asking what will over the slide look like three four years from now.
Speaker Change: We believe that the the revenue mix will toggle around there could be periods like like <unk>, 'twenty 'twenty or 'twenty, one where the the investment bank is really firing on all cylinders.
Speaker Change: Again early economy type of activity and I could grow again towards 50% and we can have other periods, where as we continue to invest in the wealth and investment management piece of a firm that can expand further I think where we are right now as a revenue and profitability matter, where 60% of the firm is in well.
Speaker Change: <unk> investment management is not a bad place to start.
Speaker Change: The main message I'd want to convey today is that while there's a change in leadership. After 14 years of James that stewardship, there's not a change in strategy.
Speaker Change: We have undertaken and integrated if you really go back into time off and then include Mesa West five different acquisitions and I think the view inside the houses. That's that's good for now you know we can we can we can execute our business with the growth plans in front of us and it feels organic.
Now that having been said there.
Speaker Change: There are ideas that come across the transom.
And we naturally would take a look but I think for the next period. The view that I would have is that we are we really work to.
Grow the organization and to do so organically and efficiently I think on the margin a one comment might be that we could work on sweating. The income statement a bit more there is a theres a little more work to be done post integration, where there can be inefficiencies.
Speaker Change: Along the income statement and I think we are a much focused on looking for those efficiencies without giving up any of the strategic investment that we want to make on our way to 30% a PBT margins in wealth and 70% efficiency of the firm.
The way a articulated the strategic goals is to effectively a reiterate we will achieve those goals, but along the way, we will invest and that investment opportunity exists.
Speaker Change: On the current portfolio in an exciting way and that is why for me. The most important message we wanted to send out to folks today was this concept of the integrated firm now we have the portfolio of businesses together, we have a unified partnership culture. We have the two halves of the firm will toggle by five or.
Speaker Change: 10 points on revenue or profitability, given a period of time, but now we can scale that organically and not.
Speaker Change: At the numbers and work the income statement a little bit.
Speaker Change: Well move to our next question from Stephen Ju with Wolfe Research. Your line is now open.
Stephen Ju: Hi, good morning.
Stephen Ju: Yeah.
Stephen Ju: So it wont.
Stephen Ju: Hi, I wanted to start off and Sharon with just a question on incremental margins and comp leverage at a lower rate backdrop. We know NII is going to be a source of drag in the coming quarters, certainly if the forward curve manifest, but you should see improved momentum from equity market tailwind stronger fee based.
Stephen Ju: Flows it better I be backdrop, but the street is modeling comp dollars flat revenues up about 2 billion I'm just trying to get a sense as to how we should think about incremental margins as revenue momentum improves but the growth is coming mainly from more compensable areas.
Stephen Ju: So.
Speaker Change: You, obviously did it hit the nail on the head in terms of the different pieces right. So you can't you can't look at the different line items the same way.
Speaker Change: You're going to have a comp ratio change as Fas get compensated as you would expect on the grid associated with those fee based revenues are as it relates to NII, yes that was non compensable as they just told you the expectation on a quarter over quarter basis.
Speaker Change: If client behavior remains unchanged you are sitting in a position where you're beginning to better understand what that behavior is and then NII will be roughly in line with where it was in the fourth quarter at least for the first quarter. So yes, the comp itself might change, but the app.
Speaker Change: Growth in the ability to see the fee based assets grow its fire. There are also other offsetting factors that we have to think about as we look back into the last year remember that what I highlighted was you had negative implications associated with mix.
Speaker Change: Revenue in those asset management lines because of the fact that we saw investors investing they fixed income products you had a market dynamics associated with billing et cetera. So there is a place there are rather places that you can see growth in the asset management line, yes, they will be compensable, but we would see benefit.
Speaker Change: It's a scale both from the asset side and hopefully from the market side as you say you see different pieces being invested as you move forward I hope that helps to frame the answer to your question.
Speaker Change: That's really helpful and.
Speaker Change: Just for my follow up I was hoping you could just speak to the sensitivity to lower rates.
Speaker Change: Big area of focus for investors you benefit from having the majority of your deposits and premium savings, where you have pricing flexibility at the same time the asset side, there's still a very sensitive to the short end. So wanted to get a sense as to how you expect the NII trajectory to unfold.
Speaker Change: As the fed begins easing and whether there's any appetite on your side to extend duration, maybe lock in some higher yields.
Speaker Change: That's a great question and the answer is fully premised on what we see first with deposits right. So you're sort of first order condition. As you look ahead into 2024 is what happens to the deposit mix.
Speaker Change: What I said on the call is it we're encouraged and in my prepared remarks, we're encouraged by what we've seen to date is at the beginning of January.
