Q2 2025 Morgan Stanley Earnings Call

& Co 2025 Earnings Call On behalf of Morgan Stanley, I will begin the call with the following information and This call is being recorded. During today's presentation, we will refer to our earnings release and financial supplementary copies of which are available at morganstanley.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties.

Good morning, welcome to Morgan. Stanley's second quarter 2025 earnings call.

On behalf of Morgan Stanley, I will begin the call with the following information and disclaimers.

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 morganstanley.com.

may cause actual results.

Morgan Stanley does not undertake to up Thank you for watching and please refer to our notices regarding forward Unknown Transcription by CastingWords Presentation may not or reproduced without our I will now turn the call over to Chairman and Chief Executive Officer Ted Thank you and good morning. Thank you for joining us.

Today's presentation, may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially.

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Speaker Change: I will now turn the call over to Chairman and chief executive officer. Ted pick.

The second quarter unfolded with two distinct halves. The first half began with uncertainty and market volatility associated with the U.S. trade policy, and the second half ended with increasing engagement and a steady rebound in capital markets.

Thank you and good morning. Thank you for joining us.

For the quarter, the firm delivered $16.8 billion in revenue, $2.13 in EPS, and an 18.2% return on tangible, completing a very strong first half of 2025, $34.5 billion in revenue, $4.73 in EPS, and a 20.6% return on tangible. with six sequential quarters of durable earnings, 202, 182, 188, 222, 260, and 213. Morgan Stanley results have a cadence that reflects consistently higher levels of performance as we execute our strategy through different market and macro backdrops. The results speak to the power of our integrated firm and the alignment of the firm's leadership. With the expectation of a more constructive regulatory backdrop, we are intensely focused on generating returns on incremental capital deployment and investing for growth across the integrated firm globally.

Speaker Change: The second quarter unfolded with 2, distinct halves the first half began with uncertainty and Market volatility associated with the US trade policy and the second half ended with increasing engagement and a steady Rebound in capital markets.

Speaker Change: Completing a very strong first half of 2025.

Speaker Change: 34.5 billion in Revenue, $4.73 cents in EPs and a 20.6% return on tangible.

With 6 sequential quarters of durable, earnings 202.

Speaker Change: 182.

Speaker Change: 188.

Speaker Change: 222.

Speaker Change: 60 and 213.

Speaker Change: Morgan Stanley results have a Cadence that reflects consistently higher levels of performance as we execute our strategy through different market and macro backdrops

Speaker Change: The results speak to the power of our integrated firm and the alignment of the firm's leadership team.

Total client assets across wealth and investment management climbed to over $8.2 trillion, reflecting our scale and gaining ground toward our target to exceed $10 trillion. In wealth, an excellent quarter. Profit before tax reached a record $2.2 billion on margins of 28% plus. Net new assets of $59 billion were strong despite higher seasonal tax payments. And fee-based flows of $43 billion demonstrate the value of advice amidst a complex environment and support durable growth of recurring fee-based revenue.

Speaker Change: With the expectation of a more constructive regulatory backdrop. We're intensely focused on generating Returns on incremental Capital deployment and investing for growth across the integrated firm globally.

Speaker Change: Total client assets across wealth and Investment Management climbed to over 8.2 trillion reflecting our scale and gaining ground toward our Target to exceed 10 trillion and wealth and excellent quarter profit before tax reached. A record, 2.2 billion on margins of 28% plus net. New assets of 59 billion or strong, despite higher seasonal, tax payments and fee-based, flows of 43 billion, demonstrate the value of advice, amidst the complex environment and support

Ongoing investments in our world-class platform, including investments to support our advisors, a build-out of E-Trade capabilities, and the expansion of our central workplace channel serve as an engine for future growth. In investment management, our industry-leading parametric platform, as well as strong fixed income strategies, have successfully positioned this business to achieve consistent long-term inflows, generating a positive $11 billion in the second quarter. Our institutional franchise delivered revenues of $7.6 billion, supported by our leading equities markets business that reached $3.7 billion top line. Despite a slowdown in strategic and capital markets activity for half of the quarter, our multi-year investments in our client franchise and global footprint are yielding results.

Durable growth of recurring fee, based revenues.

Speaker Change: Ongoing investments in our world-class platform, including Investments, to support our advisors, a buildout of ETrade capabilities and the expansion of our Central workplace Channel. Serve as an engine for future growth.

Speaker Change: In Investment Management, our leading uh industry-leading parametric platform as well as strong fixed income. Strategies have successfully positioned this business to achieve consistent long-term inflows generating a positive 11 billion in the second quarter.

A resumption of investment banking activity in June highlighted the client's turn to Morgan Stanley as market windows reopen and serve as momentum heading into the second half of 2025. Boardrooms appear more accepting of ongoing uncertainty broadly, and we are leaning into our strategy to help clients navigate bouts of volatility. While we're still in the earlier stages of the investment banking recovery, the outstanding performance in equity underwriting this quarter is a positive leading indicator.

Further, while there is clearly more work to do, we are beginning to see bank regulatory reform progress. The new SLR proposal and potential for CCAR reform suggest the regulatory body continues to constructively re-evaluate the total capital framework. With a CT1 ratio of 15%, we are 200 base points plus above our forward capital requirement, which affords us ongoing flexibility to deploy capital.

Speaker Change: Our institutional franchise delivered revenues of 7.6 billion supported by our leading equities markets, business that reached 3.7 billion, Top Line, despite a Slowdown in strategic and capital markets activity for half of the quarter, our multi-year investments and our client franchise and Global footprint are yielding results, a resumption of investment banking activity in June, highlighted, the client's turn to Morgan Stanley as Market Windows reopened and serve as momentum heading into the second half of 2025, boardrooms appear, more accepting of ongoing uncertainty, broadly and we are leaning into our strategy to help clients navigate bouts of volatility while we're still in the earlier stages of the investment banking recovery. The outstanding performance in equity underwriting, this quarter is a positive leading indicator

We now have a $1 per share dividend. Incremental capital deployment will range from supporting clients, growing our businesses, opportunistically buying back stock, and evaluating inorganic opportunities where there is clear strategic alignment, all through the lens of generating strong and durable returns for our shareholders.

Speaker Change: Further, while there's clearly more work to do, we are beginning to see Bank regulatory reform progress, the new SLR, proposal and potential for car reform. Suggests the regulatory body continues to constructively reevaluate, the total Capital framework with a ct1 ratio of 15%. We are 200 basis Points Plus above. Our forward capital requirement, which affords US ongoing flexibility to deploy Capital. We now have a 1 dollar per share dividend.

Looking ahead, we remain constructive on the market environment. Our strategy to raise, manage and allocate capital for clients across the wealth and institutional universe is working. Amidst continuing economic and geopolitical uncertainty, we are intensely focused on continuing to deliver outstanding durable results for clients and returns for shareholders.

Incremental Capital deployment will range from supporting clients growing, our businesses opportunistically buying back, stock and evaluating inorganic opportunities where there is clear strategic alignment all through the lens of generating, strong and durable, returns for our shareholders.

Sharon will now take us through the quarter in greater detail. Over to you.

Speaker Change: Looking ahead. We remain constructive on the market environment, our strategy, to raise manage, and allocate capital for clients across the wealth. And institutional universe is working amidst continuing economic and geopolitical uncertainty. We are intensely focused on continuing to deliver outstanding durable results for clients and returns for shareholders.

Thank you and good morning. In the second quarter, the firm produced revenues of $16.8 billion. Our EPS was $2.13 and our ROTCE was 18.2%.

Chiron: Chiron will now take us through the quarter, in Greater detail, over to you. Thank you and good morning in the second quarter. The Firm produced revenues of

our eps.

The market backdrop varied materially over the course of the quarter, impacting investor sentiment and prompting clients to seek advice and reposition portfolios in response to evolving trends and themes. Amid this backdrop, our business performed very well. We benefited from our multi-year investments to drive organic growth in wealth and investment management and to support our global footprint across the integrated investment bank. Deepening partnerships across the integrated firm positioned us well to capture momentum in the quarter. The firm's year-to-date efficiency ratio was 70%. Efficiency gains remain a product of continued prioritization of our controllable spend and savings from prior space exits, self-funding investments, and driving increased productivity by leveraging technology to support the firm's strategy.

Chiron: $2.13, and our rotce was 18.2%.

