Q1 2025 Morgan Stanley Earnings Call
Thank you for joining the Morgan Stanley Earnings Conference. Please continue to standby absolutely we will be going live at 930 Eastern 830 central Thank you.
[music].
Speaker Change: Good morning, welcome to Morgan Stanley's first quarter, 'twenty 25 earnings call.
On behalf of Morgan Stanley I will begin the call with the following information and disclaimers.
Speaker Change: This call is being recorded.
Speaker Change: During today's presentation, we will refer to our earnings release and financial supplement copies of which are available at Morgan Stanley Dotcom.
Speaker Change: Today's presentation May include forward looking statements that are subject to risks and uncertainties that may cause actual results to differ materially.
Speaker Change: Morgan Stanley does not undertake to update the forward looking statements in this discussion.
Speaker Change: Please refer to our notices regarding forward looking statements and non-GAAP measures that appear in the earnings release.
Speaker Change: This presentation may not be duplicated or reproduced without our consent.
Ted Pick: I will now turn the call over to Chairman and Chief Executive Officer, Ted pick.
Ted Pick: Good morning, Thank you for joining us.
Ted Pick: The firm delivered a very strong quarter with $17 7 billion in revenue $2 60 in EPS and a 23% return on tangible well.
Ted Pick: We also added 94 billion of net new assets, bringing the firm total to 7.7 trillion equities had a record $4 billion plus quarter, which led to strong results across institutional securities.
Ted Pick: Morgan Stanley delivered returns, while supporting clients buying back stock Opportunistically and building 2 billion of capital one.
Ted Pick: For the last five quarters, we've grown our equity capital base by about 10%.
Ted Pick: With a CET one ratio of 15, 3%, our excess capital position and financial strength gives us ongoing flexibility and support of clients and shareholders.
Ted Pick: It is important that we put up five clean quarters.
Ted Pick: Our focus on clients combined with discipline around capital risk head count and investment have generated sequential earnings of 202.
Ted Pick: 182.
Ted Pick: 188.
Ted Pick: <unk> 22 and.
Ted Pick: And now $2 60.
Ted Pick: This was against the backdrop that was generally favorable but one that hasn't yet seen the tailwind of the long awaited M&A and IPO capital market cycle.
Ted Pick: Delivering an average of 20% returns on tangible over the last five quarters is continued affirmation.
Ted Pick: Our financial goals.
Ted Pick: We've been talking for the last three years about the end of the end of history, which is to say the end of an extended period of political and economic alignment toward globalization.
Ted Pick: History, now resumes and with that comes an adjustment period, where the outlook is necessarily less predictable.
Ted Pick: The stock bond and currency markets are exhibiting the kind of overnight and intraday volatility there reflect rapidly changing probability assessments of different policy outcomes.
Ted Pick: Economists are telling us the risk of recession has materially increased.
Ted Pick: But the consensus today is softer not negative growth inflation.
Ted Pick: Inflation. Meanwhile, continues to swing between declining and sticky, but here too the forward path of prices along the supply chain to producers and consumers is unclear.
Ted Pick: The simple truth today is that we do not yet know where trade policy will settle.
Ted Pick: Nor do we know what the actual transmission effects will be on the real economy.
Ted Pick: As the year progresses markets will calibrate further clarity on trade policy against attacks and Deregulatory pillars of the agenda as the U S endeavors to rebalance the physical equation and assert the national interest.
Ted Pick: Given this unpredictability some clients are deferring strategic activity, while others are proceeding.
Ted Pick: Importantly, core segments of our client universe are continuing to engage barring the worst case risk off scenario trade and geopolitical uncertainty will be priced into the markets over time, and the raising managing and allocating capital the lifeblood of our business will continue as COO.
Ted Pick: Corporate center investors cannot and will not ignore their trade energy and technology priorities in volatile periods windows to deploy and reallocate capital open and close and open again. It is in such moments that clients most value Morgan Stanley's global reach and depth.
Our insights and advice, our capital markets access and our execution capabilities.
Ted Pick: The Morgan Stanley of today is in a very good place. It is worth noting that we just delivered a topline and bottomline record quarter.
Ted Pick: While we are rightly focused on near term uncertainties and disruptions in the markets. Our approach is to prudently plan for the longer term horizon.
Ted Pick: Our strategy to raise manage and allocate capital for clients is crisp and it is clear we have an experienced and stable management team and a deep bench of talent that is focused on that which we can control we.
Ted Pick: We have financial strength and durability.
Ted Pick: We have a culture of rigor humility and partnership across our integrated firm.
Ted Pick: With a demonstrated track record of execution and now five strong quarters in I am confident the Morgan Stanley will navigate this moment of history's resuming with focus and intensity and that the firm will continue to scale client wallet and drive long term operating results.
Ted Pick: And with that I'll turn it over to Sharon to discuss the quarter in more detail.
Sharon: Thank you and good morning, the firm produced record revenues of $17 7 billion and EPS of $2 60, with a strong ROTC of 23%.
Sharon: The results demonstrate the power of advice and supporting clients as the intermediary of capital across products and geographies.
Sharon: Particularly during periods of uncertainty.
Sharon: Long standing global footprint, we are uniquely positioned to serve clients as they navigate global market events and quickly evolving macro dynamics.
Sharon: The first quarter efficiency ratio was 68%.
Sharon: Strong revenues and our continued focus on creating capacity to invest in longer term initiatives contributed to results.
Sharon: Improved efficiency comes despite $144 million of severance charges, which were related to performance management and the alignment of our business needs now.
Sharon: Now to the businesses.
Sharon: Institutional securities delivered a record quarter with revenues of $9 billion up 28% versus the prior year.
Sharon: The breadth of our capabilities and our geographic reach particularly in our equity franchise and in Asia drove exceptional performance.
Sharon: Well well activity among financial sponsors increased supporting steady recovery in investment banking from trough levels.
Sharon: Market catalysts, such as shifting dynamics in AI uncertainty around global monetary policy and U S trade debates created bouts of volatility during the quarter, leading to high levels of client activity and engagement.
