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.

Good morning, everyone, and thank you for joining us. The firm's results in the third quarter were strong. Fee-based client assets and lending balances continued to build in wealth management, contributing to a 28% margin. Institutional securities revenues were $5 billion, with solid performance across all divisions, despite a mixed trading backdrop. And in investment management, assets under management surpassed half a trillion in as strong performance continues to attract positive long-term net flows. In aggregate, the firm produced an ROE and ROTCE of 11.2% and 12.9% for the quarter. Before John takes you through our results and answers your questions, let me share a couple of thoughts. The wealth management business is powerful. At $2.6 trillion of assets, annualizing over $17 billion in revenues and margins at historic highs, the business is clearly stabilizing the firm. I am convinced there remain several meaningful avenues for growth. The biggest is we look to aggregate assets held away. Our core client segment should see significant asset growth over the next decade. Further expansion of our services across the wealth spectrum, from the highest-end family offices to employee service through Morgan Stanley at Work, provides us with a potential $4 trillion asset opportunity. Also, international opportunities, particularly in Asia, and continued growth of our loan portfolios are among the exciting opportunities that remain in this business. But the most attractive part is every incremental dollar of revenue is arriving at a higher margin than the margin of the existing business. And while you may not see this expansion over any individual quarter, over time the business will grow and the margin will expand. Our institutional securities business mix has proven to be very resilient. Against a relatively difficult trading environment characterized by some seasonality and volatile markets, we perform well. This segment made $5 billion in revenues and for the fifth time out of the last seven quarters, and it underscores the strength of our client franchise in all three lines of the business, investment banking, fixed income, and equities. We've been a beneficiary of client share consolidation to date and expect this to continue as competitive dynamics evolve. Finally, our asset management business is well positioned in the most attractive growth segments in the public and private markets with our leading active equity strategies and significant alternatives and solutions platforms. The growth in assets and profitability of the last few years are a testament to the refocus on this business. And as I said earlier, we passed half a trillion dollars in total assets with positive net long-term flows. One ongoing challenge of our continued pursuit of higher ROE performance has been the amount of equity we're required to hold, despite how we've repositioned the firm to benefit from the more stable revenue streams. To address capital, which of course drives ROE, our current constraint is the leverage ratio. As the Federal Reserve adjusts the capital framework, we expect the focus will transition to CET1, which should benefit us in the aggregate. Given global competitive dynamics, the strength of the brand, the stability of the institution, there's reason to believe we can gain share in several of our businesses. The combination of growth, stability, and potential for share gains leaves me with confidence that there remains tremendous upside here. Overall, we remain cautious today as trade talks swirl and interest rate paths continue to be debated, but expect us to look beyond the next few months and focus on continuing to enhance the stability of the franchise and growing the business. Our job is to continue to manage this institution for the long term. All of this said, I don't want to take away from the strength of the quarter, and I'll now turn it over to John to discuss the results in greater detail. John.

Thank you, James, and good morning. In the third quarter, firm revenues were $10 billion, representing the fifth quarter with revenues over $10 billion out of the last seven, and our highest third quarter in over a decade. The 2% sequential revenue decline from the prior quarter is reflective of seasonal trends. PBT was $2.7 billion and EPS was $1.27, resulting in an ROE of 11.2% and an ROTCE of 12.9%. Year-to-date ROE and ROTCE are 11.8% and 13.5% respectively. Total non-interest expenses were $7.3 billion in the third quarter. On a year-to-date basis, total non-interest expenses declined 1%, and our efficiency ratio was 72%. As we continue to invest in technology, workplace enhancements, and the integration of Solium, we remain focused on controlling more discretionary expenses, particularly marketing and business development and professional services. Now to the businesses. Institutional security revenues were strong, particularly in September. Despite a mixed market backdrop, Revenues of $5 billion were the highest for a third quarter, excluding DVA, in 10 years. Non-compensation expenses were $1.9 billion for the quarter, increasing 5% sequentially on higher volume-related costs driven by increased client activity. Our compensation-to-net revenue ratio remained at 35%. In the context of fluid markets, including trade and political uncertainty, economic growth concerns, and central bank responses, We remained focused on serving our clients while actively managing our risk. Investment banking revenues were $1.5 billion, increasing 4% sequentially. The quarter-over-quarter increase was driven by improvement in fixed-income underwriting and advisory, particularly in the Americas. Notably, fixed-income underwriting produced record revenues as issuance activity accelerated. Advisory revenues increased 9% quarter-over-quarter to $550 million. Completed M&A industry volumes increased, supported by larger strategic transactions. Underwriting results were robust. While equity underwriting saw a sequential decline, it was more than offset by the strength and share gains in our debt capital markets business. Equity underwriting revenues declined 27% to $401 million. Following a particularly strong second quarter, IPO issuance witnessed a notable decline, partially offset by convertible issuances. Fixed income underwriting increased 39% sequentially to $584 million on the strength across both investment grade and