Morgan Stanley

Good morning. This is Sharon Yashaya, Head of Investor Relations. During today's presentation, we will refer to our earnings release and financial supplement, copies of which are available at morganstanley.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Please refer to our notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release. This presentation may not be duplicated or reproduced without our consent. I will now turn the call over to Chairman and Chief Executive Officer James Gorman.

Thank you, Sharon. Good morning, everyone, and thank you for joining us. The second quarter was met with a mixed market backdrop. The quarter began on a strong footing, but macroeconomic and political uncertainties affected sentiment and conviction. Despite the sharp decline in interest rates and the slowdown in global growth, the business model held up well. Collectively, we produced revenues over $10 billion, an ROE over 11%, and an ROTCE of nearly 13%. Our year-to-date efficiency ratio of 71%, below the 73% target, reflects our commitment to managing expenses tightly, given the risks to global growth. Despite the challenging environment, institutional securities results were solid, with aggregate revenues over $5 billion. Our equity underwriting franchise performed well and continued to bring new companies to markets. Issuers were opportunistic and took advantage of fertile markets when available. In advisory, M&A announcements picked up as the quarter progressed. We expect our equity franchise to remain number one globally, and fixed income results were at the lower end of our expectations. Wealth management produced record PBT and a margin of 28%, at the top end of the guidance range we gave through 2019. These results illustrate the resilience of the model. Higher asset levels and strong loan balance growth more than offset the effects of lower interest rates. Investment management had very strong second quarter results. This business has meaningfully evolved since we reorganized it approximately four years ago under Dan Simkiewicz's leadership. While results do have the potential to be lumpy in this business, obviously, To put the growth in perspective, revenues over the last 12 months are up nearly $900 million since full year 2016. Moreover, increased net long-term inflows should aid asset management fees going forward. We continue to invest in the business and look forward to sharing more about investment management in the months ahead. Turning briefly to the results of this year's CCAR exam. In late June, we announced that we will increase our quarterly dividend for the sixth consecutive year to 35 cents a share of quarter up from 30 cents a share. We also intend to increase our repurchase of common stock from 4.7 billion to 6 billion. Collectively, this represents approximately 100% gross payout. In addition to increasing our return of capital to shareholders, we're able to invest in the business and completed the acquisition of Solium in the second quarter. We look forward to continuing to work with the Federal Reserve and returning high levels of capital in future years. All in all, we produced a solid quarter in a difficult environment topped with a strong CCAR result. With that, I'll now turn it over to John to discuss the quarter in greater detail.