Sharon: Against this backdrop Morgan Stanley advisor supported clients as they rebalanced risks consistent with our strength and our business model.
Sharon: Investment banking revenues were $1 $6 billion for the quarter.
Sharon: Strength in fixed income underwriting offset results in equity underwriting.
Sharon: Advisory revenues of $563 million reflected higher completed deals across regions.
Sharon: Activity. During this period was supported by a pickup in financial sponsor engagement and growth and mid size deal announcements.
Sharon: Equity underwriting revenues were $319 million.
Sharon: Equity markets were largely open but activity was muted as issuers and investors evaluated the evolving landscape, particularly in the Americas.
Sharon: Fixed income underwriting delivered revenues of $677 million. The result was very strong with non investment grade loan issuance driving outperformance strong investor demand and tight credit spreads supported active issuance providing opportunities for our business to capture share.
Sharon: During the quarter.
Sharon: With track tariff announcements and subsequent market volatility excuse me, while tariff announcements and subsequent market voluntary volatility has disrupted near term deal activity, our pipelines have not meaningfully changed since the beginning of the year and remained robust there.
Sharon: Four while the timing of the deal execution remains sensitive to market conditions, there remains demand for strategic advice and capital raising.
Sharon: Turning to equity revenues were robust increasing 45% from the prior year to a record $4.1 billion.
Sharon: The quarter reflects strength across our client franchise, our broad and deep global footprint prudent risk management and returns and our multiyear investments across products contributed to results.
Sharon: Globally, we help clients remain agile amid shifting market themes.
Sharon: Prime brokerage continued to report strong results clients remain engaged and invested our cash benefits business benefited from volumes increasing across regions.
Sharon: Derivative revenues were meaningfully up versus the prior year. The result reflects higher client activity amid a more volatile trading environment.
Sharon: Fixed income revenues were $2 $6 billion improving versus the prior year.
Sharon: An increase in flow trading activity offset fewer structured opportunities.
Sharon: Macro revenues increased versus the prior year.
Sharon: The business navigated higher market volatility well, particularly in foreign exchange, where client activity increased across products relative to last year.
Sharon: Micro revenue declined slightly as tighter credit spreads limited secondary market opportunities versus the comparative period. This was partially offset by higher loan balances and an increase in securitization activity.
Sharon: Other revenues increased to $692 million, primarily driven by realized gains on the sale of corporate loans held for sale.
Sharon: Turning to ISG lending and provisions in the quarter ISG provision were $91 million. This reflected portfolio growth alongside a more cautious outlook in response to the volatile macro backdrop in the first quarter net charge offs were approximately $23 million.
Sharon: Primarily related to commercial real estate loans in the office sector, which were largely already provisioned for.
Sharon: Turning to well.
Sharon: The business delivered very strong results in the quarter across metrics revenues of $7 $3 billion reported margin of 27% $94 billion in net new assets and consistently strong fee based flows of $30 billion.
Sharon: Retail clients remain engaged strong transactional activity increased unsolicited trading and ongoing migration into fee based accounts demonstrate client participation and the demand for advice.
Sharon: And volatility.
Sharon: Asset levels across the franchise remained strong at six trillion dollars of assets.
Sharon: Fee based assets were largely unchanged compared to the end of the year at $2 three trillion dollars.
Sharon: Highlighting the diversified nature of the advisor led fee based account flows.
Sharon: Pretax profits.
Sharon: With $2 billion and the reported PBT margin was 26, 6%. The margin was negatively impacted by 174 basis points related to D. C P and severance related costs.
Sharon: Net new assets for the quarter was strong at $94 billion, representing a 6% annualized growth rate of beginning period assets.
Sharon: The result was supported by broad based strength across channels inclusive as elevated flows related to advisor led clients stock plan vesting events positive recruiting trends and self directed clients.
Sharon: Asset management revenues were $4 $4 billion up 15% year over year, reflecting higher market levels and the cumulative impact of positive fee based flows.
Sharon: Fee based flows remained strong at $30 billion to dynamics continue to play through our results.
Sharon: Fee based flows in the quarter were again supported by assets migrating from advisor led brokerage accounts to fee based accounts second assets migrating to the advisor like channel originated from the workplace channel as these relationships grow with an incremental $20 billion.
This quarter, adding to the roughly $300 billion accumulated from workplace since we expanded our channel in 2020.
Sharon: Transactional revenues were $873 million and excluding the impact of D. C. P were up 13% versus the prior year.
Sharon: First quarter's results were supported by higher levels of client activity evidenced by strong daily average trades that have continued to rise despite recent uncertainty.
Sharon: Bank lending balances increased $3 billion quarter over quarter to $163 billion driven by balanced demand across products. During the quarter. We saw a pickup in securities based lending balances likely to satisfy upcoming tax obligations.
Sharon: Total deposits of $375 billion were up quarter over quarter as demand for our savings offering was partially offset by the modest decline in sweep balances within sweeps, we saw clients consistently deploy cash into markets during each month of the first quarter.
Sharon: Overall deposit movements in the quarter were generally in line with seasonality in our expectation.
Sharon: Net interest income was up modestly quarter over quarter to $1 $9 billion looking ahead to the second quarter, we expect a seasonal decline in Sweden related to tax payments, which would result in a modest decline in NII.
Sharon: However over the course of the recent two weeks, we have seen a notable increase in sweep balances exceeding our internal forecasts.
Sharon: While this is likely associated with recent market uncertainty it could have offsetting impacts to the NII in the second quarter should this continue.
Sharon: For the second quarter deposit mix will remain the key driver of NII.
Sharon: Our wealth franchise sets the industry standard where both clients and advisors recognize the power of our platform.
Sharon: Clients continue to entrust us with more of their assets reinforcing the value they place on advice.
Sharon: Advisor recruitment remains strong, reflecting our reputation as an exceptional place where financial advisors can grow their businesses.
