Morgan Stanley

Good morning. Welcome to Morgan Stanley's fourth quarter and full year 2024 earnings call. On behalf of Morgan Stanley, I will begin the call with the following disclaimer. This call is being recorded. During today's presentation, we will refer to our earnings release, financial supplement, and strategic update, 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 and strategic update. Within the strategic update, certain reported information has been adjusted as noted. These adjustments were made to provide a transparent and comparative view of our operating performance. The reconciliations of these non-GAAP adjusted operating performance metrics are included in the notes to the presentation or 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 Ted Pick.

Good morning and thank you for joining us. First, we would like to acknowledge our colleagues, clients, shareholders, friends and family in Los Angeles. Our hearts go out to all those impacted and dealing with the horrific devastation from the wildfires. We're grateful to all the firefighters and first responders. We are thinking of you. Over the last several years, we've been faced with two central themes. One, the end of financial repression, namely the passing of the era of ultra-low interest rates and the reemergence of inflation. And two, the end of the end of history, with the resumption of geopolitical uncertainty. These paradigm shifts, juxtaposed against renewed investor and corporate confidence, present opportunities to support clients with exceptional advice and market access. Morgan Stanley is well-positioned to execute against these opportunities. The firm's consistent execution is demonstrated by the cadence of top line and bottom line in 2024. Revenues across the four quarters of $15.1 billion, $15.0 billion, $15.4 billion, and $16.2 billion, and earnings per share of $202, $182, $188, and $222. The fourth quarter was a top-line record with the highest earnings per share in over 15 years, capping off one of Morgan Stanley's strongest years. For the full year, the firm delivered a return on tangible of 19% and earnings per share of 795, making significant progress toward our long-term goals. The results reflect consistent, durable earnings across the firm, evidencing that Morgan Stanley can deliver during this period of continued macroeconomic and geopolitical uncertainty. As we do every January, let's begin with our 2025 strategic update entitled Four Pillars of Morgan Stanley, the Integrated Firm. The slides can be found on our website. On slide three, we introduce the four pillars of Morgan Stanley that support our integrated firm. Strategy, culture, financial strength, and growth. Strategy is about consistently serving our clients and raising, managing, and allocating capital. Culture is about rigor, humility, and partnerships. Financial strength is about strong capital and liquidity alongside durable earnings. And growth is about smart, strategic investments across the firm which generate new opportunities to capture client share. The investment thesis for Morgan Stanley rests on our ability to deliver the integrated firm supported by these four pillars. Slide four. First, to reiterate, Morgan Stanley's clear strategy to raise, manage, and allocate capital for corporations individuals, asset managers, and asset owners around the world. In the past year, our engagement advice across the full range of institutional and individual clients drove results. Slide five. Morgan Stanley culture is defined by rigor, humility, and partnership. The leadership group on the operating and management committees have an average tenure at the firm of more than 20 years, many of them across business segments and regions. More broadly, Our leadership body of 2,312 managing directors, 173 of whom we recently promoted to the partnership, have been with Morgan Stanley for an average of 15 years. 30% of our managing directors have been at the firm for two decades. Our partnership is defined by Morgan Stanley leaders who embody this homegrown culture, joined by acquisition and lateral talent who bring an incremental skill set to the platform. Morgan Stanley's culture of first-class business in a first-class way, forged over many years of trial and success, is a competitive advantage and will contribute to the success of the integrated firm. Slide six highlights our position of financial strength, the third pillar of the integrated firm, and the output of a clearly defined strategy and a tightly knit culture. Our consistently strong capital position over recent years is a standout. In 2024, We accreted over $5.5 billion of CT1 while continuing to return capital to our shareholders. We will continue to prudently grow the dividend, continue to invest in each of our three businesses and across our infrastructure, and continue to opportunistically repurchase the stock. In 2024, we effectively deployed capital to support clients and translated that into earnings growth. High capital levels protect us in challenging climates and sustain us for long-term growth. Slide seven brings us to the fourth pillar of the strategy, revenue and earnings growth. Earnings expansion in 2024 reflects a return on multi-year investment to support clients. We will continue to invest heavily across the firm, in our talent, our clients, in E-Trade and in parametric, in our bank, across resiliency and technology