Morgan Stanley earnings

Management highlights

- **Overall Financial & Strategic Performance** * Delivered record Q2 2026 top and bottom-line results, with $42 billion in first-half 2026 revenue, $690 in full first-half EPS, and a 27% return on tangible equity * Hit the strategic milestone of $10 trillion in total combined client assets across wealth and investment management; targets growing standalone wealth assets from $8 trillion to $10 trillion long-term * Maintains a 300+ basis point capital cushion above regulatory requirements, with $18 billion in CET1 capital accumulated over the past 10 quarters; announced a 15% dividend increase to $1.15 per share * Core strategy remains focused on being the preeminent advisor for clients raising, managing, and allocating capital, with four central pillars: strategy, culture, financial strength, and growth - **Business Development & Integration** * The integrated firm model leverages cross-business connectivity to translate institutional strength into retail wealth growth via advisor-led and E-Trade channels * The workplace channel is a high-value top-of-funnel for net new assets, with over half of Q2 2026 net new assets coming from employee stock flows from IPOs; the firm now has 20 million client touchpoints * The firm continuously evaluates inorganic acquisition opportunities, requiring strict strategic rationale and cultural fit as threshold criteria; the current bias remains toward organic reinvestment first * Gaining market share in growing core addressable markets that grow at nominal GDP+ across institutional and wealth/asset management - **Key Market Themes** * Management highlights two defining 2026 themes: accelerating enterprise adoption of AI, and the return of geopolitical competition reshaping global supply chains and capital allocation

Guidance

- Expects a modest sequential increase in third quarter net interest income - Maintains the expected full-year 2026 effective tax rate range of 22% to 23%, with continued normal quarterly volatility - Confirms no changes to long-term strategic targets during 2026; any updates to margin targets will be considered as part of the annual strategic planning cycle - Expects the investment banking activity pipeline to remain healthy, with global activity broadening beyond the Americas and sponsor M&A/exit activity selectively gaining momentum

Segment performance

Morgan Stanley reported total Q2 2026 revenues of $21.3 billion, a record level for the firm. The performance across each segment is as follows: 1. **Institutional Securities**: Record revenues of $11 billion, with a record pre-tax profit of $4.3 billion, contributing ~51.6% of total firm revenue. Within this segment: - Investment Banking: Revenues of $2.4 billion (up 58% year-over-year), with advisory revenues at $798 million, equity underwriting at $851 million, and fixed income underwriting at a record $788 million. - Equities: Record revenues of $6.3 billion, with growth across all products and regions, driven by strong prime brokerage, cash trading, and derivatives activity. - Fixed Income: Revenues of $2.5 billion, with solid performance from secured lending, credit corporates, and securitized products; the segment recorded a $152 million mark-to-market loss on corporate loans held for sale. 2. **Wealth Management**: Record revenues of $8.9 billion (pre-tax profit of $2.7 billion), contributing ~41.8% of total firm revenue. Total client assets reached $8 trillion, with a record $148 billion in organic net new assets, $3 trillion in fee-based assets, 30.5% pre-tax margin, $9 billion in loan growth, and net interest income of $2.3 billion. 3. **Investment Management**: Revenues of $1.6 billion (up 6% year-over-year), contributing ~7.5% of total firm revenue. Assets under management (AUM) reached a record $2 trillion, with $7.5 billion in long-term net inflows driven by demand for alternatives and fixed income strategies; Parametric, a key differentiator, holds over $760 billion in AUM.

Risks & headwinds

- Geopolitical competition and shifting regional dynamics are reshaping supply chains and capital allocation, creating unknown market and operating conditions - The AI investment cycle is still early, with potential for periods of over-investment, poor capital allocation, and unforeseen bottlenecks in technology, power supply, and chip innovation that could alter projected growth trajectories - Capital market and IPO activity tied to the workplace channel naturally ebbs and flows with market conditions, creating variability in quarterly net new asset growth - Potential for froth in the fast-growing AI CapEx cycle, echoing prior market cycles like the dot-com boom and 2021 SPAC boom that could lead to eventual corrections - Market competition for workplace channel wealth management business from smaller RIAs using aggressive pricing

Analyst Q&A

• Q: Is the current strong net new asset flow from Morgan Stanley's workplace channel peaking, and what is the long-term growth outlook for the channel? What is the path for wealth management pre-tax margins over the medium term?

  A: The workplace channel is a long-term growth opportunity, not a mature growth driver. Flows from IPOs ebb and flow with market activity, but the channel has a large untapped pipeline including 401(k) assets and other workplace savings products. The firm is continuing to invest heavily in client retention and referral capabilities to convert new workplace clients to full advisory relationships. Management has not changed medium-term margin targets, is comfortable with current plans, and will only update targets after full consideration during annual strategic planning; margin will fluctuate with activity levels, and the priority is continued growth of the business over hitting specific margin numbers.

• Q: What is the scale of the projected AI CapEx super cycle, and how much capital is expected to be invested over time?

  A: Forecasts for global AI data center CapEx have risen sharply, from an end-2025 projection of $575 billion for 2026 to a current actual run rate of ~$850 billion; 2027 projections have increased from $700 billion to $1.3 trillion, and 2028 is projected at $1.5 trillion. Based on the historical pattern of ten-fold compute capacity growth per major tech cycle, the total cumulative AI compute investment over 10 years could reach ~$10 trillion, meaning the cycle is only 10-15% complete today. It is still very early in the cycle, and projections are subject to major changes based on chip innovation, geopolitics, and supply chain constraints. Morgan Stanley is well positioned as a capital raiser, advisor, and allocator for this cycle.

• Q: How does Morgan Stanley compete with smaller, lower-priced RIAs for workplace channel wealth management business?

  A: Morgan Stanley's integrated firm model creates a unique competitive advantage that smaller firms cannot match. The firm builds relationships at the corporate level first via investment banking and other institutional services, which gives it access to employee flows that smaller firms cannot secure. It also offers a full range of financial advice, wellness programs, and a broad suite of investment products including alternatives that smaller players cannot provide, paired with technology-enabled matching between clients and advisors. This full-service value proposition is far more robust for long-term client relationships than aggressive pricing alone.

• Q: What is the current state of the investment banking pipeline, including geographic breadth and sponsor activity?

  A: Current pipeline volumes are still below historical peak levels, leaving room for further growth. Activity has broadened beyond the Americas, with growing pipelines in Asia and other international regions. After starting the current cycle driven by debt issuance, activity has now expanded to equity underwriting and strategic advisory. Sponsor activity is still building, with a growing IPO exit pipeline and increasing momentum as the exit environment improves. Overall, the backdrop is very favorable for M&A and IPO activity, driven by pent-up demand, AI-related strategic restructuring, regulatory normalization, and a strong economy.