Sharon: Looking towards the year ahead uncertainty has increased the value of advice and our diversified capabilities. We are confident that our business will deliver durable results throughout various market environments.
Sharon: Moving to investment management.
Sharon: Reported revenues were $1 $6 billion, increasing 16% versus the prior year results reflected higher asset management and related fee driven by higher average AUM.
Sharon: Total U N ended at one six trillion.
Sharon: Long term net inflows were $5 4 billion in the quarter.
Sharon: The inflows were driven primarily by parametric and fixed income and were supported by our efforts to expand distribution of these products.
Sharon: Within alternatives and solutions parametric continues to grow as demand for customized direct indexing and tax advantaged solutions remains a key source of retail client engagement.
Sharon: Liquidity and overlay services had outflows of $19 billion. These outflows were consistent with seasonal trends, but were more moderate than we had previously expected.
Sharon: Performance based income and other revenues were $151 million supported by gains in several infrastructure investments.
Sharon: Turning to the balance sheet.
Sharon: Total spot assets for $1 three trillion dollars.
Sharon: During the period, we accreted $1 $9 billion of common equity tier one capital and continue to deliver to our commitment to return capital to our shareholders buying back $1 billion of common stock during the quarter.
Sharon: Standardized our W as increased quarter over quarter, consistent with seasonal trends and active support of our clients. We ended the quarter with a standardized CET one ratio of 15, 3% underscoring our strong capital position.
Sharon: Our first quarter tax rate was 21% the lower rate was supported by share based award conversions, which largely take place in the first quarter.
Sharon: This quarter's results underscore the strong and consistent performance, we strive to deliver an active markets as a trusted adviser to our broad global client base, we continue to benefit from the strength of our integrated firm are client driven model combined with <unk>.
Sharon: Drawn capital and liquidity positions us to support clients as they navigate the uncertain landscape and with that I will open the lineup for questions.
Sharon: We're now ready to take any questions you get in the queue you May press star and the number one on your Touchtone telephone.
Sharon: If your question has been answered or you wish to remove yourself from the queue. Please press star and the number two on your touch tone telephone you're allowed to ask one question and one follow up and then we'll move to the next person in the queue. Please standby, while we compile the Q&A roster.
Speaker Change: We will take our first question from Stephen Ju Bock with Wolfe research.
Sharon: Okay.
Speaker Change: Hi, good morning, and thanks for taking my questions.
Speaker Change: Good morning, Steve.
Good morning, So Ted I wanted to start off with one on the equities trading outlook just given your experience overseeing the business or the recent strength has been pretty extraordinary and the updates from you. It appears suggests the trading has actually been pretty orderly amid the recent volatility.
Speaker Change: Was hoping you could just speak to the factors that might support continued durability of the recent strikes and some of the variables you're monitoring that could potentially derail some of the recent momentum as well.
Steve: Steve Love your question a great quarter.
Steve: Client activity across the nine boxes, all three products all three regions everything clicked.
Steve: We've made the investments in clients and technology across high touch and electronic cash across prime brokerage and in both the flowing through products and across each major region that was of the nine boxes.
Steve: The cash business as you know the prime brokerage business.
Steve: And derivatives business in each of the three regions and they all clicked.
Speaker Change: I feel really good about the business and it's a leadership under Alan Tomlinson Gogo Leroy they've done a hell of a job.
Steve: It is fundamentally activity based.
Speaker Change: The bear case would be a weaker economy.
Speaker Change: Weaker sentiment I E. The animal spirits go into hibernation that'll be constant with lower prices negative manager performance and that brings a lower transaction levels lower leverage levels lower new issue activity, but that's that's not where we are.
Speaker Change: The markets are off but clients remain a much engaged a high volumes in every region, we have big market share in Asia as you know.
Speaker Change: Hi, two way market views as we're living through over the last number of days and new issue market that may pause, but it's still on pipeline.
Speaker Change: So the upshot is that.
Speaker Change: 4 billion is up is a very big number but the run rate is has been higher than what we'd seen a couple of years ago and it makes sense as we continue to consolidate share.
Speaker Change: Clearly continuing to take share with the right technology, the right mix of client business. The right focus on returns around the world. So it's a winner and I and so far as we don't go risk off it'll continue to be a winner and I'm.
Speaker Change: I'm Super proud of the team.
Speaker Change: Got it thanks for that perspective to that and maybe for my follow up for Sharon just on the M&A outlook. So the flows we're certainly more durable than we and others had anticipated them.
Speaker Change: Market deterioration admittedly was a bit more backend loaded and it has accelerated into April.
Speaker Change: If you could speak to the durability of the yen and a strength just given some of the negative March we've seen in both fixed income and equities and you noted cash has been much more resilient in April but was hoping you could also speak to what you're seeing across the lending and margin, particularly margin, which is more equity or beta sensitive.
Speaker Change: Sure. So let me start first by the end of day, because I think the story there is actually really encouraging when you look under the Hood as you know we have three channels. We have workplace, we have self directed and rehab advisor led last year. If you compare it a year ago and I know you know it was a strong first quarter last year, but we talked about.
Speaker Change: Individualized flows in the first quarter of last year, we didn't discuss that here because it was a much more broad based we had a year over year growth in each of those three segments. So stock plan was an increase.
Speaker Change: On the self directed side, we have been investing and you can see it even in our expense numbers on our marketing and our investment and our self directed platform. There has been an increase in the assets that we're seeing in that platform, which is encouraging on the back of those investments and on the advisor led side, it's multiple client.
Speaker Change: And multiple different.
Speaker Change: Different sections.
Speaker Change: You're actually seeing those flows come in and we're also seeing flows from the recruiting side. So all of that in my mind is quite encouraging that we're seeing the benefits of the investments that we've been making into that platform over multiple years, including even the most recent last year as it relates specifically to the cash and the <unk>.
Speaker Change: Docs that you've mentioned in terms of the SPL I was encouraged by the SPL lending lines that we saw in the gross over the course of the first quarter. If you look back over the course of the last two years or so there has been more muted growth, especially going into taxes. Historically, we have seen individuals using there.