Speaker Change: If you were to assume that that were to hold. The next question is what is the pace of the interest rate cuts that we see if you see an instantaneous shock we disclose to you what that means right. So an instantaneous 100 basis point shock lower will be negative around $600 million right. However, if.
Speaker Change: It was more gradual in nature, which is similar to what you might see in the forward curve you will have offsets associated with the reinvestment of the portfolio. So that will offset the rate decline rate will largely offset those rate declines, but it will depend first order condition is our deposit stable is there.
Speaker Change: Stable and that's what we've seen so far so let's see if that holds and then second what is the pace of the cuts over the course of the year.
Speaker Change: I'll move to our next question from Devin Ryan with JMP Securities. Your line is now open. Please go ahead.
Thanks, so much.
Devin Ryan: Good morning, Ted Schroeder, I'm sure and maybe just start with a question on investment banking and good to hear about the tone improvement there.
Devin Ryan: Sponsors have been less active in corporates at least from the data we track and we know sponsors have record dry powder, but higher interest rates current valuations have been a little bit challenging for them. So just the question is whether you know.
Devin Ryan: They are in a position to return in force over the next year I think that's probably could be necessary for full normalization in investment banking and then just what youre seeing when you talk about the pipeline that you have which are good sponsors doing pipeline. Thanks.
Speaker Change: Sure overall, the pipeline is more diversified than we've necessarily seen in historical years, we expect to see continued momentum in energy that we've seen over the past year, we see a optimistic signs of real estate and we see optimistic sides and technology as it relates to sponsors.
Speaker Change: We would expect sponsors to come back and that will obviously take time and I do think it will likely take a couple of potential Princeton certain places and other things that will be encouraging would be on the equity ipos side. What I'd say is we've moved from a period of time on that with the window driven and that market is beginning to build momentum and so.
Speaker Change: The juxtaposition between the outlook for 'twenty four I think in 'twenty three is important there as well.
Speaker Change: Okay terrific.
Speaker Change: Then a question for Ted So I think you're pretty clear here the strategic trajectory.
Ted: Trajectories not changing dramatically.
Speaker Change: But you know we often get the question around <unk>.
Speaker Change: <unk> you know, what's what's changing and so you have a different background and James I think everyone has their own management style and you've run some big businesses very successfully for Morgan Stanley said, what's it maybe just hit on briefly how you would characterize kind of your style and just.
Speaker Change: The ability to leverage your experience.
Speaker Change: What may change as a result of that thanks.
Speaker Change: Well I'd say, that's a great question.
Speaker Change: James and I.
Speaker Change: Or more on a much more similar than not.
Speaker Change: He brings to the table.
Speaker Change: A positive Mojo are to the business from the time that he took.
Speaker Change: Took over as CEO when things were in and as you know pretty rough shape and for now.
Speaker Change: Its 15th year of leadership as Exec chair.
Speaker Change: He brings a positive spirit to every single interaction that we have whether it's our operating imagine committees are risk meetings. These calls a client interactions.
Speaker Change: Cultural work with our with our new vs and most and are looking to get promoted in the organization I think that spirit of positivity is something that is has been contagious and the organization is something that I'm a big believer in.
Speaker Change: And has worked well.
Speaker Change: Inside of <unk>.
Speaker Change: The trading businesses inside of our investment banking and I think you can feel throughout the firm. So the reaffirmation of our partnership our core values and articulation of the integrated firm, which is the next step now because we've we went from trying to build our way back to.
Speaker Change: Generating the kind of enhanced scale and deeper mode through these gutsy acquisitions.
Speaker Change: That brought us to a place now where we can look around and see how we can bring the firm are closer together I think the tone.
Speaker Change: Is one a determination you know I've been a displays a four.
Speaker Change: Or more than three decades, and we had our moment sort of before the Abyss and a wait and I think it's fair to say that the entire senior partnership.
Speaker Change: James but also the folks that came through the organization a like like myself, we are determined to not revisit anything that feels like those days. So the calling card here is durability.
Speaker Change: Is consistency.
Speaker Change: Want to put up consistent results are part of what you see in the strategic deck in the back back page those are very clear numbers and we will hit them.
Speaker Change: Hit those numbers will take time, we will have to do all of the three yards and a cloud of dust work associated with a thoughtfully working our way to those numbers such that when we hit them in a normalized environment, which will be part of the next arrow.
Speaker Change: On page three in the years to come we will have done so in a way where we can achieve full valuation on it because the view will be that they are not only achieved for a moment in time, but sustainable and that obviously is also the calling card of James his tenure, which is that a consistent.
