Morgan Stanley

billion in earnings and an 18.6% return on capital. In institutional securities, we're beginning to see the benefits from our continued focus on our world-class investment banking franchise, with revenues up 50% year-over-year, including a 70% increase year-over-year in fixed income underwriting. In institutional equities, we are back with a $3 billion quarter. In wealth, we posted margins of 27%. And across wealth and investment management, we've now grown total client assets to 7.2 trillion, on our road to 10 trillion plus. Together, we delivered strong operating leverage. Further, on the back of the annual stress test results, we announced that we will increase the dividend by 7.5 cents for the third year in a row to 92.5 cents, reflecting the growth of our durable earnings over time. During the quarter, we built $1.5 billion of capital, and at quarter end, our CT1 ratio is 15.2%, 170 basis points above the forward requirement. Our capital position provides us the flexibility to continue to support dividend growth, support our clients, and buy the stock back opportunistically. The quarter also showed continued balance in both top line and profitability across the major segments. Wealth and institutional securities produced $6.8 and $7 billion in revenue, respectively, with earnings also roughly split between our institutional businesses and wealth and investment management. Our businesses are working closely together to maximize adjacent opportunities across the integrated firm. Across the investment bank, Navigating changes in the cycle means being deliberate around risk management and given geopolitical uncertainty where we spend our time to deliver clients solutions and to capture share. In wealth management, we continue to focus on aggregating assets and delivering strong advice. In investment management, we are investing in secular growth areas, including customization and real assets. Year to date, Annualized growth in net new assets and wealth management is over 5%, with another strong quarter of over $25 billion in fee-based flows. Strong fee-based flows support daily revenue, which on average continues to be about $100 million each day this year throughout, and show the stability and continued growth of the wealth franchise. We're well navigating the continued uncertainty around forward rate path, geopolitics, and now the U.S. political cycle, and expect those to be the themes for the balance of the year. We remain focused on our best in class talent and building out best in class infrastructure to support ongoing growth across wealth and investment management and institutional securities. I wanted to reiterate our strategy, which is clear. to advise individuals and institutions around the world in raising, managing, and allocating capital. World-class execution demands that we deliver strong earnings and returns through the cycle, that we do so while maintaining robust capital levels, and that we deliver on a durable growth narrative across the segments. And then Morgan Stanley executes on this strategy in a first-class way, blue. That's it in a nutshell. And finally, in reflecting on this weekend's assassination attempt, we share in the hope that in the months to come, we will, as Americans, find ways to unify and preserve our better selves. With that, Sharon will now take us through the quarter in greater detail. Thank you.

Thank you, and good morning. In the second quarter, the firm produced revenues of $15 billion. Our EPS was $1.82, and our ROTCE was 17.5%. Results highlight the power and scale of our integrated firm. The resilience of the U.S. economy and a more stable near-term outlook on rates supported conviction amongst clients. Institutional securities drove performance, led by strength in equity and a pickup in investment banking. Wealth management also delivered on our established strategy, reporting record durable asset management fees and strong fee-based flows. Together, improved confidence and higher client engagement, along with our focus on prioritizing investments, yielded operating leverage and profitability. The firm's year-to-date efficiency ratio was 72%. benefiting from scale and reductions in our expense base. Year-to-date expenses benefited from lower litigation expenses, the absence of back office integration-related costs and severance, as well as our dedicated effort to prioritize our current spend. On prioritization, we remain committed to client and asset growth, technology, and targeted investments to ensure robust infrastructure that supports growth and addresses ongoing regulatory expectations. Now to the businesses. Institutional securities revenues of $7 billion increased 23% versus last year, capturing the strength of the integrated investment bank across U.S. and international markets. Higher activity in Asia contributed to results. Strong performance in institutional equity, as well as debt underwriting, demonstrate the breadth of our client franchise. In our markets business, opportunities unfolded on the back of global political events and macroeconomic data. Investment banking revenues were $1.6 billion. The 