Speaker Change: Our BD piece, specifically for paying those taxes or money market cash. The fact that we've seen an increase in SPL, which I mentioned in my prepared remarks ahead of tax season. I think is encouraging that we have reached at least from a transactional lever what could be an equilibrium and in periods of say a risk.
Speaker Change: Golf et cetera, you might actually begin to see increases in those balances, which I noticed that we had seen higher than expected levels over the course of these last two weeks.
Speaker Change: Yeah.
Speaker Change: Well move to our next question from Christian Ballou with Autonomous research.
Morning Christian.
Speaker Change: Okay.
Speaker Change: Christian Your line is now open.
Speaker Change: Yeah.
Speaker Change: Sorry about that I was on mute can you hear me okay now.
Speaker Change: Yeah, We got you alright.
Speaker Change: Where are we where we were we weren't at all offended we're just wondering how.
Speaker Change: I'll take the questions that have been Matt Yeah, I was talking to myself for a while the sorry, yeah I know I know I know I know I know what that's like.
Speaker Change: [laughter] so to follow up on Stephen's question around maybe more broadly your trading just exceptional results here clearly the markets are volatile and that volatility has stepped up in April so maybe talk about how you're managing risk and then are you taking down exposure.
Speaker Change: Or are you still playing offense and then any sort of color on <unk>.
Speaker Change: Brokerage balances and in April and what you're seeing from hedge fund clients.
Well broadly.
Speaker Change: The first quarter.
Speaker Change: Flows into the second quarter, there is a lot of client interaction and the.
Speaker Change: The animal spirits are still there in so far as folks are trying to not get caught offside. So there's natural volatility that we're seeing as I mentioned in the in the opening remarks.
Speaker Change: Every space and within equities so.
Speaker Change: The basic market, making function, which is the bread and butter of the cash business are both a voice and electronic continues to be a very strong you're speaking to the prime brokerage business. There we continue to be.
Speaker Change: Later and sure of clients begin to go negative or.
Speaker Change: Or they need to delever well by definition, a lower balances are the result of which which results overtime and lower P&L, but much of the client base Christian as you know.
Speaker Change: Most folks are closer to the zero barrier than they are a number that is well off of that so they have a lot to play for and given the swings in given the intellectual capital that exists with the asset management community are they're going to look to continue to engage theres plenty of stock disperse.
Speaker Change: And that manifests itself in the derivatives markets as you know a lots of way to play a lots of ways to play across the asset macro so that brings together our equities and fixed income close to put together.
Speaker Change: Rockford product. So there's there's lots of reason to think that the.
Speaker Change: The equities business and the markets business generally will continue to be to be active the question over time will be at what point does the uncertainty result in a knockout of the new issue business and and volumes will slow on the back of just a continued sense.
Speaker Change: Uncertainty and you see that gap your markets and at lower volumes, but where we're not seeing that there is plenty of market, making going on you know the.
Speaker Change: The first quarter of course as Ah is typically a seasonal winter across the street because clients need to initially allocate but they continue to allocate so I'm I'm feeling good about that broadly and I think our own <unk>.
Speaker Change: Spirit has been one where.
Speaker Change: Things have been or Italy, we are we've been working with Oh with clients nonstop and for all of the concerns about what could come down the road in the real economy.
Speaker Change: The market, making and the ability to transact declines as day up and down there are leverage levels has been.
Speaker Change: It has been very orderly. So you know engagement is key here and engagement continues.
Speaker Change: Okay.
Speaker Change: Helpful.
Speaker Change: Maybe a question on Asia, and kudos to the team for.
Speaker Change: Doing a good job on building out strength across regions, particularly in Asia.
Speaker Change: So all of that is Japan, and the <unk> partnership.
Speaker Change: But bigger picture, if it's weird D globalizing and there was a decoupling of U S from Asia broadly how do you think about the prospects of your international business.
Speaker Change: Bullish.
Speaker Change: The the power of our global business is.
Two.
Speaker Change: It.
Speaker Change: Cliche sort of it.
Speaker Change: H B R. A cliche here, but you know I.
Speaker Change: I think global act local and I think that has application in our Asia business broadly across the investment manager and well high net worth wealth businesses, which have had a great a great run here in Hong Kong, but then importantly, the institutional securities business, which is actually about <unk>.
Speaker Change: 115% of our our firm revenues this past quarter. It was up about 35% year over year. So real strength, we have something special Christian with our friends and partners in Tokyo, We will have our next board meeting in Tokyo in fact.
Speaker Change: A business summit with the leadership in Japan, So we intend on continuing to expand that extraordinary partnership with.
Speaker Change: With M U F G.
Speaker Change: That is a that has a multi decade play we hope both of the institutional context and in the wealth context, we have a significant business in India that is a place where we have the better part of 12000 people. We will continue to build our capability both as an infrastructure matter, but also as.
Speaker Change: Our securities matter, and then a greater China, we have.
Speaker Change: 2500 people out of Hong Kong out of the 17500 people do we have in Asia. So taking a step back we have 80000 people to firm 17500 of them are in Asia. So this is existential to what we do and 2500 of those people are in Hong Kong, we're not a big.
Speaker Change: Corporate lender onshore.
Speaker Change: In China, but we interact via Hong Kong actively and we continue to be a leader.
Speaker Change: In the investment banking business and in the markets business in.
In recent quarters, clearly in equities, where clients want to get access to the mainland and to that second largest economy and stock market and liquidity center in the world and we continue to be a point of market access and interaction we pay attention to it Christian as you.
Speaker Change: Can imagine actively.
Speaker Change: But day and night, because things are constantly move around but we're feeling really good about our continued.
Speaker Change: Engagement with the client base are locally based but also on a global basis and I think when we look back at this period 10 15 years from now when you are having this chat.
Speaker Change: We will we will see a Morgan Stanley that indeed has a significant international business I could spend five minutes talking about our business in Europe I will I will simply say that we've continued to invest both in the U K and on the continent. We are determined player to be part of.