Chiron: The market backdrop buried materially over the course of the quarter, impacting investor sentiment and prompting clients to seek advice and reposition portfolios and response to evolving Trends and themes.

Chiron: Amid this backdrop our business performed very well. We benefited from our multi-year investments to drive organic growth in wealth, and investment management. And to support our Global footprint across the integrated Investment Bank.

Chiron: Across the integrated firm, positioned us, well to capture a momentum in the quarter.

Chiron: The firm's year to date, efficiency ratio was 70%.

Improved efficiency also comes despite higher execution related costs on the back of elevated volumes broadly.

Currency gains. Remain a product of continued. Prioritization of our controllable spend and savings from prior space exits, self-funding Investments and driving increased productivity by leveraging technology to support the firm strategy.

Now to the businesses. Institutional securities revenues were $7.6 billion, supported by our equity and fixed income markets franchises, and regionally by period-over-period strength in Asia and EMEA. Results benefited from our ongoing investments in talent, global footprint, and technology. Enabling us to capture activity levels and meet clients' need for advice. The underlying business's performance varied throughout the quarter. Our markets business captured client flow opportunities early on, when activity levels were elevated. Investment banking paused for April and the first half of May, but activity recovered alongside rising asset levels. A rebound in performance of IPOs that had been priced earlier in the year supported prospective issuers to successfully come to market, further establishing investor and corporate confidence.

Chiron: Improved efficiency also comes despite higher execution related costs. On the back of elevated volumes, broadly,

Now, to the businesses.

Chiron: Institutional Securities revenues were 7.6 billion supported by our equity and fixed income markets, franchises and regionally by period over periods, strengths in Asia and Amia.

Chiron: Results benefited from our ongoing investments in Talent, Global footprint and Technology.

Chiron: Enabling us to capture activity levels and meet clients need for advice.

Chiron: the underlying businesses performance varied throughout the quarter, our Market's business, captured client flow opportunities, early on when activity levels were elevated,

Chiron: Investment Banking, paused for April and the first half of May, but activity recovered alongside Rising asset levels.

As a result, the Integrated Investment Bank ended the quarter with strength. Investment banking revenues were $1.5 billion. Equity underwriting gained momentum following multiple years of subdued activity, and its rebound partially upset the year-over-year declines in debt underwriting and advisory. Regionally, Strength Out of Asia Pacific was supported by a healthy mix of activity across equity products. Advisory revenues were $508 million, reflecting lower completed activity. Equity underwriting revenues of $500 million improved meaningfully versus the prior year, driven by broad-based strength across products. Despite a slowdown in April and much of May, convertibles, follow-ons, and IPO issuance all accelerated toward the end of the quarter as global issuers and investors gained confidence amid a market rebound.

A rebound in performance of IPOs that had been priced earlier in the year, supported prospective issuers to successfully, come to Market further establishing, investor, and corporate confidence.

As a result, the integrated Investment Bank ended the quarter with strength.

Chiron: Investment Banking revenues were 1.5 billion Equity underwriting gained momentum following multiple years of subdued activity and its rebound. Partially offset the year-over-year declines in debt underwriting and advisory

Chiron: Regionally strength out of asia-pacific was supported by a healthy mix of activity across Equity products.

Advisory revenues were 58 million. Reflecting lower completed activity.

Equity underwriting revenues of $500 million improved meaningfully versus the prior year driven by broad-based strength across products.

Fixed Income Underwriting Revenues, or $532 million. Results declined versus the strong comparative period. primarily due to lower non-investment grade issuance. The M&A backlog continues to build across regions with a thematic focus on growth, supported by health care and technology. With a similar focus on growth companies, our IPO pipeline is balanced between the Americas and Asia, and issuers are poised to launch, subject to open market. We have been investing in strategic hires and corporate lending to expand and deepen our coverage footprint, and our results and recent announcements prove ongoing progress. As we continue to support clients who are increasingly accepting of uncertainty and in greater need for advice, we are well positioned to capture share as investment banking activity accelerates.

Despite a Slowdown in April and much of May convertible's following and IPO issuance all accelerated towards the end of the quarter AS Global issuers and investors gained confidence amid a market rebound.

Fixed income underwriting revenues were 532 Million results declined versus the strong comparative period.

Primarily due to lower non-investment grade issuance.

Chiron: The m&a, backlog continues to build across regions with a thematic focus on growth supported by health care and Technology with a similar focus on growth companies, our IPO pipeline is balanced between the Americas and Asia an issuers, are poised to launch subject to open markets.

We have been investing in strategic hires and corporate lending to expand and deepen, our coverage footprint.

And our results and recent announcements, prove ongoing progress.

As we continue to support clients who are increasingly accepting of uncertainty and in greater need for advice. We are well positioned to capture share as Investment Banking activity accelerates

Turning to equity, our franchise continues to deliver robust results with revenues of $3.7 billion, reflecting growth across products and regions. Volatility around changing trends and the eventual rebound in markets required clients to reposition, which drove heightened engagement globally. Prime brokerage revenues were especially strong, achieving a record. Average client balances rose to all-time highs, driving the strength of the financing revenue. Cash results increased versus the last year on higher volumes across regions, with strength in EMEA. Derivative results rose versus the previous year as the market, excuse me, as the business actively supported clients, particularly around tariff-related market events during the period.

Turning to equity.

Our franchise continues to deliver, robust results with revenues of 3.7 billion dollars reflecting growth across products and regions.

Volatility around changing Trends, and the eventual Rebound in markets, required clients to reposition, which drove heightened engagement globally.

Prime brokerage revenues were specially strong, achieving a record average. Client balances Rose to all-time highs driving. The strength of the financing revenues,

Chiron: cash results increased versus the last year on higher volumes across regions with strength in Amia

Fixed income revenues were $2.2 billion, driven by the strength in macro products. Macro results increased versus the prior year. The business benefited from an increase in client hedging, trending foreign exchange markets, shifting interest rate expectations, and wider bid-offer spreads, particularly early in the quarter. Micro results were solid. Strength and secured lending revenues, which continue to grow on the back of higher balances, were partially upset by heightened volatility and widening credit spreads at the beginning of the quarter. Commodity results primarily reflected lower revenues in power and gas and fewer structured trades compared to the previous period.

Chiron: Derivative results Rose versus the previous year as the market as excuse me as the business actively supported clients particularly around tariff related Market events during the period.

Fixed income revenues were 2.2 billion driven by the strength in macro products.

Chiron: Macro results increased versus the prior year.

The business benefited from an increase in client hedging.

Chiron: Trending, foreign exchange markets, shifting interest rate, expectations, and wider bid offer spreads particularly early in the quarter.

Chiron: Continue to grow on the back of higher balances. We're partially offset by heightened volatility and widening credit spreads at the beginning of the quarter.

Other revenues were $202 million. The comparison period benefited from higher net interest income and fees on corporate loans.

Commodity results, primarily reflected lower revenues, and power, and gas and fewer structure trades compared to the previous period.

Chiron: Other revenues were 202 million, the comparison period benefited from higher net interest income and fees on corporate loans.

Turning to ISG lending and provisions, in the quarter ISG lending provisions were $168 million, driven by portfolio growth and a moderately weaker macroeconomic outlook. Net charge-offs were $19 million, primarily related to several commercial real estate loans, which were largely provisioned for in previous quarters.

Chiron: Turning to isg, lending and Provisions in the quarter. Isg lending, Provisions were 168. Million driven by portfolio growth and a moderately weaker macroeconomic Outlook, net charge offs were 19 million primarily related to several commercial real estate loans, which were largely provisioned for in previous quarters.

Turning to Wealth Management, the business delivered on key metrics. Strong net new assets, exceptional fee-based flows, and healthy lending growth reinforced our differentiated Wealth Management franchise. Revenues were $7.8 billion, inclusive of $292 million of DCP, and the margin continued to expand, showcasing the inherent operating leverage of our scaled platform. Results reflect our investments, focused on growth and our strong track record to help clients understand the value of advice.

Chiron: Turning to wealth management.

The business delivered on key metrics.

Strong net, new assets.

Exceptional, fee-based, flows and healthy lending growth, reinforced our differentiated wealth management franchise.

Chiron: Revenues were 7.8 billion, inclusive of 292 million of DCP. And the margin continued to expand showcasing, the inherent operating, leverage of our scaled platform.