leverage loan issuance. Activity was particularly strong in September. Issuers took advantage of the rate environment and the summer backlog of event-driven transactions was executed. Overall, our pipelines remain healthy. CEOs are engaged and competent, and strategic activity is supporting both our advisory and underwriting businesses. However, conversion from pipeline to realized remains highly dependent on market conditions. In equity, sales, and trading, we retained our leadership position and expect to be number one globally. The quarter was strong with revenues of $2 billion. The 7% sequence of decline was consistent with seasonal trends. Prime brokerage revenues rose sequentially. Higher financing revenues, supported by an increase in average client balances, were partially offset by regional seasonality. Cash revenues saw a slight decline versus the prior quarter on lower global volumes. However, revenues here were resilient as we have an increased share in a consolidating market. Volatile market conditions weighed on derivatives performance. Fixed income sales and trading revenues increased 26% sequentially to $1.4 billion, driven by the strength in the credit complex. Micro results were robust across all major business lines, particularly securitized products. Activity levels were high, and balance sheet velocity remains an area of focus and has improved versus last year. While macro revenues increased sequentially, absolute performance was impacted by a challenging environment. particularly over the first half of the quarter. Sequential results benefited from increased client activity, including structured transactions. Commodities revenues improved quarter over quarter, driven by North American power and gas. Investments declined $212 million sequentially. The prior quarter benefited from realized gains associated with an investments IPO and subsequent mark-to-market gains on remaining holdings, which partially reversed in the third quarter. Wealth management revenues in pre-tax profit were $4.4 billion and $1.2 billion, respectively. The business produced a PBT margin of 28.4%, while continuing to absorb expenses related to technology investments and the Solium integration. On a year-to-date basis, the PBT margin was 27.9%. Asset management revenues were $2.6 billion, up 4% quarter over quarter, benefiting from the improved asset levels we saw at the prior quarter's end. Total client assets ended the quarter at $2.6 trillion, in line with the prior quarter. Net fee-based flows were strong at $16 billion. Fee-based assets now comprise 46% of total client assets, up from 45%. We expect a secular increase in the allocation of assets towards advisory to continue. Transactional revenues were $595 million, down 18% from the second quarter. Transactional activity remained subdued. Seasonally slower client activity, a weaker equity calendar, and negative movements in our deferred compensation plan investments impacted results. Retail investors remained cautious given the continued uncertainty around the outlook. Net interest income was $1 billion, up 3% sequentially. On a year-to-date basis, net interest income was unchanged. Excluding the impacts of mortgage prepayment expense, NII year-to-date is up mid-single digits. Loan growth was strong as balances were up 3% sequentially and 8% versus last year. We continue to see good receptivity of our lending products and expect loan balances to continue to grow at a similar pace annually. We saw stable BDP levels this quarter and continued success at raising deposits. Putting these NII components together, strong loan growth and more stable deposits will be more than offset, however, by the current and expected rate path. Total expenses were essentially unchanged compared to the second quarter despite the integration of Solium. The impact of higher compensable revenues largely offset the movements related to our deferred compensation plans. Non-compensation expenses were effectively unchanged. Our target margin is 26% to 28%. This quarter, we pierced the high end of that range. As always, there could be movements quarter over quarter, but full-year results will be solidly within our range. Investment management produced revenues of $764 million. The business saw strong and broad-based positive net flows and assets under management surpassed the half a trillion dollars. The growth story for this business remains intact. Year-to-date revenues are up 17%, and the business is running nearly a billion dollars more of revenues versus 2016 levels. The investment environment remains constructive, as investment revenues were $105 million. As we have previously said, this line has the potential to be lumpy, though we continue to see the benefits of broad-based performance across our private funds. Total AUM increased to $507 billion, of which long-term AUM was $335 billion. Positive net flows drove the higher AUM. Our equity strategies continue to deliver strong investment performance, driving net inflows, and we are beginning to see the benefits of the investments we have made into our fixed income platform with the second consecutive quarter of net inflows. Asset management fees of $664 million increased 8% sequentially. Performance fees were aided by a non-recurring realization in the quarter. Additionally, management fees benefited from rising average AUM. Turning to the balance sheet, total spot assets rose to $903 billion, driven by increased client activity, which also drove growth in RWAs. As a result, our common equity Tier 1 ratio declined to 16.2%. During the third quarter, we repurchased approximately $1.5 billion of common stock, or 36 million shares, at an average price of $41.92, and our board declared a $0.35 dividend per share. Our tax rate in the quarter was 21.4%, excluding $89 million of intermittent net discrete tax benefits. These discrete tax items added approximately $0.06 to EPS and 50 basis points to ROEs. We continue to expect our full-year tax rate will be in line with the 2018 tax rate, excluding intermittent discrete items. As we look ahead, we are cognizant of the seasonal patterns of the fourth quarter, but we are encouraged by client engagement and activity levels and are off to a good start. We are pleased with our competitive positions as the industries continue to see share consolidation, and we are executing on our growth strategies. With that, we will now open the line to questions.