Speaker Change: The next global water, both in the wealth and investment management business, but really in the global institutional Securities business. As you know Christian one of the realities of financial repression was that the cost of running a global investment bank was pretty tough to make the return on capital not bear.
Speaker Change: Every top so to have gotten here now with the kind of bankers are end markets folks and infrastructure through all of the panoply of regulation throughout Europe and internationally to get to this point now where we can slowly take share to durably takes share.
Speaker Change: You saw that we put into the firm wide goals to Durably.
Speaker Change: Increased share across the investment bank that is not a quarter or even year phenomenon that is a multi year phenomenon, where we think that there will be of course national champions, but there'll be several global winners are they're able to transact.
Speaker Change: In the businesses, where we do real well, which as trusted advisor on M&A trades.
Speaker Change: On Underwritings, and then importantly market, making and then flow through to our net.
Speaker Change: Net worth where where it exists principally in the U S. So I am I'm really quite bullish on our international business and we will navigate.
Speaker Change: The well.
Speaker Change: We will navigate the next number of months and quarters with with with care, but the determination is a long term a matter is not only undaunted, but we will push forward.
Speaker Change: Well move to our next question from Ebrahim <unk> with Bank of America.
Speaker Change: Abraham.
Hey, good morning, I guess it might be good.
Speaker Change: So maybe it's just me, but you sound fairly constructive given what we've gone through over the last month of your comments on both on the trading side and how clients have behaved and what we've seen in world. It doesn't seem to be the case that we have seen a marked deterioration in the last week or the last couple of weeks.
Speaker Change: Two 2% earlier in the quarter.
Speaker Change: Is that a fair assessment I don't want to put words in your mouth, but it goes to the fact that.
Speaker Change: If that's the case the business has a lot more resilient than investors probably give credit for so I just wanted to make sure. We're thinking about it the right way you mentioned things about like if folks go into hibernation et cetera, I'm surprised that they havent already so just wanted to make sure so far given what we've seen them tomorrow.
Speaker Change: You've not really felt any negative adverse impact or creating over on the world trade.
Speaker Change: Well.
Speaker Change: The fundamentally the banking pipeline Hasnt changed.
Speaker Change: Some clients some clients are our our nationally.
Speaker Change: Im going to pause they've hit the pause button and others are ago and there is a as.
Speaker Change: As you know you spend time looking at our sponsor and corporate activity. There are financial sponsors are buying and selling as we speak Honeywell Warburg Pincus.
Speaker Change: You know buyer.
Speaker Change: Clearly done.
Speaker Change: Dun and Bradstreet, so there are sponsors buying and selling assets.
Speaker Change: So they will continue to play.
Speaker Change: As will corporates.
Speaker Change: It's just going to have to be against the reality of.
Speaker Change: This uncertainty if the uncertainty can be navigated and priced into the market. There is progress on these are complicated issues than folks I imagine will.
Speaker Change: Respond to that and factored in as a.
Speaker Change: As part of their execution risk Formula now clearly if we go risk off which is to say things really become.
Speaker Change: So unpredictable that you don't know where.
Speaker Change: Stock price is going to be all within a 10 or 20% of you don't know where FX crosses gonna be within 5% or 10% and so on with interest rates well I mean by definition then activity will.
Speaker Change: Stop I mean that is just the definition of risk off as you know, but in so far as there is still we are early here and we're talking about the re architected of industrial policy in the context of America's places in the world and where it wants to be decades from now that is waiting staff, but it may well be.
Speaker Change: That that takes.
Speaker Change: Some time.
Speaker Change: For some of the bilateral negotiations, but in other contexts actually some deals were put on the table in which case people are going to want to move forward because it is our view that the.
Speaker Change: Underwriting and M&A pipeline Street, why by the way, it's not a Morgan Stanley phenomena. This is the leadership of that product area is ready to go and if windows open whether those windows are open over a weekend or for a week or in fact for quarters or there's a sense that in fact, there's relief because we.
Speaker Change: Get through this period, we get towards the next two pillars tax in DRAM I can see clients are <unk>.
Speaker Change: Continuing to move and we will continue to prosecute business. So that's the long answer the short answer is in the opening of the quarter, we have not seen a slowdown.
Speaker Change: Is it is it bumpier for some clients of course, it is and we have to see how they respond to that over the course of the weeks and months to come but we are we are still a we'll call. It cautiously optimistic although we wont go into recession, and we will just keep going.
Speaker Change: That's helpful color. Thank you and may be sure one for you. There's obviously a lot of discussion around.
Speaker Change: Changes to the SLR ratio, just remind us how impactful could that be for how you manage the balance sheet and just how you manage the business.
Speaker Change: Is it it isn't needed more standalone or how long do you think about that thank you.
Speaker Change: Yes, so I think it's hard to I wouldn't take SLR only in isolation I will answer your question directly first but I will give you a little bit of a more holistic answer which is S. R has been over various quarters, our binding constraint and so certainly if theres SLR reform.
Speaker Change: Then we will move into a CET, one constrained world and that provides us with additional opportunities as you think about capital deployment that being said.
Speaker Change: It depends on what SLR reform, you see right, whether or not its simply just to allow certain.
Speaker Change: Certain things like treasuries into the denominator of how you think about that or whether there's a more wholesale understanding that SLR should not be it should certainly be a just a backstop and not a binding constraint for an institution. What we feel is probably more important than SLR. Specifically is just to look at the entire cap.
Speaker Change: It'll regime. So when you think about the interplay between G said between SLR and between the various CET one metrics that is the type of reform one should look at because they actually don't play necessarily that well together given that there has been incremental changes simply to one metric versus the.
Speaker Change: So from our perspective, well it should be looking at everything Holistically, but yes, obviously, we do welcome regulatory reform and we welcome reform to the SLR ratio SLR becomes part of the mechanism potentially.
Speaker Change: For some of the relief here broadly it may or may not happen, but to <unk> point I think the well we are interested in.