Moving to our business results in the second quarter. Pre-tax profit was a record at $2.2 billion, and the pre-tax margin was 28.3%. DCP negatively impacted the margin by approximately 70 basis Higher margins show strength of our asset growth, achieved by our investment-led strategy. The underlying business progressed towards our long-term goal of 30%. Asset management revenues were $4.4 billion, up 11% versus the prior year, driven by higher market levels and the cumulative impact of consistently robust fee-based flows. In the quarter, fee-based flows were very strong at $43 billion, marking a record, excluding previous asset acquisitions. Clients continue to shift assets from advisor-led brokerage accounts to fee-based.

Results reflect our investments focused on growth and our strong track record to help clients understand the value of advice.

Moving to our business results in the second quarter.

Chiron: Pre-tax profit was a record at 2.2 billion and the pre-tax margin was 28 28.37.

Chiron: DCP negatively impacted the margin by approximately 70 basis points.

Chiron: Higher margin shows, strength of our asset growth achieved by our investment. Le strategy.

The underlying business progressed towards our long-term goal of 30%.

Chiron: Asset Management revenues were 4.4 billion dollars up, 11% versus the prior year driven by higher market levels and the cumulative impact of consistently robust, fee-based flows.

Chiron: In the quarter, Feebas flows were very strong at 43 billion dollars. Marking a record, excluding previous asset acquisitions.

We continue to invest in overall education, technology, and product innovation to benefit clients and support ongoing asset migration. Fee-based assets now stand at $2.5 trillion. Net new assets in the quarter of $59 billion were inclusive of a $22 billion headwind from tax outflows and reflect growth across channels. Advisor-led flows were particularly strong, originating from new advisors who are attracted to the strength of the workplace, as well as assets that originated from workplace. Transactional revenues were $1.3 billion. And excluding the impact of GCP, revenues increased 17% versus the last year. Retail engagement was especially strong in April as clients responded to elevated market volatility, and activity persisted with momentum at the end of the quarter.

Chiron: Clients continue to shift assets from advisor, Le brokerage accounts to fee, based accounts and we continue to invest in overall education, technology and product Innovation to benefit clients and support ongoing asset migration.

Chiron: Fee-based Assets. Now, stand at 2.5 trillion dollars

Chiron: Now, new Assets in the quarter of 59 billion dollars were inclusive of a 22 billion headwind from tax outflows and reflect growth across channels.

Chiron: Advisor lead flows were particularly strong originating from new advisors who are attracted to the strength of the workplace as well as assets that originated from workplace.

Transactional revenues were 1.3 billion dollars and excluding the impact of gcp revenues increase 17% versus the last year.

Bank lending balances increased sequentially to $169 billion, predominantly driven by growth in securities-based lending. Steady growth in lending shows our progress in deepening client relationships by offering portfolio solutions, addressing both sides of the client's balance sheet. Household Lending Penetration grew across our advisor-led channel, with greater engagement from advisors and clients. Total deposits increased $383 billion, and net interest income of $1.9 billion was flat sequentially. These results reinforce continued stability and sweet balances. Throughout the quarter, clients steadily deployed cash into the market, indicating confidence in the forward look.

Chiron: Retail engagement was especially strong in April, as clients responded to elevated, Market volatility, and activity, persisted with momentum, at the end of the quarter,

Chiron: Bank Landing, balances increase sequentially to 169 billion, predominantly driven by growth in securities-based Lending.

Steady growth in lending shows our progress and deepening client Relationships, by offering portfolio Solutions addressing both sides of the client's balance sheets.

Chiron: Household lending, penetration grew across the our advisor Le Channel with greater engagement from advisors and clients.

Total deposits increased. 383 billion and net interest income of 1.9 billion was flat sequentially.

Chiron: These results reinforced continued stability and sweet balances.

As we look ahead to the third quarter, we would expect NII to remain around recent levels, subject to changes in the policy rate. Along with $6.5 trillion of client assets, our second quarter performance demonstrates that our strategy is working. Benefiting from years of sustained investment and consistent execution. Our scale positions us to continue to innovate and invest in a secularly growing market. Today we have 20 million individual relationships across our three channels. And the opportunity to deliver incremental advice and solutions across channels and our platform remains ahead of us.

Chiron: Throughout the quarter clients steadily deployed cash into the market indicating confidence in the forward. Look

As we look ahead to the third quarter, we would expect nii to remain around recent levels. Subject to changes in the policy rate.

Turning to investment management, the business delivered strong results with revenues of $1.6 billion, increasing 12% year over year. Total AUM reached a record at $1.7 trillion. Our franchise generated positive long-term net flows of $11 billion, bringing year-to-date inflows to $16 billion. Strong organic growth is the product of leveraging our global distribution, with a particular emphasis in fixed income. We are also continuing to see strong demand for parametric customized portfolios, especially among our wealth management clients. Asset management and related fees were $1.4 billion, driven by higher average AUM across asset classes. Performance-based income and other revenues were $118 million, largely driven by gains in infrastructure.

Chiron: Today, we have 20 million individual relationships, across our 3 channels and the opportunity to deliver incremental advice and solutions across channels, and our platform remains ahead of us.

Turning to investment management.

Chiron: The business delivered strong results with revenues of 1.6 billion dollars increasing 12% year-over-year.

Chiron: To AUM, reached a record at 1.7 trillion dollars.

Chiron: Our franchise generated positive long-term, net flows of 11 billion bringing year-to-date inflows to 16 billion dollars.

Strong organic growth is the product of leveraging, our global distribution with a particular emphasis in fixed income.

Chiron: We are also continuing to see strong demand for parametric customized portfolios, especially among our wealth management client base.

Asset management and related fees or 1.4 billion dollars driven by higher average AUM across asset classes.

Liquidity and overlay services had outflows of $27.3 billion, reflecting institutional outflows partially related to deployment into markets and corporate capex. Overall, we are seeing the benefits of our investments and continued focus on global distribution capabilities. By leveraging the integrated firm, we are focused on our ability to generate sustainable growth in long-term flows and fee-based revenues. Turning to the balance sheet, total spot assets increased $54 billion from the prior quarter to $1.4 trillion. Our standardized to ET1 ratio stands at 15%. Standardized RWAs increased sequentially to $523 billion as we actively supported our clients. Our stress test results reflect the durability of our business model and show consistent improvement in our results over the past five years.

Performance-based income and other revenues were 1118 million. Largely driven by gains in infrastructure funds.

Liquidity and overlay Services how to outflows of 27.3 billion reflecting institutional outflows partially related to deployment into markets and corporate capex.

Chiron: Overall, we are seeing the benefits of our investments and continued focus on global distribution capabilities.

Chiron: By leveraging, the integrated firm. We are focused on our ability to generate sustainable growth and long-term flows and fee-based revenues.

Turning to the balance sheet. Total spot assets increase 54 billion from the prior quarter to 1.4 trillion.

Chiron: Our standardized C1 ratio stands at 15%.

Chiron: Standardized rwas, increase sequentially to 523 billion. As we actively supported our clients.

We announced a quarterly dividend increase of $0.075, bringing our quarterly dividend per share to $1. Our quarterly tax rate was 22.7%, reflecting our global mix and level of earnings. We expect a tax rate of approximately 24% in the second half of this year, consistent with our initial guidance.

Chiron: Our stress test results. Reflect the durability of our business model and show consistent improvement in our results. Over the past 5 years, we announced a quarterly dividend increase of 7 and a half cents. Bringing our quarterly dividend per share to 1 dollar.

Chiron: Our quarterly tax rate was 22.7% reflecting our Global mix and level of earnings.

The second quarter results were strong. As we look ahead, we are entering the third quarter with momentum. Investment banking pipelines are healthy, dialogues are active, and markets have proven resilient. Wealth and Investment Management will continue to gather assets, with total client assets now reaching $8.2 trillion.

Chiron: We expect a tax rate of approximately 24% in the second half of this year consistent with our initial guidance.

Chiron: The second quarter results were strong. As we look ahead, we are entering the third quarter with momentum.

Chiron: Investment Banking pipelines are healthy. Dialogues, are active and markets, have proven resilient.

With that, we will now open the line up to questions. We are now ready to take in questions. If you get in the queue, you may press star and the number one on your touchtone telephone. If your question has been Press Star, and the number two on your touchtone television. You are allowed to ask one question and one follow-up. by while we compile the Q&A roster.