and infrastructure, and in the development of the integrated firm. In the past year, expense growth was tempered by our focus on rolling off initial integration spend and taking opportunities to consolidate our real estate footprint. Investments for growth will continue to be supported by ongoing discipline prioritization of our expense base. Slide 8. The last six years show a step function change in the firm's growth across our businesses. In the wealth and investment management segments, combined revenues have grown from $20 billion to $34 billion, and total client assets have nearly tripled to $7.9 trillion. This growth has been achieved both by way of acquisition and through organic execution. You will also note that institutional securities wallet share has grown by nearly 100 basis points. These results reflect not only constructive markets, but also a sharpened focus on key client relationships and an expanded coverage of corporates and asset managers. Morgan Stanley Scale positions us over the long term to deliver growth in each of our three business segments. We win both through an expanding denominator of global securities, banking, wealth, and investment management activity, and by increasing our numerator, as in our wallet share in each segment. In short, we seek to gain durable share in the secular growth businesses in which we participate. Slide nine goes a level deeper into institutional securities. First, the growth in institutional security has been both broad-based and crucially is global. It is important that we are relevant in all the major regions around the world. Amidst geopolitical and interest rate uncertainty, each region grew revenues by roughly 20% in 2024. These results follow multiple years of investment in talent and leadership, as well as efficient and disciplined RWA growth. In 2024, we saw institutional securities deliver an operating margin of 31% and revenue growth that was significantly higher than our RWA growth. We are in a leadership position and can offer trusted advice and market access into the investment banking new issue and M&A cycle which just lies ahead. Slide 10. In wealth management, investments in our self-directed and workplace channels drive our differentiated client acquisition funnel. Today, With our expanded offering, we reach over 19 million relationships and have added net new assets of over 250 billion in each of the past two years on track to delivering 10 trillion plus of total client assets. An important indicator of wealth management momentum is fee-based flows, which reached an exceptional 123 billion in 2024. Delivering on new relationships and net new asset growth creates opportunities for our team of world-class financial advisors to tap into the integrated firm for their clients. Slide 11 highlights the breadth and tenure of wealth management's client relationships. As 60% of advisor-led assets are associated with clients who have an average duration of 20 years, we retain 99% of our clients reflecting their enduring trust in Morgan Stanley. The slide illustrates our multi-channel model, which continues to drive new assets to the platform. Thirty percent of our advisor-led assets are associated with clients who have a Morgan Stanley relationship of less than 10 years, and 10 percent of advisor-led assets are with clients of less than two years. The client acquisition funnel supports durable growth. Namely, as clients mature with our financial advisors, they become the foundation for the continued growth of recurring fee-based revenues. Slide 12. In investment management, we continue to focus on the secular growth areas of customization and alternatives. Our industry-leading parametric platform, inclusive of Overlay, has grown to $575 billion. In alternatives, our investable assets have more than doubled in size to $240 billion. Investments in these secular growth areas have brought more balance to our investment management business and supported fee-based revenues. Additionally, the integrated firm, particularly the relationship with wealth management, continues to benefit the investment management platform with the enhancement of retail-oriented distribution offerings and additional product capabilities. Slide 13, an area of investment is in the incremental growth of our U.S. banks. Since 2018, the firm has significantly grown deposit balances and continues to source deposits from wealth management clients with an expanded product offering. On the asset side, we will continue to grow our wealth management lending capability by covering clients holistically as their financial needs evolve. In addition, we will continue to utilize the bank platform to support growth in eligible institutional businesses. As we continue to grow our capabilities across the integrated firm, we are well positioned to provide a full suite of solutions to our clients. Slide 14. A dividend that is aligned to the growth of fee-based earnings has been a leading priority. Our durable results demonstrate consistent execution of our strategy, and we have raised our quarterly dividend by 7.5 cents for three years in a row to 92.5 cents per share. Slide 15. As you have heard us discuss during the past year, the Integrated Firm brings together our world-class wealth and investment management franchises with our world-class institutional securities franchises. We are consistently strengthening the pillars underlying