Speaker Change: Here and as an industry is our SLR reform in the context of the panoply of regulation that we have.
Speaker Change: We have sort of endured a whether it's a G SIB or CCAR LCR.
Speaker Change: Basel III end game, the entire panoply of acronyms.
Speaker Change: The SLR reform might be part of the cocktail in the short term, but really we would look for reform broadly and where we.
Speaker Change: There were much prepared for that and again E. Brian just to sort of put an emphasis on this we can make a call on where the markets are going to be a week from now I mean that that would be observed for us to know that so in a sense. There is increased uncertainty so any strategic transaction.
Speaker Change: It is by definition going to get a harder look what I'm, what I'm trying to underscore here, though is that.
Speaker Change: That largely what we're seeing is some folks still going but the others pausing theyre not delete it they're pausing. So yes that could result in some of the IPO stack moving out a quarter or two it could be that some M&A activity moves out of stack or two but this is not a question of people rethinking.
Speaker Change: Their priorities around technology energy competitive dynamics within their industries. So that is why we continue to push.
Speaker Change: Forward on this theme that we are going to be in an investment banking cycle and the fact that the market's business continues to be as active as it is is a pretty good balanced against that within ISG.
Speaker Change: Yeah.
Speaker Change: We'll take our next question from Dan Fannon with Jefferies.
Dan Fannon: Morning, Dan.
Dan Fannon: Good morning.
Speaker Change: Question on just the advisor business and the market backdrop like this.
Speaker Change: With the last few weeks in terms of volatility what does that mean for recruitment and retention trends and also does it change the appetite for fee based flows as you think about going forward and your goals around increasing that metric.
Speaker Change: Well.
Speaker Change: People are coming towards the platform.
Speaker Change: Jed fin and Vince Lumi is lights are.
Speaker Change: Blinking.
Speaker Change: As in their phone lights nonstop.
Speaker Change: Folks want to come onto this platform.
Speaker Change: And that is in part because the funnel works, we're investing in E trade.
Speaker Change: The self directed channel is very busy Sharon at length has talked about as a vie the workplace product, where we added another $20 billion you see the progress in fee based flows, but ultimately when you get to the top of the funnel. It is about the financial advisor and the financial advisor is seeing.
Speaker Change: The integrated firm for what it is which we can offer unique access to intellectual capital World class technology.
Speaker Change: Compensation that is viewed to be a fair and and motivating and the entire thing works and so what's happening is.
Speaker Change: We are selective about it but.
Speaker Change: But it is fair to say that Jed and Vince are getting a lot of inbound inquiry and we would expect that to continue.
Speaker Change: Great and then just as a follow up sticking with wealth the opportunity for alternatives in the wealth channel is clearly a focus for the large alternative managers can you talk about your own proprietary alternative products you might be able to sell within this channel or is that something you can think about inorganically wanting to get.
Speaker Change: Bigger in terms of your own proprietary products.
Speaker Change: Sure. So I'd note for the wealth management platform, we have over $200 billion of.
Speaker Change: Private alternatives, it's about if you take that into perspective in terms of what the qualified assets are we have about 5% other qualified assets in our system are in those private alternatives now that compares to your point, where our deck where we.
Speaker Change: We have our global investment committee the recommendation is closer to 15% for those qualified investors. So there certainly is opportunity there we're working on products from our perspective as well as obviously others are doing it but we are looking also at places to help fill these gaps and to help you provide more democratized.
Speaker Change: <unk> offering so it's certainly a focus it's something that youll see come through and we think that there's great opportunity there for us and more broadly just for those alternatives across the platform to go to our retail client base.
Speaker Change: We'll take our next question from Glenn Schorr with Evercore.
Speaker Change: Good morning, Glenn.
Glenn Schorr: Good morning.
Glenn Schorr: So so we've all applauded all the great trading, which which was actually awesome I'm very curious.
Glenn Schorr: When you guys are going through that pretty draconian stress test.
Glenn Schorr: The stress test will always spit out pretty bad answers for for what any big investment Bank does on the trading side Youre doing literally the opposite of that right now so I'm curious when you look at the composition of those tests.
Glenn Schorr: And then you look at the reality.
Glenn Schorr: That's how you perform and I know, it's not like every day and you can't predict the future, but like I'm curious on what's different about the set up how you might suggest tweaking it.
Glenn Schorr: I know every June when we go through the results the way different than reality.
So in terms of the underlying stress test you are obviously going to pick different portions of the.
Glenn Schorr: What that environment would be what we do versus what the fed does for our own individual stress test will be different we will test ourselves on where we think that we would have the most vulnerabilities I think that the challenge is that when you look at the underlying test is really the uncertainty and the billed unbilled.
Glenn Schorr: <unk> of the previous years.
Glenn Schorr: The fact that you're.
Glenn Schorr: If you think about the way and we've said this publicly if you think about the way that these test results come out is it.
Glenn Schorr: Giving something more along the lines of in June and you're moving forward to having to execute them. In October. There is also very limited announced where when do you think about the test from an industry perspective, it looks at each of how the individual companies do so it's a blanket exam rather than when we look at our own stress.
Glenn Schorr: For us it's model towards our businesses and things that necessarily makes sense for us and what our clients do and what we see so I think that the fed is obviously said that they are interested in providing us with those models. It's challenging for me to say how would I change their models without seeing their models.
Glenn Schorr: I think as an industry. We agree on is that the models themselves are done from a very holistic perspective, and something as simple as the way that.
Glenn Schorr: Fences are allocated right. It's not just I wouldn't look at it just from the perspective of okay, what youre doing differently from a trading perspective, Glenn but it's really about the architecture of both the sense of what you think of the Gms stress and then how you think about over nine quarters. Afterwards, so theres many layers to your question.
Glenn Schorr: I think yes in a period of stress you can have different environments, but there is a blanket envelope that the fed is giving us that I think needs to be really looked at more in more detail and more rigor and what's actually done from an industry perspective, or an underlying company perspective.