Chiron: And wealth and investment management will continue to gather assets with total client Assets. Now reaching 8.2 trillion dollars

Chiron: with that, we will now open the line up to question.

Chiron: We are now ready to take in questions to get in the queue. You may press star and the number 1 on your touchtone telephone,

if your question has been answered, or you wish to remove yourself from the queue, please press star and the number 2 on your touchtone telephone,

Chiron: You are allowed to ask 1, question and 1 follow-up and then we'll move to the next person in the queue.

Chiron: Please stand by while we compile the Q&A roster.

We'll take our first question from Ebrahim Poonawala. Our line is now Good morning, Ebrahim. Good morning. Good morning, Ted. I had a question, I think, in your prepared comments, you mentioned incremental return on capital. And as we think about whether this franchise can, you obviously have your targets out there. But when we think about this, in the context of Changes on the Regulatory Backdrop. The work you've done to integrate this franchise globally across businesses. How should we think about the incremental return on the capital? Could this be an even more profitable bank than what we have seen so far?

Moderator: We'll take our first question from Abraham, Pune Walla with Bank of America.

Your line is now open.

Speaker Change: Good morning, Ibrahim. Good morning.

Speaker Change: Good morning to. Uh, I had a question. I think uh, in your prepared comments, you mentioned uh, incremental return on Capital. And as we think about whether this franchise can you, obviously have your targets out there. But when we think about this, uh, in the context of

Changes on the regulatory backdrop.

Speaker Change: The work you've done to integrate the franchise globally across businesses.

Would love your thoughts around both in terms of what this franchise is capable of and what the regulatory environment may mean for future profitability. That was very comprehensive.

Speaker Change: How should we think about the incremental, return on the capital? Could this be an even more profitable Bank than what we have seen so far? Would love your thoughts around both in terms of what this franchise is capable of, and what the regulatory environment May mean for future profitability?

Speaker Change: Generating earnings growth and incremental excess Capital, which continues to grow our uh, flexibility. Uh, we are as we speak deploying additional Capital into the core businesses. So the organic development is happening and will continue to happen where we think there's operating, leverage with smart risk, architected deployment around clients, uh, core examples of, that would be, uh, an investment banking. We've got a world-class sales force, uh, coverage universe that we continue to add to. We are, uh, deepening the footprint with corporates and clients through additional credit extension. Uh, and there is clearly more to do there around our relationship and event. And so Investment Banking is, uh, right, uh, at the top of the list, along with wealth as we go into the next stage of the cycle. Uh, second Is wealth itself. Uh, I've called that out on the last number of calls with Chiron.

Speaker Change: There's more to do uh, with these uh, 20 million relationships that are growing every day. Uh, and in workplace around broadening our lending capabilities and approving way you see the the tick up uh year-over-year that is going to continue to happen as we Supply clients with additional uh, breadth and depth of product. And then third area that uh, we are much focused on is uh, the Market's business specifically financing businesses that are durable. Uh, where we are

Speaker Change: Uh, uh well known uh to the client and vice versa where we can act. As a leader in places, like Prime brokerage and secured lending. So investment banking at large wealth management at large and markets. Real large that covers a lot of the business uh, where we can clearly put additional Capital to work. That is a process that, uh, has begun. And it continues to intensify. As we generate incremental Capital, uh, with with each passing quarter, uh, inside of that, uh, there are inorganic opportunities that, uh, come by along the transom and we are looking at them, of course. Uh, but the bar is, uh, is super high. Uh, we have a record of integration that is, uh, that is a good 1. Uh, but we have humility around what it takes to make Integrations work. And so the bar, uh, with the management team is a high 1, but we look at those Integrations. Those potential tuck-ins in the context of what the core strategy.

Speaker Change: Affords. Are they Acquisitions that actually are near the bullseye or better on the bullseye? It would actually help grow the core strategy across wealth and investment management. And the Investment Bank, uh, such that, uh, we can continue to grow capacity, that way. Uh, so you're hearing Ibrahim, uh, both organic uh, and inorganic, but the specific answers to your question. On the organic opportunity is that the first half affords, an example of the operating level

Speaker Change: Coverage that the firm is able to demonstrate where the environment has been murky when the environment stabilizes a bit. We are 1 prong through the 3 prong Administration, uh effort. Uh we would expect uh areas like the m&a business and underwriting business to pick up and that will continue afford US additional operating leverage. So we are contributing to that the, uh, dividend, uh, is, uh, number 1 and I will continue to be, uh, Paramount, the Cadence is in the increase of the dividend dating back to when it was script all the way to now a dollar, a share and a 2 2.8% yield at, uh, current prices, uh, is 1 that we will continue to, uh, put at the top of the list for its, uh, durability. And, uh, something that our core investors have come to expect as a, a key signpost of the, uh, of the core strategy itself. And then finally, uh, the buyback, uh, we are at a 4 billion page.

Uh, piranha, uh, that is obviously a lever that we will use, uh, tactically, uh, and accordingly. So, um, that is, uh, that is some detail. But clearly you're hearing that we're giving this, uh, quite a bit of thought. Because, as you rightly point out, uh, we printed 15%, ct1, uh, we are at 13, uh, with uh, uh, clearly, uh, indications, uh, that you see from the most recent that, uh, the numbers are, uh, going in our Direction.

Speaker Change: On the back of continued regulatory reform, so that kind of buffer we should be thinking about this and taking steps and we are as we speak.

One quick follow up. I think both Sharon and you implied there's a higher tolerance across boardrooms for the macro volatility. We are seeing some pickup in rhetoric around tariffs. Do you think this is different than what we saw in March and April, where there's a huge hit to corporate sentiment around deal activity, that that is unlikely or less likely to happen on a go forward? Thank you. My sense in recent weeks is that if the, just to use the word cadence again, if the cadence of tariff policy execution is such that it is viewed to be sort of within broadly expected parameters, and obviously the part of the negotiation is for the administration to optimize results, but if there's a sense that it is within sort of bands of outcome and that the negotiation will take a certain amount of time as appropriate, but it's sort of quantifiable, that is clearly going to be a catalyst for further clearing of uncertainty.

Speaker Change: That is very comprehensive 1, quick follow-up. I think both Sheron and you

What we saw in March and April, where there's a huge hit to corporate sentiment around deal activity, that that is unlikely or less likely to happen on a go forward. Thank you.

What is interesting in the last month has been that the strategic activity has really started to pick up, and in fact, the strongest sponsors of the group, because as you know, sponsor activity has consolidated to the winners, they are also actually quite aggressive on the acquisition front. So, we are seeing real interest on the buy side from both corporates and from strategics, and clearly the fact that an IPO market on the back end is working means that the value chain seems to be in pretty good shape.

Speaker Change: Uh, my sense in recent weeks is that if the just use the word Cadence, again, if the Cadence of, uh, tariff policy, uh, execution is such that, it is viewed to be sort of within broadly, expected parameters. And obviously, the part of the negotiation is for the administration to optimize results, but if there's a sense that it is within, sort of bands of outcome, and that the negotiation will take a certain amount of time as appropriate, but it, it sort of quantifiable that is uh, clearly going to be a catalyst for further clearing of uncertainty. Uh, what is interesting in the last month has been that the Strategic activity, uh, has really started to pick up and in fact, the strongest sponsors of the group because, as you know, sponsor activity is, is Consolidated to the winners. Uh, they are also actually quite aggressive on the acquisition front. So we are seeing real interest on

So, I think that if we continue along into the fall with what we saw in the last month, it should be a quite strong second half going to 2016.

Speaker Change: On the buy side from both uh corporates. Uh, and from strategic and clearly the fact that an IPO Market on the back end is working means that the the value chain seems to be in in pretty good shape. So, um, I think that, uh, if we continue along into the fall with what we saw in the last month, it should be a a quite strong second half going to 26.

We'll move to our next question. Fannin with Jeff. Your line is now open. Morning, Dan. Morning, Ted wanted to follow up on your previous comments just around inorganic sounds like these would be more tuck in or complimentary type of deals if they were to happen.

Dan Fannon: We'll move to our next question. From Dan Fannon with Jeffrey's. Your line is now open.

Dan Fannon: Morning.