Thank you and good morning. In the second quarter, firm revenues were $10.2 billion, essentially unchanged from the prior quarter. PBT was $2.9 billion and EPS was $1.23. Returns were in line with our target ranges with an ROE of 11.2 and an ROTCE of 12.8%. Given the global growth outlook is uncertain, we remain focused on expenses. Total non-interest expenses were $7.3 billion. On a year-to-date basis, total non-interest expenses declined 3% and our expense efficiency ratio was 71%. Focus on our more controllable sources of spend, particularly marketing and business development and professional services, continues to help self-fund our ongoing investments, including into technology, workplace enhancements, and the integration of Solium. Now to the businesses. Institutional securities generated revenues of $5.1 billion in the second quarter, a 2% sequential decrease. Stronger performance in the Americas, particularly investment banking, was offset by relative softness in Asia. Non-comp expenses were $1.9 billion for the quarter, a 4% increase from the prior quarter. and compensation expenses were $1.8 billion, resulting in a compensation to net revenue ratio of 35%. In investment banking, we generated revenues of $1.5 billion, up 28% sequentially, with advisory, equity, and debt underwriting all improving versus the first quarter. Despite lower completed M&A industry volumes, advisory revenues increased 25%, quarter over quarter, to $506 million. Underwriting results were resilient considering the mixed backdrop. Equity underwriting was very strong, recovering from a challenging first quarter. Revenues were $546 million, up 61% sequentially. Equity volumes picked up across all regions. IPO issuance rebounded strongly as the U.S. market normalized following the government shutdown. We also witnessed a healthy pickup and follow-on activity. Fixed income underwriting revenues increased 3% sequentially to $420 million, despite lower industry issuance volumes in investment-grade bonds and leveraged loans. Overall, advisory and underwriting pipelines remain healthy. CEOs remain engaged, focusing on potential M&A across the size spectrum as an investment for future growth. Geographically, while activity in the U.S. remains strong, M&A activity in the Asia Pacific region is down notably compared to last year, driven by reduced cross-border volume. As we look ahead, macroeconomic uncertainty and geopolitical events can impact the conversion from pipeline to realized, but for now, the environment continues to support activity generally. In equity, sales, and trading, we retain our leadership position and expect to be number one globally. Revenues were $2.1 billion, increasing 6% quarter over quarter. Across products, activity peaked mid-quarter before subsiding in June. Prime brokerage revenues rose sequentially, consistent with the seasonal patterns in Europe. Client balances grew versus one quarter. Client conviction remained subdued. Cash revenues improved quarter over quarter, driven by the Americas, and derivative revenues were essentially flat. Fixed income sales and trading revenues were $1.1 billion in the second quarter. This represents a decline of 34% from a seasonally strong one quarter, which had significant structured activity, compared to a more challenging backdrop this quarter and limited structured activity revenues. Macro revenues declined sequentially. The sharp move lower in U.S. interest rates had a negative impact on the rates business. Additionally, persistent low volatility dampened FX results. While credit complex results declined sequentially, they were strong by historical standards driven by securitized products performance. Credit trading businesses benefited from robust client activity and balance sheet velocity was maintained. Commodity revenues declined quarter over quarter on lower trading results. Investments increased $113 million sequentially driven by $176 million in realized gains associated with an investment's initial public offering and subsequent mark-to-market gains on the remaining holdings subject to sale restrictions. We hold a series of strategic and business-related investments around the world in various platforms and exchanges, and this is another example of our ability to monetize these investments. Wealth management reported record revenues and pre-tax profits of $4.4 billion and $1.2 billion, respectively. The PBT margin was 28.2%, the highest margin post the acquisition. Asset management revenues were $2.5 billion, up 8% quarter over quarter, benefiting from the improved asset levels we saw at the prior quarter's end. Transactional revenues were $728 million. This represents an 11% decline from 1Q, which included large gains in our deferred compensation plan investments. Retail investors remained cautious given record market levels, sharp inter-quarter market swings, and heightened levels of uncertainty. Transactional activity remained subdued, but has been consistent over the last several quarters. Total client assets ended the quarter at $2.6 trillion, 4% higher versus the prior quarter. Net fee-based asset flows were $10 billion. Net interest income declined to $1 billion. The sequential decline was largely driven by two factors. One, Greater than expected deposit outflows due in part to tax payments, resulting in a higher cost liability mix. And two, the divergence between LIBOR and Fed funds, which impacted the spread on our variable rate loans. On a year-to-date basis, net interest income is up 2%, and including the impacts of mortgage prepayments was better than our stated expectations of year-over-year mid-signal digit growth. Looking ahead, The shape of the forward curve and our deposit mix will continue to affect NII. We now expect NII ex-prepayments in the third quarter to be largely in line with the third quarter of 2018, with potentially a more material impact in the fourth quarter if the forward curve is realized. We continue to expect loan balances to grow by mid-single digits for the full year. Loan balance growth in the quarter was healthy. Total bank lending ended the quarter at $74 billion, increasing $3 billion from 1Q on strong growth in SBLs and continued progress in mortgages. Loans have grown 6% year-over-year, reflecting deeper client engagement. Other revenues were $120 million, increasing 48% sequentially as a result of realized gains from our investment portfolio. In the quarter, These gains largely offset the negative impact of prepayment amortization on net interest income. Total expenses were essentially unchanged compared to the first quarter. Lower compensation expenses, driven by movements in our deferred compensation plans, were partially offset by seasonally higher non-compensation expenses, as well as Solium expenses and the costs related to ongoing integration. We closed the Solium acquisition on May 1st and have been pleased with the progress. We will be investing in our workplace offering for the next 18 to 24 months. This business is on very strong footing, and over the medium term, the margin will improve as revenues rise. Investment management produced very strong results. Revenues of $839 million were the highest for the segment in over five years, improving 4% sequentially. This was primarily driven by strength in investments. The business saw strong net flows, and we continue to see positive momentum in capital raising. Investment revenues of $247 million were driven by continued strong performance across our private funds, including in our private equity Asia, real estate, and infrastructure businesses. Total AUM of $497 billion increased 4% versus 1Q, with long-term AUM of $334 billion also increasing 4%. Market-related growth and positive net flows across all of our asset classes drove the higher long-term AUM. Asset management fees of $612 million were essentially flat to the first quarter. The higher management fees on the back of rising average AUM over the quarter were offset by the seasonality of performance fees. As we have mentioned before, most of any year's performance fees will be recognized in the first and fourth quarters. Total expenses were up modestly to the first quarter on the back of higher revenues. Turning to the balance sheet, total spot assets rose to $892 million as we continue to support our clients. Derivatives and lending activity within sales and trading also drove an increase in our RWAs, resulting in a decrease in our common equity tier one ratio to 16.3%. During the second quarter, we repurchased approximately $1.2 billion of common stock, for 26 million shares at $44.53, and the Board declared a $0.35 dividend per share. Our tax rate in the second quarter was 22.6%. We continue to expect our full-year tax rate will be similar to the 2018 tax rate, excluding intermittent discrete items. Looking ahead, investment banking pipelines remain healthy. Wealth management fee-based revenue should benefit from higher asset levels, and investment management remains focused on growth and delivering increased value to clients. The third quarter is off to a strong start, but we are cognizant of the typical summer slowdown, and that conviction remains lackluster compared to this time last year. The uncertainties around global growth have risen, which may impact confidence and activity levels. That said, we remain committed to our strategic objectives and expect to perform well if markets remain open and functioning. With that, we will now open the line to questions.