Speaker Change: But youre right, Glenn we've gained share while still observing everything Sharon.
Speaker Change: Just described and buffers on top of that so it's it's a lot of work for folks on the ground because of course part of the Morgan Stanley Durability story is one where we have excess capital financial strength and liquidity. So that has been the headline in boldface letters and folks in <unk>.
Speaker Change: Business are well aware of that and the risk adjusted capital that needs to be applied across businesses and across clients and nonetheless.
Speaker Change: <unk> have gained share so for me and for sure also the team what is important here is this idea of durably gaining shares given the high cost of running these businesses you should be able to achieve operating leverage when the environments are strong and when the environment's R. Chop here that you at least can make your cost of <unk>.
Speaker Change: Capital that that should be the bid ask.
Speaker Change: And that is the way, we're continuing to think about the markets business and now doing so with excess capital.
By by any measure.
Speaker Change: Thank you for all that I have a much more answerable question for a follow up.
Speaker Change: And it relates to just being in general like what did what did you take the reserve on I know it's small.
Speaker Change: Is that as of 331 or is that as a kind of now and then what did you sell supersize gain in other revenue just curious on those moving parts.
Speaker Change: Sure just from a from the provisions perspective, it's as of 331, where basically for us when youre looking at the.
Speaker Change: The the metric the quantitative metric that is most important from us from a seasonal perspective as GDP, we do disclose that at the end of the fourth quarter. We had GDP of 1.9, what's the expectation for the end of 2025 and that moved down to one five. So that's included in terms of what we've taken on.
Speaker Change: Obviously should there be changes there will be changes as you move forward from a provision perspective in the second quarter you had asked about other <unk>.
Speaker Change: And how you think about the movement in those held for sale names. Obviously, we do have a number of names that we run a portfolio of business.
Speaker Change: And we were focused very much on velocity, we've talked a lot about window driven environment, we had a window driven environment and periods of the first quarter, we were able to move and take advantage of.
Speaker Change: Thanks for syndication and what we did is we basically cleared a lot of our chunkier positions and you'll see that flow through that other line item.
Speaker Change: And what that means of course is that we all things being equal.
Speaker Change: Now capacity in the event book.
Speaker Change: Well move to our next question from Gerard Cassidy with RBC.
Speaker Change: Morning Gerard.
Speaker Change: Quick question.
Speaker Change: Sure.
Speaker Change: You guys, obviously have your fingers on the pulse of the market very well.
Speaker Change: And there's been some discussions around in the fixed income trading area with treasuries. This social by history that there are some stresses out there are you guys have any sense of where the are there any stresses going on in the market today, and where were you keeping extra attention in case traces do pop up.
Speaker Change: Well they are there.
Speaker Change: There were higher volumes earlier in the week and then we saw some de risking that was followed by some strong auctions.
Speaker Change: As of this morning anyway when.
Speaker Change: When we we were.
Speaker Change: Getting on this call markets continue to function and like all markets were engaged with clients, but clearly we're moving from a one.
Speaker Change: One instrument to another and we're gonna be keeping an eye on that but for for our own part with respect to engagement with clients it's been it.
Speaker Change: It's been orderly and again, the strong auction speak to that and we're going to keep a close eye out but.
Speaker Change: For us it's been.
Speaker Change: It's been it's been orderly and clients have engaged in.
Speaker Change: And in a way that is not.
Speaker Change: Created any sense of something broader but that will that will that will continue to play out but for a for us it's been.
Speaker Change: It's been a.
Speaker Change: Regular way, some derisking higher volumes, but all things being equal functioning markets.
Speaker Change: Very good.
Speaker Change: Sure Arun you, obviously talked about the wealth management business in your prepared remarks.
Speaker Change: Got the workplace channel as well as the self directed in the traditional Morgan Stanley Foodservice channel in these markets that we're in where they are very volatile and choppy.
Speaker Change: So those three channels, which is the one that you think will do best and which is the one that might slowdown in activity.
Speaker Change: It is.
Speaker Change: That's a great question.
Speaker Change: What I can say so far is that based on what we've seen over the course of the last five years right. It depends on the environment and what Youre actually going through we've seen clearly COVID-19 was different when you think about self directed.
Speaker Change: The workplace channel is one where one could say you might see some of a decrease necessarily in granting of stocks that is what could happen. So if you want to take kind of that approach of where is the vulnerability maybe that is one way or the actual vesting or the grant of the various docs might be there you might not have.
Speaker Change: IPO events, however on the other side of that self directed as one where we see record levels of activities in various days, we've seen increased client engagement and self directed and we've also really seen an increased client engagement on the advisor led side.
Speaker Change: I highlighted what's known as unsolicited trade, so rather than advisory necessarily calling an individual we've seen those numbers really rise over the course of the first quarter. So that just shows you that there's a lot of engagement on both sides. The volumes from that advisor side over the last two weeks has been up 50 to one.
Speaker Change: 100% larger than over the volumes for the last 30 trading days remember all this stuff we used to talk about with next best action et cetera, where advisers or sending next best actions to their individual retail clients. We've seen many more responses to that than we have historically oh.
Speaker Change: Over the course of these last two weeks what to me that highlight is really the value of the advice and the questions and then.
Speaker Change: From a self directed side. The fact that our technology has been able to handle this level of volumes without interruption allows any client who self directed to come back continue to come back to the.
Speaker Change: The platform itself. So that's why I highlight those two channels, where it plays a little bit less in our control. So I cannot exactly tell you what a workplace channel would do in terms of granting new stock et cetera.
Speaker Change: Well move to our next question from Devin Ryan with citizens JMP.
Speaker Change: Good morning Devin.
Speaker Change: Hey, good morning, Ted Good morning, Sharon a question on expenses would be great to just get a bit of background on the recent initiatives that drove some of the severance in the quarter I know.
Speaker Change: Not a huge number but just what you've accomplished there and then just more broadly your thoughts on opportunities to drive more efficiency at the firm and different revenue environment and just whether kearney.