But if you could talk to, you know, maybe financial or strategic, you know, factors that would, you know, take you to over the threshold to get to completing a transaction, that would be helpful. It has to fit squarely within the strategy to raise, manage, and allocate capital for clients. We have a record of integration, but we are not looking to make acquisitions just for the sake of it. The opportunity set within Morgan Stanley Proper is extraordinary. As you look across wealth management, the entire funnel is showing growth up and down, even at this stage of uncertainty.

Speaker Change: Uh, Ted wanted to follow up on your previous comments, just around inorganic sounds like that. These would be more tucking or complimentary type of deals if they were to happen. But if you could talk to, you know, maybe a financial or strategic, um, you know factors that would, you know, take you to over the threshold to get to completing a transaction that would be helpful.

We are seeing inflows and growth in investment management across multiple pieces. We are just getting going on the growth of parametric investment management and the full opportunity that underlies e-trade and wealth management. And the investment banking franchise is a world-class franchise that after more than a dozen years of financial repression is now actually able to go out and do its thing. This has been a franchise that we have nurtured as a global business. We are one of only a very small number, as you know, that are running global businesses. And the ability to execute complex cross-border strategic transactions is now right in front of us.

Speaker Change: It it has to fit, squarely within the strategy to raise manage and allocate capital for clients. We have a record of integration, uh, but we are not looking to make Acquisitions just for the sake of it. The opportunity set within Morgan Stanley, proper is extraordinary. Uh, as you look across a wealth management, the entire funnel is showing growth up and down, even at this stage of uncertainty, we're seeing inflows and growth and Investment Management across multiple pieces. We're just getting going on the growth of

So the organic opportunity set is enormous. If there are tuck-ins, which we see many come through, that can actually add to the operating leverage to the plant without actually distracting us from the opportunity set in front of us, sure, we are looking at them. But the name of the game is to just continue to prosecute against the strategy deck that you saw. We are marching our way durably. Obviously, asset prices can move around, but $10 trillion, we are on our way. You see the margins in wealth, they are now in the high 20s. You see that the efficiency ratio for the first half was 70%.

Speaker Change: Our parametric in investment management. And the full opportunity that underlies each trade and wealth management and the investment banking franchise is a world-class franchise that after more than a dozen years of financial. Repression is now actually able to go out uh, and do its thing. Uh, this has been, uh, a franchise that we have nurtured as a global business. Uh, we're 1 of only a very small numbers. You know, that are running Global businesses and the ability to execute complex cross borders, strategic transactions is now right in front of us. So the the organic opportunity set is enormous. Uh, if there are tuck-ins, uh, which we see many come through that can actually add to the operating leverage, uh, to the plant, without actually distracting us from the opportunity to set in front of us. Uh, sure we're looking at them, uh, but the name of the game is to just continue to prosecute against the, uh, the the strategy deck uh, that you saw uh, we

And you see that we are durably, very judiciously growing share across the investment bank. That is what we set out to do. And we intend to just stick to our knitting and get that right and generate real returns and incremental capital for our shareholders. Great, that's helpful.

Speaker Change: Are Marching our way durably obviously as the prices can move around but 10 trillion we're on our way. Uh you see the margins in wealth are they're now in the high 20s. Uh you see that the efficiency ratio for the first half was 70% and you see, there were durably, uh, very judiciously, growing share across the Investment Bank. That is what we set out to do, and we intend to just stick to our knitting and get that right and generate uh, real.

Speaker Change: Returns and incremental capital for uh, for shareholders.

And then Sharon, can you expand upon your comments around NNA, you highlighted in a new advisor strength, but maybe talk about flows more broadly. And then also just the characterization of the recruiting backdrop today for new advisors joining the platform.

Sure, why don't we take it step by step. So just recruiting generally, I'll take it from the bottom is, there's obviously a great platform, we have recruits that are interested in what we've been investing in. So that's been great to see, we talked about it in the last call. I think for NNA, which is really wonderful is to see that we have strength in all three channels. It's not just one channel from the advisor led side, we do have recruiting, but we also have flows coming in from workplace. So I've given these numbers before. But you start from a workplace perspective, and we have new flows generate from workplace that are going into the advisor led channel.

Speaker Change: Great, that's helpful. And then Chiron. Can you expand upon your comments around? Nna you highlighted, you know, new advisor strength but maybe talk about flows more broadly. And then also just the the characterization of the recruiting backdrop today for for new advisors joining the platform.

Speaker Change: Sure. Why don't we take it step by step?

And then those are actually also becoming fee based flows. So we're seeing that increase of the net new assets are really coming in originating from the workplace. And then we have the new flows that transfer have both the existing flows, but 70% of the flows that come from workplace that originate from workplace is actually net new assets to the firm. So that's an incredible number when you think about the net new assets and how they're generating from what we intended to see in the investments in workplace.

We were looking at, I'm just a step back, not just on NNA, just so that you do have these numbers. We used to say, we had about $16 billion per year that were originating from workplace. This year, we're running ahead of those numbers. It just shows you the strength of all of the channels. So advisor led is coming both from existing advisors as well as recruits and the origination of workplace.

Speaker Change: Recruiting. But we also have flows coming in from workplace. So I've given these numbers before but you start from a workplace perspective and we have new flows that generate from workplace that are going into the adviser Le Channel and then those are actually also becoming fee based flows. So, we're seeing that increase of the net. New assets are really coming in originating from the workplace and then we have, uh, the the new flows that transfer have both the existing flows, but 70% of the flows that come from workplace, that originated from workplace is actually net new assets to the firm. So that's an incredible number. When you think about the net new assets and how they're generating from what we intended to see in the investments in workplace, we were looking at, I'm just a step back, not just on nna just so that you do have these numbers. We used to say, you know, we had about 60 uh billion dollars per year that were originating from workplace. This year, we're running ahead of those numbers.

And then self-directed, we should talk a little bit about E-Trade. We're seeing really great flows from the self-directed channel, year over year improvement there. That comes from investments in marketing and business development. We've put in new tools like E-Trade Pro. You're seeing all of that marketing payoff across the channels. And I think that understanding that this is all happening against the backdrop of a tax season is encouraging.

It just shows you the strength of all of the channels. So advisor lead is coming both from existing advisors, as well as recruits and the origination of workplace and then self-directed, we should talk a little bit about each trade. We're seeing really great flows from the self-directed channel year-over-year Improvement there that comes from investments in marketing and Business Development. We've put in new tools, like E-Trade Pro, you're seeing all of that marketing payoff across the channels. And I think that understanding that this is all happening

And then the fee-based flows, which you didn't ask about, but I'll just touch on, is also are very, very strong, just underscoring how well the funnel is working.

Happening against the backdrop of a tax season is encouraging and then the Feebas flows which you know you didn't ask about but I'll just touch on is also are very very strong just underscoring how well the funnel is working.

Your next question comes from Devin Ryan .. Our line is now open. Good morning, Devin. Great. Good morning, Ted. Good morning, Sharon. I have a question on stablecoins and kind of the broader theme of tokenization. Obviously, stablecoin legislation likely to pass probably in short order here, yet market structure legislation that's probably not too far behind. I'd just love to hear about how you're thinking about the opportunity for Morgan Stanley. Is this something that you think could be big, or is it just kind of an evolution of market structure? And then are there any specific areas that you're focused on as we get more regulatory clarity?

Devin Ryan: Our next question comes from Devin Ryan with Citizens Bank.

Your line is now open.

Speaker Change: Morning, Devon. Great. Good morning, Ted. Good morning Shon. Um, I have a question on stable coins and kind of the broader theme of of tokenization. Obviously stable coin legislation, likely to pass. Probably in short order here yet Market structure legislation. That's probably not too far behind. So just love to to hear about how you're thinking about the opportunity for Morgan Stanley. Is this something that you think could be big or is it just a kind of an evolution of Market structure and then, are there any specific areas that you're focused on as we get more regulatory clarity?

Yes, sure. I'm happy to take that. As you would expect, we're actively discussing it. We're looking both at the landscape and the uses and the potential uses for our own client base. But it really is a little early to tell, especially for the businesses that we run, versus businesses that you might see from competitors on how stablecoin would necessarily play in. But we're very, very close to the landscape. We're understanding this as well as the evolution across all technological advancements. You know, AI, crypto, you name it, all of them sort of have an ecosystem that we're very focused.