Speaker Change: C and durability. So if the first is as positive Mojo and the second is this ethos of consistency rigor durability.
Speaker Change: I think the third at the end of the day it's been.
To believe in what Morgan Stanley can aspire to for clients and that is this integrated firm that we are something differentiated and our two channels.
Speaker Change: Clear on what we do and what we don't do and at the cycles very much are a tailwind for us.
Speaker Change: Yeah.
Speaker Change: Well move to our next question from Christian Bolo with Autonomous Research. Your line is now open. Please go ahead.
Christian Bolu: Good morning, Ted and welcome to the call are good want assured as well.
Christian Bolu: Maybe Ted for you on the trading businesses Morgan Stanley has suffered some share loss over the last couple of years and your peers have been aggressively allocating capital to that business had good share.
Ted: So just maybe curious just how you're thinking about opportunities to grow those businesses and any plans to.
Ted: Either invest more capital or resources into that business.
Speaker Change: Thanks for the question Christian good to hear your voice.
Speaker Change: I think we know that we have.
Speaker Change: We have achieved the top three position in the institutional securities business over the last number of years, but as you say on the margin we have lost.
Speaker Change: Lost share to the number one and number two and I think our view has been that that is a trade that we've been willing to make.
Speaker Change: Both to continue to toggle the organization to the kind of revenue and profitability mix that you see today, but also importantly.
The preservation of capital, which allows us today irrespective of where we are in Basel III end game type of CET, one ratio that is well above 15%.
Speaker Change: As you've heard.
Speaker Change: I am with team are much focused on the durability of the dividend and so there's been a real focus on what shareholders want and what the business model ought to be for folks to want a durable Morgan Stanley.
Speaker Change: That having been said what you saw in 2020 was that we can be quite agile about getting capital resourcing to the client base. It's a tailwind for their part of the proposition of being a global investment Bank is that if for example balances start working in the prime brokerage context.
Speaker Change: Or is there a 'twenty one 'twenty two highs are where we're about 10% away from those figures well then perhaps capital needs to be put towards equities, namely the prime brokerage business in behalf of clients.
Speaker Change: The other periods, where the event space, which was an illusion made on the previous question with respect to activity around financial sponsors.
Speaker Change: That activity May come back these of course at some point these large assets.
Speaker Change: Need to trade in the sponsor community is dependent at some level on the street to engage in velocity. So.
Speaker Change: There is no a strategic decision at all to withdraw from the investment Bank I think what we would say in 'twenty 'twenty. Four is that there is not really a choice between wealth and investment management or the institutional securities business.
Speaker Change: This we will engage in both activities well, we will not be looking to chase the ball simply to have wallet share. The name of the game is to have an income statement that demonstrates the operating leverage in each of the two businesses and ultimately to get to a holistic return. So we are much focused.
Speaker Change: On what the durability of that capital, but to use is and where we can serve clients over a long period of time and we're paying attention to it very very carefully and what I'm. Most excited about Christian is that the cycle, that's coming investment banking led cycles coming at a time when we spent.
Speaker Change: Years, putting together and I know you've met some of these folks are so called integrated investment bank. What is differentiated about this place is that we have bankers equities people in fixed income folks who work together they worked together on client solutions.
Speaker Change: I'm proposing on our behalf as now we extend that proposition to the firm where as in the wealth business the investment management business and inside the investment bank. We can work together around clients ultimately to generate operating leverage and returns and that is for me. The most exciting part of the next.
Speaker Change: Raptor, which is we got the team we've got the excess capital, but again I like the excess capital because it's part of what does differentiate us from the group and allows us to weather whatever comes through on a Basel III end game I would add if in fact, the Basel III end game.
Speaker Change: Outcome is is more favorable than perhaps with the street expects, we will adjust accordingly, but we have tools and part of that is the dividend part of that is investing in the business are part of that obviously is oh buying stock back, but ultimately having a real capital cushion is something that Ah <unk>.
Speaker Change: Shareholders have come to expect from from James and that's something they should continue to expect from me.
Speaker Change: Awesome very quickly thank you.
Speaker Change: And then maybe another one on wealth management margins Unfortunately, maybe for Sharon.
I can assure you should want very clearly that.
Speaker Change: Here revenues will drive margins over time.
Speaker Change: I guess, but if I guess, if I look at the business you know 2019 versus today.
Speaker Change: Wealth management revenues were up 60% versus where they were in 2019, we get margins have compressed.
Speaker Change: And again I know, there's one time items in the quarter or in the year, but it doesn't seem to me like bigger revenues have driven operating leverage. So what gives you confidence that going forward your revenue growth will drive meaningful operating leverage.