Speaker Change: Kearney uncertainty will slow any investments or drive any.
Speaker Change: And kind of a big expense.
Speaker Change: Expense growth plans overall.
Speaker Change: We had a reduction of 3% of our head count exit phase in the first quarter. As you know that was coming out of a rigorous year end performance review assessment and process, we have ongoing investments in automation AI and assessing where we want our people for the next 510 years.
Speaker Change: But clearly the environment is such that we will be reviewing the overall workforce regularly as we always do.
Speaker Change: And when there is some uncertainty you have to be doing that but to be clear.
Speaker Change: We like where we are right now and where talent can fit into the firm. We continue to bring people on board in the places where we intend on growing so the expense mentality is around rigor and discipline. It is not necessarily about less it's about the right allocation of <unk>.
Speaker Change: Human capital.
Speaker Change: In the context of where the world is going.
Speaker Change: Got it thanks, and then just on the investment banking conversation, you're great to hear about the pipelines.
Speaker Change: Certainty has been a challenge the other thing, though evaluations are down a lot right. The S&P has done mid teens lobbies growth stocks are down 30%, 40%. So I'm just curious so the new issue market or the M&A market to really turn back on do you think we need to see kind of a V recovery in asset prices, because thats, where people's expectations are anchored or do you think this is just much more.
Speaker Change: More about just some stability and people are going to try to execute on things once we get that looks not just about valuations bouncing back to where we came from.
Speaker Change: Stability will be more important than valuation most of these transactions are.
Pinser, of comparative value.
and so waiting for stocks to hit all-time highs again.
Speaker Change: That probably is not the right strategy. It's a question of what your longer-term priorities are with respect to things that matter to you by in the C-suite around a supply chain energy technology incising against the sector, so too with the IPO counter there were folks that...
came right as that window briefly shut.
Speaker Change: The window ought to reopen and potentially reopen for periods of time that will allow for a lot of the...
Speaker Change: It's more a sense of the uncertainty getting sort of getting a barrier.
Speaker Change: and having a sense that it's not totally risk off versus pure valuation.
which is why I'm saying pause versus delete. [inaudible]
Speaker Change: Our next question comes from Mike Mayo with Wells Fargo Securities.
Good morning, Mike. Hey Ted, Paul's not delete.
That's my key question. [inaudible]
Speaker Change: You know, you sound more upbeat than I'd say the average manager and I'm just trying to-
Speaker Change: What, maybe what you're saying or what you're seeing historically or what gives you a little bit more optimism than some others and
Speaker Change: On the fourth quarter call, you said mergers, backlogs, the best in seven years [inaudible]
Speaker Change: You said the DCM is kind of a domino effect, activating the CFO level.
Speaker Change: and sponsors are going to harvest, and the pipelines are still the same, you said today, so...
Speaker Change: I guess you can still paint a positive story, Paul's not delete.
Speaker Change: But I think the real question is, first of all, if that's accurate, I'm still reflecting your views, but at some point it's delete, not pause. And the question is
Speaker Change: Is that one month, two months, if we're in the next earnings call, we're still discussing what's going to happen with tariffs, is it kind of, you know, do you have to think about right sizing? And do we think about maybe this cap of markets recovery, especially murder recovery, maybe not happening at what point? [inaudible]
Speaker Change: It does the uncertainty going for so long as to kill off the recovery [inaudible]
That is the question. That is the question.
Speaker Change: The Rezendetra of the deals that are in the pipeline is a strong one because folks
Speaker Change: We're interrupted, obviously, by the years of the pandemic and the uncertainty around interest rates.
And now, of course, there's this and the question...
Mike Is,
What are we talking about with respect to? [inaudible]
The Macron Varmann, are we talking about? [inaudible]
Speaker Change: The re-architecting of industrial policy in the context of America's place today.
and where it wants to be decades from now.
Is it about getting our fiscal house in order? Gerard?
Speaker Change: and how that interplays with tax and deregulation to come. So broader context, we're talking about writing our own imbalances and then redefining what's in America's long-term national interest. Those are weighty issues.
complex
I.e. intricate, complicated, I.e. unclear, so to your point.
Speaker Change: It could be that when one thinks about how big that adjustment is, that it will require enough time that the pause effectively becomes a relook.
And the books get put away.
this new framework has up.
Speaker Change: has been formulated. We are finding Mike that we are still very much engaged with clients.
Speaker Change: Yes, we're asking more questions as they are. We're listening to a wider spectrum of possibilities. And yes, it's fair to say we're going to have higher structural volatility for a while. So what is the client's strategy? What are the risks and what are their alternatives? What are the tactical options?
Speaker Change: and you know when you think about what we deliver which is trusted advice
Access to Markets,
A Global Perspective, it is the case.
that markets can be accessed over weekends overnight. Bye.
can be done through through.
Semi-public, semi-private markets, there is...
Speaker Change: An entire democratization or financialization of investors, buyers and sellers that allow for deals to happen in all but markets that have been shut down so.
Staying super close to clients corporate
Speaker Change: and Financial Sponsor, and in our markets business, and then in our wealth business.
High levels of interaction activity. Bye.
Speaker Change: Such that we believe that the pause will be frustrating at times, as it is for all of us Mike, that deals take longer to print, but in the context of clarity around the other two pillars too So
Speaker Change: Tax and Dreg. It may be that that is enough for our client base.
especially the top of the advice pyramid.
Speaker Change: To say, you know what, I can actually quantify what that higher structural volatility is about, whether it's an equity prices.
Speaker Change: Or in foreign exchange or in interest rates and indeed we will go forward. And the answer to your question and it is an important one for firm like this.
Speaker Change: Is one that will be one that I think will have more clarity on mid-year.
Speaker Change: When we see how the economy is reacting to all of the discussions and issues on the table I've described.
All right, thank you for that answer [inaudible]
Thanks, Mike.
Speaker Change: There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you everyone for participating. You may now disconnect and have a great day.
Speaker Change: [music].