Morgan Stanley (MS) Earnings

Management highlights

• Morgan Stanley entered 2026 from a position of strength, generated record quarter with revenues $20.6 billion and EPS $3.43, RO tangible 27%. • Wealth Management had growing durable fee-based revenues, net new assets $118 billion, fee-based flows $54 billion. • Investment bank had record revenues, well positioned to serve clients globally. • Investment management business attracted strong demand for Parametric, total client assets over $9 trillion. • Closed acquisition of Equity Zen, deployed resources to support client activity and bought back stock. • Encouraged by enhanced regulatory transparency and balance moving toward Basel finalization. • Mentioned known unknowns like AI adoption and Middle East conflict, committed to strategic lane execution

Guidance

• Expect NII to build over the course of the year, with a modest increase in the second quarter compared to the first. • 2026 tax rate expected to be between 22% and 23%, exhibiting some quarterly volatility. • Confident in organic growth opportunities assuming economy continues to grow, with ton of opportunity to put top line up and continue to carry margin

Segment performance

Wealth Management: Record revenues of $8.5 billion, PBT margin of 30.4%, net new assets of $118 billion, fee-based flows of $54 billion, asset management revenues grew to $5.1 billion, transactional revenues $1.1 billion, bank lending balances $186 billion, total client assets over $9 trillion. Investment Bank: Record quarterly revenues of $10.7 billion, inclusive of $5 billion plus in equities, investment banking revenues $2.1 billion, advisory revenues $978 million, equity underwriting revenues $396 million, fixed income underwriting revenues $742 million. Investment Management: Revenues $1.5 billion, asset management and related fees up 3% year-over-year on higher AUM, long-term net flows $3.3 billion, total AUM $1.9 trillion

Risks & headwinds

• Geopolitical uncertainty, including military conflict in the Middle East. • Higher asset prices, tight credit spreads and interest rate path uncertainty. • Cyber risk associated with accelerating AI development

Analyst Q&A

• Q: Maybe, I guess we can start with all things, private credit. So heard your prepared remarks, there were 2 things, given kind of where Morgan Stanley interacts with private credit, you had the fund that you talked about, where we had some redemptions during the quarter. But just talk to us, Ted, your perspective on what's going on with the private credit market, how does that change or inform your view on how you deal with the business? And specifically, if it's caused you to rethink how to distribute some of these products through the retail channel in wealth?

  A: Ted Pick discussed private credit as an adolescent moment, private credit as a growing sub-asset class, exposures are small, credit should perform during good economic periods

• Q: To the extent you can -- if you can help us understand the reorg that was approved by the Fed for the German bank into the U.S. entity, like what does that mean in terms of adding liquidity and there are things that you may be able to do going forward? Just how should we think about the impact of that to the P&L.

  A: Sharon Yeshaya said moved over $100 billion of assets on to the bank, allows better funding, makes more competitive, 30% of assets can be better funded from wholesale deposit rate, expect more assets, growth and competitive pricing

• Q: Sharon, was hoping you could expand around your comments on organic growth within the wealth channel. You highlighted workplace, but any additional context around that strength would be helpful.

  A: Sharon Yeshaya said workplace is becoming a bigger contributor, greater retention of assets invested from Workplace translated into NNA, seeing channel migration contributing to over $1 trillion of total assets in adviser-led strategy

• Q: That's helpful. And then sticking with Wealth. There's been a lot of discussion around client cash optimization and -- so longer term, I was hoping you guys could talk about how you think about your ability to earn NII on client cash as there are more tools available to move cash around more efficiently?

  A: Sharon Yeshaya said Wealth Management team thinking about ways to disrupt, currently offer ways to move yield-seeking cash, moving towards advice-driven model in tokenized and on-chain world

• Q: So Sharon, I was hoping you could speak to the Fed's new Basel III capital proposal. And given you should benefit from long overdue changes, notably to the G-SIB surcharge calculation removal of double accounting in the stress test, how that might inform where you could be comfortable running on CET1 longer term versus, say, the older legacy framework?

  A: Sharon Yeshaya talked about proposed Basel III capital proposal, G-SIB bucket buffer change, expect modestly up in capital, use excess capital, deployed SLR and leverage-based capital, increase RWAs; Ted Pick added firm hopes to work well with regulator to get Basel finalized

• Q: That's great. And for my follow-up, if I could just double click a little bit more into some of the organic growth opportunities. You talked about leaning more heavily into markets. We certainly saw a nice uptick in loan growth in the quarter. Just want to get a better sense as we start to look under the new proposal, what are some opportunities that might be more compelling just given the strength of your capital position that you might be more inclined to lean into here?