the integrative firm to deliver on our strategic goals. Across the integrative firm, Morgan Stanley is relevant to our clients, spanning from the advice dispensed in corporate boardrooms to our financial wellness programs for that company's employees. We're also the premier holistic partner to asset managers, partnering with them to grow their businesses and to generate alpha. we can deliver institutional capabilities to our clients alongside sophisticated wealth management advice and distribution in an integrated service model, and in so doing, be mindful of potential conflicts. To open 2025, we have formalized the integrated firm by positioning leadership talent at the center of client coverage, integrated data, risk management, and infrastructure to drive growth as we serve more clients across their full suite of needs. This effort will be led by Mandel Crawley, a three-decade Morgan Stanley executive, and a member of our operating committee. Together with co-presidents Dan Simkowitz and Andy Saperstein, the integrated firm organization is aligned to scale client opportunities across Morgan Stanley. Slide 16. The Morgan Stanley investment thesis is robust. In 2024, we delivered top-line and bottom-line strength and consistency. The full year results are strong relative to our long-term firm-wide goals. We ended 2024 with total client assets at $7.9 trillion, wealth management pre-tax margins of 27 percent, a firm efficiency ratio of 71 percent, and a return on tangible of 19 percent. Of note, we added a new goal, to achieve durable wallet share gains and institutional securities. The additional metric for institutional securities is an appropriate reflection of the expected contribution of this business segment to the firm's growth narrative. The key word is durable. There will always be market and business cycles in each of these businesses. Morgan Stanley's trusted relationships over the very long term lead to superior results. Against the four pillars of strategy, culture, financial strength and growth, delivering the integrated firm is foundational to durable earnings growth and 20% returns through the cycle. Thank you. Now, Sharon will review our fourth quarter and annual results. Then together, we will take your questions.

Thank you, and good morning. The firm produced revenues of $61.8 billion in 2024. and ended the year with fourth quarter revenues of $16.2 billion. For the full year, ROTCE was 18.8% and EPS was $7.95. For the fourth quarter, ROTCE was 20.2% and EPS was $2.22. The full year efficiency ratio was 71.1%. Improved efficiency not only demonstrates our ability to grow revenues, but also to prioritize our controllable spend. Occupancy and equipment costs held flat, benefiting from the prior year's consolidation of our real estate footprint. During 2024, we took real estate charges of $62 million, which impacted full-year EPS by 3 cents. Professional services declined year over year, aided by the roll-off of integration-related expenses and discipline across project spend. These savings helped self-fund investments across infrastructure to support growth, such as expanding data centers capacity, renovations, and technology modernization efforts. Self-funding investments remains a priority. In the short run, similarly sized additional modernization efforts focused on decommissioning legacy technologies may result in higher amortization costs. This, alongside business-enabled innovation and process optimization with AI, should support the firm's future efficiency path. Now to the businesses. Institutional securities delivered very strong annual results across business and regions, demonstrating the high-quality breadth and depth of our world-class global franchise. Full-year revenues of $28.1 billion included our highest reported equity revenues and the highest results across combined equity and fixed income markets. The strong annual performance showcases our global footprint and our ability to capture client share amidst an increasingly constructive backdrop. Fourth quarter revenues were $7.3 billion as markets remained active, bucking the typical seasonal flow down. We supported clients throughout the quarter and ended the year with momentum. Investment banking revenues were $6.2 billion for the full year, reflecting growth across regions and products. 2024 commenced with strong debt underwriting activity. followed by M&A announcements that picked up in the second half and ended with increased equity underwriting activity, as the IPO market posted its highest volumes since 2021. Fourth quarter investment banking revenues were $1.6 billion. Results were largely driven by accelerating strength in equity underwriting, as follow-on and IPO issuance saw meaningful improvements over the comparison period. We also saw corporates and sponsors take advantage of constructive markets in the quarter. Advisory revenues improved year over year on higher completed M&A transactions. Looking ahead to 2025, our M&A pipelines are healthy and diversified, outpacing recent years. Financial sponsors are joining corporates to drive activity, evaluating exit opportunities for long-held assets. CEO and boardroom confidence continues to improve as valuation stabilized and financing markets remain strong. Our business is well positioned for strong continued rebound in deal-making activity. Turning to equity, we continue to be a global leader in this