51% increase from the prior year was broad-based. We continue to invest in investment banking. across talent and lending, broadening and deepening our global coverage footprint in key sectors, including financials, healthcare, technology, and industrials. These investments are beginning to have an impact as capital markets improve and activity picks up. Advisory revenues were $592 million, reflecting an increase in our completed M&A activity versus the prior year. The pre-announced M&A backlog continues to build and suggests diversification across sectors. Equity underwriting revenues of $352 million improved versus the prior year, driven by increases across most products, but remain below historical averages. From a geographical perspective, we brought a number of transactions to market in Europe and Asia, demonstrating the importance of having a strong global market footprint. Fixed income underwriting revenues were $675 million, well above five-year historical averages. Results reflect a meaningful pickup in non-investment-grade loan and bond issuance, as tighter spreads and strong CLO issuance provided opportunities for refinancing. The investment banking backdrop continues to improve, led by the U.S. The advisory and underwriting pipelines are healthy across regions and sectors. Inflation data has continued to moderate, which has helped stabilize front-end rates and support boardroom confidence and sponsor reengagement. As buyers and sellers make progress to close the valuation gap, we expect that we are still in the early innings of an investment banking rebound. Subject to changes in rate pass expectations and geopolitical developments, our integrated investment bank is well positioned to service our clients. Turning to equity. We continue to be a global leader in this business. Equity revenues of over $3 billion, up 18% compared to last year, reflect strong results across business and regions. Higher client engagement, dynamic risk management, and strength in Asia all contributed to performance. Prime brokerage revenues were strong and increased from the prior year as client balances reached new peaks. Regionally, we witnessed higher client activity in Asia and seasonal patterns in Europe. Cash results increased versus last year, reflecting higher volumes across regions. Derivative results were up versus last year's second quarter as client activity was higher and the business navigated the market environment well. Further, the business benefited from corporate activity on the back of convertible issuances, additional evidence of the integrated firm at work. Fixed income revenues of $2 billion increased year over year. Macro performance was up versus the prior year. Despite lower realized volatility, clients were engaged around elections and political events in the quarter. Micro results improved year over year, driven by the growth of our more durable revenues as we continue to support our clients with financing solutions. Solid results in commodities were in line with the prior year. Turning to ISG lending and provisions. In the quarter, ISG provisions were $54 million, driven by certain individual commercial real estate loans. Net charge-offs were $48 million, primarily related to two commercial real estate loans for which we had previously already taken provisions. Turning to wealth management. Wealth management delivered strong results, generating revenues of $6.8 billion with record asset management fees. Our PBT margin continued to make progress towards our goal, demonstrating our ability to grow and generate operating leverage through the cycle. We are delivering on our differentiated, scaled, multi-channel asset gathering strategy. Wealth management client assets reached $5.7 trillion. Moving to our business metrics in the second quarter. Pre-tax profits was $1.8 billion, up year over year, with a reported margin of 26.8%. DCP negatively impacted our margin by approximately 100 basis points. The margin demonstrates the inherent operating leverage of our asset gathering strategy. We are improving the efficiency with which we run the business. Asset management revenues of $4 billion were up 16%. That's more than $500 million in fees versus the prior year. That's driven by higher average asset levels and the impact of cumulative positive fee-based flows. In the quarter, fee-based flows of $26 billion were strong, marking the seventh consecutive quarter of over $20 billion, bringing the year-to-date fee-based flows to $52 billion. We are seeing a steady migration of assets from advisor-led brokerage accounts to fee-based accounts, evidence that investments in our client acquisition funnel are paying off. Fee-based assets now stand at $2 trillion. Net new assets were $36 billion, reflecting headwinds from seasonal tax payments. Year-to-date net new assets are $131 billion, representing 5% annualized growth of beginning period assets. Net flows will be lumpy in any given period of time and impacted by both the macroeconomic environment and business-specific factors. We believe both tax-related outflows and increased spending, particularly among high net worth