Morgan Stanley Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Overall Performance: The second quarter saw $16.8 billion in revenue, $2.13 EPS, and 18.2% ROTCE. Year-to-date, revenue was $34.5 billion, EPS $4.73, and ROTCE 20.6%. Total client assets climbed to over $8.2 trillion.
• Wealth Management: Had an excellent quarter with profits before tax at a record $2.2 billion, net new assets of $59 billion, and fee-based flows of $43 billion. Ongoing investments in the platform were highlighted.
• Investment Management: Benefited from leading parametric platforms and strong Fixed Income strategies, achieving positive long-term net flows of $11 billion.
• Institutional Franchise: Generated $7.6 billion in revenues, with equity markets business at $3.7 billion. Investment banking revenues were $1.5 billion, with equity underwriting rebounding and fixed income underwriting declining.
• Efficiency: Year-to-date efficiency ratio was 70%, driven by controllable spend, savings from space exits, self-funding investments, and technology productivity.

Segment Performance

• Wealth Management: Revenues were $7.8 billion, with pretax profit reaching a record $2.2 billion at margins of 28%+. Net new assets totaled $59 billion, fee-based flows were $43 billion, and fee-based assets stood at $2.5 trillion. Bank lending balances increased to $169 billion, and total deposits rose by $383 billion.
• Investment Management: Revenues were $1.6 billion, up 12% year-over-year. Total AUM reached a record $1.7 trillion, with positive long-term net flows of $11 billion. Asset Management and related fees were $1.4 billion, while liquidity and overlay services had outflows of $27.3 billion.
• Institutional Securities: Revenues were $7.6 billion. Equity revenues were $3.7 billion, Fixed Income revenues were $2.2 billion, and other revenues were $202 million. ISG lending provisions were $168 million, with net charge-offs of $19 million.

Guidance

• Forward Look: Constructive on the market environment, with focus on delivering durable results for clients and shareholders. Investment Banking pipelines are healthy, markets resilient, and Wealth/Investment Management are gathering assets toward $10 trillion target.
• Dividend: Quarterly dividend increased to $1 per share.
• Capital Deployment: Focused on generating returns on incremental capital, investing in growth across the Integrated Firm globally, and considering inorganic opportunities within strategy.

Risks

• Regulatory Uncertainty: Impact on profitability and capital deployment due to potential regulatory changes.
• Market Volatility: Affects investor sentiment, client repositioning, and business performance.
• Economic/Geopolitical Uncertainty: Influence on client activity, deal execution, and market stability.

Question and Answer

• Q: Incremental return on capital and regulatory backdrop A: Ted Pick discussed organic deployment in Investment Banking, Wealth Management, and markets, emphasizing operating leverage and considering inorganic opportunities within strategy.
• Q: Inorganic deals and fit with strategy A: Ted Pick stated inorganic deals must fit squarely within the strategy of raising, managing, and allocating capital for clients, focusing on tuck-in or complementary deals.
• Q: Stablecoins and tokenization A: Sharon Yeshaya mentioned active discussion of stablecoins and tokenization, focusing on understanding the landscape and technological advancements.
• Q: Lending trend through capital markets A: Ted Pick talked about regulatory normalization potentially allowing greater role in corporate lending, balancing risk and strategic capital deployment.
• Q: Inorganic opportunity and deposits A: Sharon Yeshaya and Ted Pick discussed deposits as a priority, focusing on growing and diversifying deposit base to support eligible assets on the bank.