  A: James Mitchell said TAMs growing at 2x GDP organically, share between 10% - 15%, decisions on capital deployment around client selection, Investment Bank is global investment bank coming of age, global presence in Asia, Germany, etc., stick to strategic knitting of raising, managing and allocating capital

• Q: I'd love to circle back on some of the comments 1 you made on cash. You spoke to on-chain. I don't know if you guys saw, but a competitor in the annual report, JPMorgan put out that they're planning to reduce some of the friction on brokerage cash. Is it right that in your comments around on-chain that that's the direction you guys are thinking of going as far as reducing that friction? And then relatedly, it's -- today is the 15th tax day tends to be a big event seasonally for you in your wealth business, how should we think about cash and then net new? And what the expected impact is on that this year?

  A: Sharon Yeshaya said continue to offer clients different ways to access cash, Tax Day taxes as expected, SBL started quarter strong, lending growth continues

• Q: Ted, you spoke to an adolescent moment for private credit, which I thought was an interesting way to put it. You also flagged as a distributor, 1% of client assets in private credit, obviously, very small. But curious, but you do have great touch points across your Wealth Management business. And clearly, all the attention here is around wealth specifically given these vehicles. What are you hearing from the field around the temperature on some of these non-traded BDCs. Is the concern coming from more of the FA population or the investor side? And is there any emerging signs of looking at other asset classes besides credit?

  A: Ted Pick said private credit is a real class, spreads widened, institutional bid, FAs preach risk-managed portfolio, alts penetration 5%, asset managers will outperform others, during quarter system was better buyer of alts

• Q: Question on Wealth Management. Stocks obviously sold off several times during the quarter on AI feature announcements the customer cash sweep optimization. I think to Dan's question was one of the events about other automation tools, I think, and just potential implications on revenue models. So the market seems like it's currently weighing AI as a negative for wealth towards a risk. And I suspect you don't agree with that. So it'd just be great to hear more about your view on some of the biggest implications of AI on the business. I know you guys have been investing for a number of years here.

  A: Ted Pick said AI is friend, working with Claude mythos beta version, evolving from efficiency to productivity, co-piloting between financial adviser and client, equities business using AI, core infrastructure efficiency, secret sauce is trusted advisers

• Q: Devin Ryan: I appreciate that color. As a follow-up, I want to touch just on Asia, 45% of the firm sequential revenue improvement came from Asia. It's only 16% of firm-wide revenues. I know a lot of that delta is from prime brokerage, but can you just expand a bit on the momentum in Asia? How sustainable is it further growth opportunity in the region, just given the big step-up we've been seeing here?

  A: Ted Pick said Asia strategy integrated banker and sales trading, deeply sconced in Japan with MUFG, world-class wealth business in Hong Kong, doubled down on Korea, Taiwan, India, region has leadership position, expect M&A and hybrid activity

• Q: I wonder if we could talk about and equity pipeline for a second, usually when the markets are this strong. It's a little bit better, but I know it's building, and I know there's some really big ones out there that might -- that are talked about coming. But thought one of the interesting angles on this was also that it seems like some of these big IPOs are very partial towards having a big retail allocation. And just curious if you thought that's true, how you use E-TRADE as part of your selling process? And then just talk about the overall pipeline in general would be helpful. So appreciate that.

  A: Sharon Yeshaya said see democratization of products, acquisition of Equity Zen helps, build across different pieces, Jed and Andy laying foundation; Ted Pick said PE firms sitting on $1 trillion plus of dry powder, private companies worth multiple trillions, sponsors want to crystallize portfolio, some selection, increased bake-offs with sponsors

• Q: Can you elaborate more on the financing business within trading? I assume that's for both private credit and liquid markets, and that's just been growing so much the last year for this decade and a comment on the resiliency of that. Does that mean trading is less volatile than it used to be or if and when we get a bear market, does this shrink back down?

  A: Sharon Yeshaya said financing business is a stabilizer, durable source of revenue, looks at underlying credit and counter-party risk; Ted Pick said durability of lending business is good, leadership groups in equities and fixed income building well-governed trading business, want both durable financing revenues and activity around Morgan Stanley content

• Q: Sticking -- sticking to that topic of risk and following up on the other question. all I have are the headlines in the paper about Anthropic and the [indiscernible] model. And the article said only a few players had that model. It sounds like you said you have the beta version of the Anthropic [indiscernible] model. And again, the articles said that you guys were summing down to D.C. and that people are extremely concerned. And你说AI是你的朋友，你应该是受益者而不是受害者。但我只是想知道网络风险如何增加了，以及你现在在考虑模型时采取了哪些额外步骤（如果允许披露你所学到的内容）？

  A: Ted Pick said have regular way meetings in Washington, cyber resiliency top priority, permissioned on Claude Mythos preview, cyber risk increasing, will get better via collective efforts, AI will bring efficiency and effectiveness transformation

• Q: Sorry to prolong an already long call, but just wanted to ask one question?

  A: L. Erika Penala asked about pretax margin of 30% in wealth comp with upward pressure, should we think about low 30s as high level to sustain or potential for upward pressure. A: Sharon Yeshaya said reaffirmed 30% margin targets, constantly investing, will continue to move up margin organically