Speaker Change: Really around the conversion that's why I keep telling I keep talking about the conversion Christian we brought the statistics up last year. We brought this to fix up again this year in terms of seeing conversion from workplace about seeing net new assets coming in and then you know the assets.
Speaker Change: My great new clients, giving a face time all of those things are able to give us more durable asset management based revenue as we move forward. So to your question and I think Steve asked a similar question.
Speaker Change: The NII will fluctuate, obviously based on rates and on consumer and customer behavior and so the goal while that has been something that we you know we just say don't forget the banks don't forget the margin that you'll get from that over time. The goal is to have a more sustainable trillion.
Speaker Change: Of assets coming through both wealth and investment management those assets will earn fees to some portion of it and we see the migration into fee based right. We have 50% of advisor led assets sitting in fee based accounts, that's the ultimate proposition from seeing an expanded margin.
Speaker Change: And seeing the benefits of scale and we have invested in workplace, we've invested in getting new channels and getting new participants. The time is now to begin to see conversion and we have evidence you know factual evidence that I pointed to on this call to show you that we're making progress towards those goals.
What I'd add Christian is again, all all goals are being equally important we will hit that 10 trillion dollar number.
Speaker Change: So part.
Speaker Change: Part of it is to allow for some of this Ah Ah latency. If you will on assets held away on assets working their way through workplace.
Speaker Change: We are a leader in its space that has relatively embryonic AR in the wealth business and we will allow for some time for those assets to convert but the key of course is to have them in house, and then as well to see that folks.
Speaker Change: Who are our new workplace customers have assets held away into other existing brokerage accounts, they bring them to the firm as well.
Speaker Change: Due to time constraints, we will take just one question and no follow up going forward from analysts. Our next question comes from Brennan Hawken with UBS.
Go ahead. Your line is now open.
Brennan Hawken: Good morning, and congrats to Ted on the new role.
Brennan Hawken:
Brennan Hawken: I will since I only get one shot at FIS I will ask on the long term targets. So.
Brennan Hawken: We there was some some slight changes here we lost some pluses.
Brennan Hawken: And we lost less than on the efficiency ratio, although in fairness, we gained a plus from a client assets. So what was was that a reflection of a long term target. So I'm guessing it's not really a reflection of the current environment. So what what drove the tweak there too.
You know maybe signal some reduction in some of the upside scenarios and.
Brennan Hawken: How should you you've referenced the fact that you need the environment to normalize how should we be thinking about progression towards these targets and in what specific known environmental actions you can be taking in order to to move the ball there.
Yes excellent question and.
Speaker Change: A lot of time, given to consideration on pluses and and the like.
Brennan Hawken: This is for me was sort of an easy call.
Brennan Hawken: The.
Brennan Hawken: The page is one that we all own and are getting to 30% margins is a number that we want to achieve and at that level are having hit something that is approaching 10 trillion of assets or we're gonna be in a really great place.
Brennan Hawken: And that would be a reasonable time to say hey.
Brennan Hawken: More and we'd say, okay well.
Brennan Hawken: Clearly, we're going to continue to grow assets because the asset number of way that Tam is is gigantic James has mentioned <unk> 20 trillion at one point. There are are there are client assets that will keep us busy for many generations to come.
Brennan Hawken: Whether the pre tax margin of wells should go about 30% at that point before or not I'd like to get to the 30, I don't want to get their durably and thoughtfully and the mid Twenty's as a range.
Brennan Hawken: You've seen us trade at a the business to work well at and we believe we can win economic conditions normalize as Charles described in his new assets get put to work some combination of money markets in T bills coming into the market again workplace coming through the funnel all three channels working.
Brennan Hawken: On the back of increased transaction activity in new issues and the like are we should slowly and Durably work our way back to the 30 <unk> efficiency ratio as you know it was just another way of saying, 30% margins for the enterprise now by definition investment Bank.
Which has more capital and more underlying risk should have margins that exceed 30% overtime. So it's fair to say that if we're hitting 30% margins in wealth management, we certainly should be high out an enterprise efficiency ratio of one minus.
Brennan Hawken: 70%, 30% as well, so 30% plus it could be a way of thinking about it but I wanted to set up numbers, where the team knew that there are specific and that we needed to hit them and then finally with respect to returns on capital. This gets to the importance of our being stewards of that capital what we pay out.
Foreign dividends, what we buy back and Durably, how we run the place and we thought that 20% ROTC, which is something we hit during the over the years, but of course those were against a macro economic conditions, which were unusual in highly favorable that we can do 20% in <unk>.