clients, impacted flows this quarter. Still, our first half NNA growth remains solid. Transactional revenues were $782 million. Excluding the impact of DCP, revenues were up 5% versus last year. The increase was primarily driven by higher equity-related transactions. Bank lending balances grew by $4 billion to $151 billion, evidence that as the macroeconomic backdrop stabilizes, our lending capabilities can be met and can meet our diversified client needs. Total deposits of $343 billion remain stable, with sweep deposits down approximately $10 billion sequentially, mostly offset by growth in CDs. Net interest income was down modestly to $1.8 billion, reflecting the decline in sweeps, which was largely attributable to the seasonality of tax payments. The wealth management business continues to perform well, aggregating assets, generating fees, and benefiting from scale and our differentiated offering, consistently earning approximately $100 million a day. In the third quarter, we intend to make changes to our advisory sweep rates against the backdrop of changing competitive dynamics. The impact of these intended changes will be largely offset with the expected gains from the repricing of our investment portfolio. Therefore, third quarter NII will be primarily driven by the path of sweeps, and NII could decline modestly in the third quarter. Importantly, inclusive of these pricing changes, the rate path and our expectations around client behavior We believe that NII should inflect higher as you look out into next year. Our wealth management strategy is predicated on gathering assets, meeting our clients' lending needs, and offering advice. Asset management fees, the core of our wealth management strategy, continues to produce strong results, reaching a record this quarter. Taken together, we delivered a strong margin and we continue to work towards 30% margins over time. This quarter, we reached approximately 19 million in relationships across our three channels, and we continue to invest in order to deepen engagement. AI tools are helping advisors grow, and wealth management's partnership with institutional securities is increasing connectivity around our workplace offering. These investments have supported flows to our advisor-led channel, where average client duration is nearly 15 years and growing. The steady progress supports our journey towards $10 trillion plus in total client assets. Turning to investment management. Revenues of $1.4 billion increased 8% from the prior second quarter, supported by higher asset management revenues. Asset management and related fees were $1.3 billion, up 6% year-over-year, reflecting higher average AUM. Total AUM ended the quarter at $1.5 trillion. Performance-based income and other revenues were $44 million, as gains were driven primarily by our infrastructure, U.S. private credit, and U.S. private equity funds, reflecting our investments in secular growth areas. We recorded long-term net outflows of approximately $1 billion. We continue to see strong momentum across areas of strategic focus, namely parametric. Consistent with current industry trends, we saw outflows in our active equity strategies. Our business is well-positioned, given strength in areas of secular growth such as customization, direct indexing, and private alternatives. Our continued focus on global distribution, combined with our deep structuring and product creation capabilities, should support incremental growth. Turning to the balance sheet, total spot assets decreased $16 billion from the prior quarter to $1.2 trillion. Our standardized CET1 ratio was 15.2%. Client activity was strong and markets were open. We actively supported clients, with a focus on velocity of resources. We also grew our CET1 capital by $1.5 billion, reflecting strong earnings and continued capital distribution. The most recent stress test results reaffirm our durable business model and strong capital position. For the third year in a row, we announced a quarterly dividend increase of 7.5 cents. Having generated over $3.85 of earnings per share and an 18.6% ROTC year-to-date, we enter the back half of the year from a position of strength with a robust capital base to support clients. Investment banking pipelines are healthy and diverse. Dialogues are active and markets are open. In wealth management, strong fee-based flows and the realization of operating leverage continue to demonstrate that our strategy is working. As capital markets become more active, we see opportunities for retail clients to engage and over time deploy their cash and cash equivalent balances into fee-based products. With that, we will now open the lineup to questions.

We are now ready to take in questions. To get in the queue, you may press star and the number one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press star and the number two on your touchtone telephone. You're allowed to ask one question and one follow-up, then we'll move to the next person in the queue. Please stand by while we compile our Q&A roster. We'll take our first question from Glenn Shore with Evercore. Your line is now open. Please go ahead.