Speaker Change: Yes, sure. I I'm happy to take that. As you would expect. We're actively discussing it we're looking both at the landscape and the uses and the potential uses for our own client base, but it really is a little early to tell especially for the businesses that we run, uh, versus businesses that you might see from competitors on how stable coin would necessarily play in. But we're very, very close to the landscape. We're understanding this, as well as the evolution across all technological advancements. You know AI crypto you name it all of them sort of have an ecosystem that we're very focused on.

Okay, great. Thank you. And then just to follow up on the trading environment, obviously, second quarter, there's a lot going on between tariffs and geopolitical. So it's a bit hard to gauge, you know, how much maybe activity was elevated relative to repositioning for institutions, compared to maybe a more normal second quarter. So just love to hear about how that the market backdrop is evolving. Sharon, I heard comments about markets have been resilient in the third quarter. Thus far, I'm not sure if that was a reference to trading, but just a little bit of flavor around the market backdrop.

And then if you can weave in as well, just some of the efforts you are taking to kind of improve market share, obviously doing more on prime brokerage as well. So love to just kind of weave that in as well for the question. Thank you.

Sure, why don't I take again, I'll take the bottom question first, just in terms of improvement of market share. We have been actively investing in the global franchise and that global nature is one that you can see bearing out in the results. I called out specifically, even in equities this quarter, a record coming from EMEA. There have been previous quarters, we've talked a lot about Asia. And when we talk about Asia, you know, you speak about it as one region, but there are multiple countries that are involved in that. And the relationships that we have with MUFG, what we're doing in India, greater China, all of that becomes relevant.

Okay, uh, great. Thank you. Um, and then just a follow-up on the trading environment, obviously, second quarter, there's a lot going on between tariffs and geopolitical. So it's a bit hard to gauge, you know, how much maybe, uh, activity was elevated relative to to repositioning for institutions, uh, compared to maybe a more normal second quarter. So just love to hear about how that the market backdrop is evolving. Uh, Sean, I heard comments about markets have been resilient in the third quarter thus far. So I'm not sure if that was a reference to trading, but just a little bit of flavor around the market backdrop. And then, if you can weave in as well, just some of the efforts you are taking to kind of improve market, share, obviously, doing more on Prime brokerage as well. So love to just kind of weave that in as well, for the question. Thank you.

And that is what we think of when we talk about moats around the business, just where we continue to invest and see a lot of improvements and results and an ability to gain durable share. In terms of client repositioning and momentum, it was not just specific to the institutional business. The retail business was extremely strong as well. I spoke about it on the April call about seeing resilience from retail engagement and a continuation of a buy the dip mentality, even through the tariffs, you'll probably remember that. And so that continued throughout the course of the quarter.

Speaker Change: Sure. Why don't I take again I'll take the bottom question first, just in terms of improvement of market share. Um, we have been actively investing in the global franchise and that Global nature is 1 that you can see bearing out in the results I called out specifically. Even in equities, this quarter a record coming from Emma, there have been previous quarters, we've talked a lot about Asia uh and when we talk about Asia you know you speak about it as 1 1 region but there are multiple countries that are involved in that and the relationships that we have with mufg what we're doing in India, greater China, all of that becomes relevant. And that is what we think of. When we talk about Moes around the business just where we continue to invest and see a lot of

It wasn't specific just to April. You saw inflows to markets from sweeps, et cetera, across the entire course of the quarter. And I even mentioned it in the liquidity flows. When you think about liquidity and IM and where those outflows went, they went into market, they went into CapEx exposure. So the repositioning and the rebalancing is on the institutional side throughout the quarter across, you know, the equities businesses, across the retail businesses and across the IM business. And we're there to capture all of it.

April, you saw inflows to markets from sweeps Etc across um the entire course of the quarter and I even mentioned it in the liquidity flows. When you think about liquidity and I am and where those outflows went, they went into Market, they went into capex exposure. So the repositioning and the rebalancing is on the institutional side throughout the quarter across, you know the the equities businesses across the retail businesses and across the IM business, and we're there to capture all of that.

Yeah, what I would add to that is, in the case of equities, we've talked for many years about what it takes to run a global, fully laid out equities business, the old nine boxes, where you have prime brokerage, derivatives, and importantly, cash, and then the three regions, and the cost to run that business, just dollars in the ground to turn on the lights every year. Those, those costs, as you know, have only gone, have only gone up. And so not surprisingly, the top of the competitive heap is able to inner operating leverage and above market returns.

And, and the rest have to slug it out just to sort of make the nut on what is what is remarkable about this year or, or worthy of calling out and true made reference to it is this quarter, in Europe, we had a record quarter in equities. In the first half, we've had a quite extraordinary half in Asia, which is obviously Hong Kong and Tokyo led. So it's not just about the electronification of the product and the span of the of the of the product palette, but it's also the ability to run the business globally.

Speaker Change: Yeah, what I would add to, that is uh, in the case of equities, we we we've talked for many years about what it takes to run a global uh, fully uh, laid out equities business to the old 9 boxes, where you have uh, Prime brokerage uh, derivatives and importantly cash and then the 3 regions, uh, and the cost to run that business just dollars in the ground to turn on the lights every year. Uh, those those costs as you know, have only gone have only gone up and so not surprisingly, uh, the the, the top of the competitive Heap is able to endure operating leverage and uh, above market returns, uh and uh and the rest have to Slug It Out. Just to sort of make the nut, um, what is what is remarkable about this year or or or worthy of calling out and Cheryl made reference to it, is this quarter uh in Europe we had a record quarter in equities um in the first

I'd also just touch on fixed income. Not so many years ago, we were talking about trying to get to a billion dollars a quarter. And now fixed income is quietly put up 2 billion a quarter through every imaginable kind of environment for a whole bunch of quarters. So part of the, the, the strategy here is to not only generate operating leverage, but to impute durability in the results that actually are in line with how we want the strategy to be presented around clients. The last piece to this, which is absolutely critical, is this idea of the integrated firm, where as appropriate, we are knitting clients across the plant across the world together, whether it's in getting them access to capital to ideas, financing strategy, the whole thing.

Speaker Change: Half. We've had a, a a, a quite extraordinary, uh, half in, uh, Asia, which is obviously Hong Kong and Tokyo lead. So, um, it's not just about, uh, the electronic vacation of the product, um, and the span of the, um, of the of, the, of the product pallet. But it's also the ability to run the business, uh, globally. I'd also, um, just touch on, uh, fixed income. Uh, not so many years ago. Uh, we were talking about trying to get to a billion dollars a quarter and now fixed income is quietly, put up uh, 2 billion, a quarter, uh, through every imaginable, kind of environment for a whole bunch of quarters. So part of the um the the strategy here is to not only generate operating leverage but to impute durability, in the results that uh actually are in line with how we want the strategy to be presented around clients uh, the last piece to this, which is absolutely critical.

And that is most dependent on a culture at the very top of the house, where the capital to the earlier question that is deployed and the resourcing that we add on is good for the franchise as a whole, as opposed to nurturing just one particular division. And that is obviously something that is years in the making. And we think will prove to be a real competitive advantage as we flex some of that incremental capital.

Speaker Change: Is this idea of the integrated firm where, um, as appropriate, we are knitting clients across the planet across the world together, whether it's in, uh, getting them access, uh, to, uh, Capital to ideas financing strategy, the whole thing. And that is, uh, most dependent on a culture at the very top of the house, where the capital to the earlier, question that is deployed. And the resourcing that we add on

Is good for the franchise as a whole as opposed to nurturing just 1 particular Division. And that is obviously something that is, uh, years in the making. And we think will prove to be a real competitive Advantage. Um, as we Flex some of that incremental capital,

We'll move to our next question from Glenn Schorr. Morning, Glenn. follow up on that Ted, I appreciate all the comments you made to the first question.

Speaker Change: We'll move to our next question from Glenn Shore with evercore.

Glenn: Morning, Glenn.

a little bit about why. in that potential deployment of capital being that you're already great and hopefully getting kind of comment across banking and trading. And I felt like dollars of capital, you could probably do the most help. The Asset Management Franchise. and maybe just put that in the wrapper. How you think about balance. Capital Deployment, and Making Sure Asset and Wealth are That's basically a balance. It's actually a good pickup there. That wasn't that wasn't intentional.