Brennan Hawken: In a normalized environment. So this maybe on the margin.
Brennan Hawken: And.
Brennan Hawken: James liked it too when we talked about it stylistically my view was I and the team shares at that <unk> 10 trillion of client assets, we should get there and just keep on going but the other three are effectively and removing the pluses its simply reaffirming that those numbers will be hit we will head.
Brennan Hawken: 30% pretax margins and well, 70% efficiency ratio for the firm and 20% ROTC. It will take time it will be the the challenges you would you would expect.
Brennan Hawken: Making that happen and of course, we need economic conditions are lined up in a favorable way, but over time those are the firm wide goals and we wanted to be very specific about that for you.
Brennan Hawken: Yeah.
Speaker Change: We will take our last question from Mike Mayo with Wells Fargo Securities. Please go ahead. Your line is now open.
Mike Mayo: These are high attach.
Mike Mayo: Hey, Mike.
Mike Mayo: Nice Nice Nice Inc enjoyed the story.
Mike Mayo: Okay, well it looks like you have a heavy lift acropolitan James Gorman.
Speaker Change: Sure it's Pat.
Speaker Change: What is your message to the.
Speaker Change: The wealth managers and investment managers that have for the company.
Speaker Change: That you have it run in the past you've proven yourself in the half the coffee that's clearly.
Cap markets in Wall Street banking, but what's your message the other half the company at a time when they've had a.
Speaker Change: Stepped down in there the growth rates that new asset flows.
Speaker Change: Wealth and outflows in investment management.
Speaker Change: Well thanks.
Speaker Change: Thanks for the question Mike.
Speaker Change: You know the wealth the wealth business.
Speaker Change: It's actually in my blood.
Speaker Change: My Dad and my father in law were both brokers once upon a time and I grew up studying that business as a kid.
Speaker Change: And I think it is absolutely that which has differentiated our Morgan Stanley. During this 15 year period or the ability to integrate Smith Barney and build out something that is truly special is our has been ex essentially as you know better than most but also emad, Italy.
Speaker Change: Oh exactly what the firm is needed.
Speaker Change: No way has it actually work to the dis benefit of the investment Bank as you know the history of our of our merger from 97 was largely about social issues, but the industrial are ideal wasn't necessarily off at all on it to build a world class wealth manager would be something that would have enormous.
Speaker Change: Barriers to entry and if run well and run a first class way to deliver.
Value to clients in a in a differentiated manner and what we have done thanks to the leadership of Andy Safferstein with Jed fan and then invest imagine business with Dan simple, it's now moving on to the investment bank and Huntington and Jacques we running well investment management today.
Speaker Change: As we've got effectively the full funnel, we've got the soup to nuts.
Speaker Change: Self directed the traditional advisory channel and this new channel workplace are working as one I've spent time Oh are working some of the <unk>.
Speaker Change: Chairman's and.
Speaker Change: Hitting our branch here in Midtown and spending some time.
Speaker Change: With folks that are actually making the engine work and I think it's fair to say that we at one point were calling the wealth and investment management business. The ballast, which is the right word because we wanted to convey durability, but I'd submit to you Mike and hopefully you'll appreciate the spirit in which I say this I think it's actually the engine.
Speaker Change: I think this will be the engine for further Morgan Stanley growth.
Speaker Change: If opportunities were to come before us in the years to come of course, we could staple them on and do something Inorganically as James alluded to perhaps that would be outside the U S, where I spend a whole bunch of time, but in running the actual organic business as it currently stands we are truly a group of one and.
Speaker Change: As you know having spent time inside the knitting of MFS. What we're most excited about Mike are you as a student of corporate culture and these investment banks.
Mike Mayo: Well you'd be most excited about is just how well we all get along.
Mike Mayo: There is a zero friction in the leadership ranks across infrastructure across wealth and investment management and across the investment bank. So the beauty of where we are today is that all of us as shareholders and custodians of the Morgan Stanley idea and the Morgan Stanley culture of.
Mike Mayo: First class business in a first class way are very much focused on growing both pieces of a firm and as leading wealth and asset manager has a lot more room and we'll grow as I've said to the 10 trillion of assets and at the same time I don't see any reason why we can't continue to pick up high quality durable.
Mike Mayo: <unk> wallet inside the investment bank and generate operating leverage in that business too.
Mike Mayo: Yeah.
Mike Mayo: That concludes our question and answer session for today, ladies and gentlemen. This concludes today's conference call. We thank you again for participating you may now disconnect and have a great day.
Mike Mayo: [music].
Mike Mayo: Yeah.
Mike Mayo: Yeah.
Mike Mayo: [music].