Glenn Shore: Just to follow up on that. Ted. I I appreciate all the comments you made to the first question. Um, I was curious a little bit about why asset Management's, not included in that potential deployment of capital being that you're already great and hopefully getting greater and wealth management. Same kind of comment across Banking and trading. And I felt like from a, a total dollars of capital. Uh, you could probably do the most, um, help in terms of the asset management franchise and maybe just put that in the wrapper of

Glenn Shore: How you think about balancing um, Capital deployment and making sure asset and wealth are still the big primary identities of driving the stock, and the, and the returns, you know. So this that's basically a, a balancing the mix of businesses, if you will

In fact, the investment management numbers this quarter, as you know, were really quite outstanding, with 11 billion of inflows, and then the continued growth of parametric. I think it's fair to say that the opportunities across investment management, which is your question, Glenn, on sort of a standalone basis, given the fragmentation of the industry, and given how some folks are doing a lot better than others, there are many, many acquisition opportunities in the asset management space, as you are well aware. We are being very careful about that. To the extent we can add an Eaton Vance before people have figured out what parametric is all about, or we can make an acquisition of Solium before people understand that that is the linchpin to workplace, if we can add E-Trade as filling out the funnel, I think part of the thinking is to not only imagine what the asset is worth in and of itself, but what the platform effect to the core strategy is from being inside the wealth funnel or being inside the investment management universe.

And I think you know well that investment management roll-ups have had very mixed experience. So to the extent that we can bring in a strategy or bring in a business that fits with Morgan Stanley culture, that fits with our client perspective, and can afford us incremental operating leverage, well sure, that would absolutely check a whole bunch of boxes. It could give us incremental margin, clearly additional AUM, but I am much focused, Glenn, on folks hearing that first and foremost we're really focused on what is in front of us in our operating and management committee and leadership meetings around the firm every day.

Glenn Shore: Are being very careful about that. Uh, to the extent, we can add, uh, ah ah uh uh, an eaten Vance, uh uh uh, before people have figured out what parametric is all about or we can make an acquisition of solemn before, people understand that, that is the linchpin to workplace if we can add e trade as filling out the funnel. I think part of the uh, thinking is to uh, not only imagine what the asset is worth in and of itself. But what the platform effect to the core strategy is uh, from being inside the wealth funnel or being inside the investment management universe. And I think you know well that investment management rollups have had very mixed experience. So to the extent that uh we can bring in uh a a strategy or bring in a business that fits with Morgan Stanley culture that fits with our uh client perspective and can uh can uh afford US incremental.

Because there is a ton of demand for incremental capital, incremental resources that is coming straight from clients to our people to us. So the nurturing of what we have in the core strategy of raise, manage, and allocate capital to clients affords us a heck of a lot of runway. But you're right, there are investment management strategies and opportunities. Some of them are very clear and some of them may be more hidden gems like a solium, which I thought was ingenious, that can be brought in to actually help transform where the firm is going to go with clients.

Operating leverage. Well, sure that would absolutely check a whole bunch of boxes. It could give us incremental margin clearly additional AUM but I but I am much focused uh, Glenn on. Folks hearing that first and foremost, we're really focused on what is in front of us. Um, in our operating Imaging committee and Leadership meetings around the firm every day because there is a ton of demand for incremental Capital incremental, resources, that is coming, straight from client,

Lines through our people to us. So the nurturing of what we have in the core strategy, of raise manage and allocate Capital to clients affords us, a heck of a lot of Runway but you're right there are Investment Management strategies and opportunities. Some of them are uh very clear and some of them may be more hidden gems, like a sodium, which I thought was uh ingenious that can be brought in to actually help transform uh, where the firm is going to go with clients.

I appreciate that.

Sharon, if I could ask a quick follow-up on your comment around NAI, around steady and the current rate backdrop, there's like five or so rate cuts. Ulrich Sure, I won't give specific guidance as you probably expect, Glenn, as it relates to next year, but I will highlight to you that if you use the word offsets, yes. Generally speaking, in a lower rate environment, we see inflows, right, of sweeps. So I think that there are places that you can certainly better understand where we are today, and we look ahead. I've stated that we're in a similar range, largely because we haven't really seen sweeps move.

I appreciate that.

Speaker Change: Chiron. If I could ask a quick follow-up on your comment around knee around steady. And the current rate backdrop, there's like 5 or so rate Cuts expected through. Now, through the end of next year, I mean you have offsets your business probably does. Well if rates are going down but but can you talk about knee in the forward? Curve, setting or however else we should. We should think about the balancing of of lower rates.

Speaker Change: Sure, I won't give a specific guidance.

And you're in a position where there are stable rates, but what you will also gain over time is the increases from lending balances, which is why I've paid, you know, I spent a lot of time talking about that in the prepared remarks, because in my mind, that's an incredible forward-looking indicator for just the strength of the business and how we've seen an increase in household penetration from a lending perspective. So more and more of those advisors and users are thinking about our lending products. on from an interest rate perspective, and sweeps, those will be likely factors that will be driven by the policy rate, but yes, generally speaking, when rates do go down, we generally see sweeps balances broadly.

This is probably expect Glenn as it relates to next year, but I will highlight to you that if you if you use the word offsets. Yes. Um, generally speaking in a lower, uh, rate environment, we see inflows, right? Of, um, of sweeps. So I think that there are places that you can certainly better understand where we are today, uh, and we look ahead. I've stated that we're in a similar range largely because we haven't really seen sweeps move. Um,

Speaker Change: And you're in a position where there are stable rates but what you will also gain over time, is the increases from lending balances, which is why I've paid. You know, I spent a lot of time talking about that in a prepared remarks because in my mind that's an incredible forward-looking indicator for just the strength of the business and how we've seen an increase in household penetration from a lending perspective. So more and more of those advisors and users are thinking about our lending products.

Speaker Change: On the wealth management side as it will play out specifically from an interest rate perspective and sweeps. Those will be likely um, you know factors that will be driven by the policy rate. But, yes, generally speaking, when rates go down, we generally see, uh, sweeps balances, broadly go up.

Our next question comes from Mike Mayo with Wells Fargo. Good morning, Mike. Hey, good morning.

Our next question comes from Mike Mayo with Wells Fargo.

Mike Mayo: Good morning, Mike.

Um, I just want to ask about a through the Capital Markets Division. So, in other words...

Mike Mayo: Hey, good morning. Um, I just want to ask about a uh a trend of more Lending.

Uh, through the capital markets division. So in other words,

Ted, you talked about the moment of wow on your last presentation. That was memorable to me. But I think one wow to me is just.

You know, the extent that banks used to lend directly to the commercial customers, and now they're lending more to non-bank financial firms. and then directly lending to those traditional commercial customers. So my, my question is, how do you see that trend? Where it's been where it's going? And, and how much lending do you do through your capital markets business as a percentage of the whole? Because it's all kind of jumbled together. And those of us on the outside have a tough time quantifying. Great. That was very helpful. Thank you.

Um Ted you you talked about the moment of wow on your last presentation. That was memorable to me. Um but I think 1 well to me is just

Mike Mayo: At the extent that banks used to lend directly to the commercial customers, and now their lending more to non-bank financial firms.

Mike Mayo: Than directly lending to those traditional commercial customers. So, my, my question is, how do you see that Trend where it's been where it's going and and how much lending do you do to your your Capital markets business as a percentage of the whole? Because it's all kind of jumbled together. And those of us on the outside, have a tough time, quantifying that

That's an interesting 1 uh Mike. Um I do think you're touching on

And we have to see how the regulatory environment, uh, plays out. But I think we, we sort of sense that, um, you know, the 15-year dam is breaking and that reform is in the offing. We've seen indications of that, uh, in, uh, SLR, as you know, um, and, uh, recent, um, strong results from the group in, uh, in in, in this, uh, in this recent ccar exam. Uh, I do think that some of the share that we see seated as an industry group, at the top, the big banks at large. The, you know, the 6 of us uh, that in part was a function of, uh, you know, regulatory, limitation broadly, and that regulatory limitation, uh, May well be normalizing. And that will uh, not so much uh, dollar for dollar. Take share back from the private Lending Group because I think the private credit product has

Mike Mayo: Found its place. It is institutionalized. As, you know, it's a 2 trillion in growing, but I think the ability for the, uh, highly capitalized, Global investment Banks. Uh, especially if they have something, uh, special along with it, in our case, as, you know, uh, world class wealth and investment management. Businesses will be able to get back after that core share around, uh, corporate product, uh, in the midcap space, uh, with, uh, corporate derivatives.

Mike Mayo: To uh, unsecured but high-quality borrowers, uh, where perhaps we've been, uh, competed out, uh, to be more, uh, Soup To Nuts on Acquisitions and Complex events. Uh, there will still be a role for others, um, to continue to flourish in the boutique space. Uh, the winners will continue to be winners and there will be clearly a role for, uh, the sponsor Community to do its thing. But I think the, um, I don't want to say, uh, the balkanization of some of our core activities inside of the Securities business and corporate Investment Bank amongst the big, uh, group. I think you may begin to see and you you've indicated this. Um, the tide May begin to shift where we can begin to again. Play a more Central role in the governing of the stewardship of, uh, uh, the corporate and sponsor Capital markets acting as a financier

Um, as structurer and of course, um, as appropriate as the, uh, distribution and allocation engine. So, uh, I think we've got of course that back end, um, in a, in a special way, I think the front end has been splintered because there have been limitations that have been brought to the group. There's so much they can do, but I think it is clear and this this ties to the earlier answer with respect to organic or inorganic. Um any kind of normalization of the regulatory

Mike Mayo: Environment is going to afford the largest of and and most uh, well capitalized and Global firms, a lot of running room to prosecute core lending product. With sophisticated clients, the largest uh, most sophisticated highest net worth individuals are walking institutions. Uh, we have folks that are in the ecosystem who act as uh, competitors, uh, clients Frenemies. But they can also get incremental capacity from us and our intention I think would be to be competing for additional depth with. Uh, those key top ecosystem players where we don't have to worry as much about hitting a, uh, a uh, a limit. Um, that is sort of pre-ordained from notional, uh, limits that were prescribed a decade plus ago. I think it's a, it's an evolving process. We want to do that. Prudently. We are, well, aware of bouts of volatility. We're aware of

Mike Mayo: Sort of risc architecture. So we're in no rush to do that. Which is why, uh, you know, we are so focused on the Cadence of earnings. There's a sense of consistency in who we're lending to how we're growing the product, how we're delivering on deposits, it's all part of sort of the broader Mosaic of getting to, uh, 20% Returns on tangible uh, on an ongoing basis.

Mike Mayo: Great. Uh, that was very helpful. Thank you.

Speaker Change: Thanks Mike.

Our last question comes from Erica Najarian with UBS.

Speaker Change: Our last question.

Speaker Change: Comes from Eric and egarian with UBS.

Good morning, Erika. Good morning. Just two follow-up questions. First, for you, Ted, on all the inorganic opportunity, when investors see your returns, they say, oh, how does an optimized teaming business continue to optimize itself? And as I heard you talk about inorganic, I was wondering where deposits would play into your priority. I know that you have less than 10 percent of trading assets in the bank sub, and some of your peers have 30 to 60 percent. I'm wondering sort of where that would fall on your priority.

Speaker Change: Good morning, Erica.

Speaker Change: Morning. Um, just

Mike Mayo: Like I was wondering where deposits would. Um, play into your priority? I know that you have less than 10% of trading Assets in the bank sub, and, you know, some of your peers have 30 to 60%, um, I'm wondering sort of where that would fall on your priority list.

I'll give Sharon this one. Go ahead. Sure. So, Erica, I think it's a really great point, and I think it's something we've been very focused on. As you know, and I know you've written a lot about the usage of the bank, the bank is clearly a priority for us. We put it into the strategic objectives purposefully to really talk about the fact that we see more potential growth as we think about eligibility. You obviously do need both sides of that balance sheet for us in terms of deposits. We have grown and continue to grow and diversify our deposit base, which will allow us to support ongoing growth of eligible assets that we can put on the bank.

And so this is a strategic objective. I think that it is something that we see real potential for as we move forward, and it will take time to really make sure that we do it the right way with the right infrastructure. But what you've certainly seen is that over the course of the last 10 years, we've put a lot of investment into the bank product, into what we have to make ourselves a real bank that has the ability to serve as both sides of that balance sheet.

I'll give Chiron. I just want to go ahead. Sure. So, Eric I think it's a really great Point, uh, and I think it's something we've been very focused on as, as you know, and I know you've you've written a lot about the usage of the bank. Um, the bank is clearly a priority for us, we put it into the Strategic objectives. Purposefully to really talk about the fact that we see, uh, more potential growth. As we think about eligibility, you obviously do need both sides of that balance sheet. Um, for us, in terms of deposits, we have grown and continue to grow and diversify our deposit base, which will allow us to support on growing growth of eligible assets that we could put on the bank. And so this is a strategic objective. I think that it is something that we see um, real potential for as we move forward. And it will take time to really make sure that we do it the right way, with the right infrastructure. But what you've certainly seen is that over the course of the last

And let me take the first half of your question, which is on the back of what Sharone just said. There shouldn't be a conflation around having a strategy that is clear and consistent and well understood and a sense that we have no more runway on that strategy. The runway on that strategy is just effectively a byproduct of addressing enormous TAMs with large barriers to entry. On the one hand, you have a $6 trillion world-class wealth management business, but the current TAM is at least $60 trillion. So we're the leader, but we only have 10% share.

In the investment bank, we are a global leader. We have 15% share. Both of those businesses, as you know, are secular growers. In the investment management business, we are working away to grow our real assets business, our private credit businesses, our liquidity businesses. Those businesses now on an organic basis have the kind of runway where a very good argument could be made across, I give you examples in all three divisions and inside of infrastructure as well, where the best answer may be to just hew to the core strategy of raise, manage, and allocate capital by continuing to invest in those businesses, to grow them through the power of AI, but also through the extension of credit and to work closer with clients.

Speaker Change: 10 years. We've put a lot of investment into the bank product into what we have to make ourselves a, a real Bank uh, that has the ability to service both sides of that balance sheet. And let me take the first half of your, uh, of your question which is, uh, on the back of what Chiron just said. Uh, there there shouldn't be a, a conflation around, um, uh, having a strategy that is clear and consistent and well understood and a sense that we have no more runway on that strategy, the runway on that strategy is just effectively a byproduct of addressing enormous Tams with uh, large barriers entry. Um, on the 1 hand you have a uh, 6 trillion dollar worldclass wealth management business but the current Tam is at least 60 trillion. So we're the leader. But we only have 10% share uh in uh the Investment Bank. Uh we are a global leader, we have 15% share uh both of those businesses.

As you know, our secular Growers, uh, in the investor management business. We are, uh, working away to grow our real assets business, our private credit businesses, our liquidity businesses, uh, those businesses are now on an organic basis, have the kind of Runway, where a very good argument could be made across. I give you examples in all 3 divisions, uh, and inside of infrastructure as well, where the best answer may be to just Hue to the core strategy of

It may also be the case, though, that inorganic opportunities come across the transom that give us incremental perspective or breadth, but the bar is quite high, not because we're not sure what we want to do next, but in fact, because we do know what we want to do next. The best use of capital is probably to continue to hammer away inside of the business, given that the level of excess capital that we hold is incrementally growing at this point of the cycle. If something comes through that is additive to the capability that we already have, we're going to go and do that.

But the IM example, referencing back to Glenn's question, is an appropriate one where we have pockets of build that are going to pay off for five, 10 years with durable streams where we may not need to go inorganic. We may be able to just hew to the organic, but the inorganic opportunity being folded inside of the organic build is the likely way we are going to go.

Breeze Mansion allocate Capital by continuing to invest, in those businesses to grow them through the power of AI but also through the extension of credit and to work closer with clients, it may also be the case though, that inorganic opportunities come across the transom that give us incremental perspective or breadth. But the bar is quite High, not because we're not sure what we want to do next. But in fact, because we do know what we want to do next. The best use of capital is probably to continue to hammer away inside of the business given that the level of excess Capital that we hold is incrementally growing. At this point of the cycle, if something comes through that is uh um is additive uh, to the capability that we already have. We're going to go and do that. But the IM example uh referencing back to Glenn's question uh is an appropriate 1 where we have pockets of bills that are going to pay off.

For 5, 10 years with durable streams. Well, we may not need to go in organic. We may be able to just Hue to the organic, uh, but the, the inorganic opportunity being folded inside of the organic build is the likely way. Uh, we are going to go

There are no further questions at this time.

Ladies and gentlemen, Thank you everyone. You may now disconnect, and have a great day.

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.