business, evidenced by record full-year revenues of $12.2 billion and These results reflect year-over-year growth across regions with record performance out of Asia, demonstrating the importance of having a global footprint. Full-year results were supported by increased prime brokerage balances and our agility as we navigated the market well. Revenues were $3.3 billion in the fourth quarter. Following the U.S. elections, clients re-risked quickly given shifting market dynamics. Additionally, third quarter strength in Asia carried into the fourth quarter with renewed investor interest across the region. Prime brokerage revenues were a record for the business as clients remained engaged and balances rose to peak levels. Cash results increased year over year, consistent with higher levels of client engagement and volumes. Derivative results increased versus last year's fourth quarter on the back of higher activity across a variety of products, in line with improved risk appetite from clients. Fixed income revenues were $8.4 billion for the full year, driven by consistent quarterly performance across the businesses. The full year results demonstrate our multi-year efforts to recenter our fixed income business around the integrated firm. Improved trading performance, growth in durable lending revenues, and servicing corporate and sponsor relationships all contributed to results. Quarterly revenues were $1.9 billion driven by credit products and commodities. Micro revenues were above historical quarterly averages Results were driven by securitized products, which benefited from higher loan balances and an increase in securitization activity. Macro performance was relatively flat versus the prior fourth quarter. Commodity revenues improved year over year. Results were led by our North America power and gas business, where structured opportunities for corporate clients leveraged the integrated firm. Turning to ISG lending and provisions. For the full year, ISG provisions were $202 million and $78 million for the quarter. The quarterly provision was driven by portfolio growth and a build in a handful of individual assessments. For the full year, ISG net charge-offs were $210 million. For the quarter, net charge-offs were $62 million, primarily related to several commercial real estate loans. which were largely provisioned for in prior quarters. Turning to wealth management. 2024 was a strong year for wealth management. Four-year highlights include records, revenues of $28.4 billion, pre-tax profit of $7.7 billion, and a reported margin of 27.2%. The strength of our scaled and differentiated client acquisition funnel continues to set us apart. Fee-based flows were $123 billion, exceeding $100 billion for the fourth consecutive year. Clients continue to seek Morgan Stanley's advice, supporting our thesis that as assets move through the funnel, incremental revenue growth and margin expansion will follow. For the fourth quarter, revenues were $7.5 billion, and the reported PBT margin was 27.5%. DCP and real estate-related charges negatively impacted the quarterly margin by approximately 140 basis points. Asset management revenues in the quarter set a new record of $4.4 billion, showcasing the progress we have made to durable fee-based revenues. With each quarter this year, asset management revenues saw sequential improvement, powered by constructive markets and consistently strong fee-based flows. Fourth quarter fee-based flows were $35 billion. Importantly, over the last two years, we have seen an increase in the number and the pace of assets migrating from advisor-led brokerage accounts to fee-based accounts. We remain an industry leader in organic growth. Net new assets for the quarter were $57 billion. Full year NNA of $252 billion represents approximately 5% annual growth of beginning period assets. This year, our advisor-led channel drove the results, benefiting from both existing clients and new clients coming to the firm. Transactional revenues for the quarter were $1 billion, Excluding the impact of DCP, transactional revenues represent the highest level of activity we have seen since the peak in 2021. Higher retail engagement in equity-related products and demand for alternative products supported results. These revenues will continue to benefit from the breadth and the depth of our growing alternatives platform. Bank lending balances were $160 billion. Loan growth of $4 billion was driven by securities-based lending, where we saw demand for new lines and a decline in the pace of paydowns. Total deposits increased 3% sequentially to $370 billion, driven by higher sweep balances. End-of-period sweep deposits have increased for two consecutive quarters, Supporting the view that as rate dynamics change and markets turn to be more constructive, sweep balances will be increasingly transactional in nature. While clients deployed more sweep cash in the rising markets, particularly in December, balances held strong as clients showed less rate sensitivity with their transactional cash. Net interest income was $1.9 billion in the quarter, The sequential increase was primarily driven by higher sweeps. Looking ahead into 2025, the combination of a more stable deposit mix, higher lending balances, and the rate outlook suggests that first quarter NII should not fluctuate materially from our fourth quarter results. We are intently focused on driving additional growth across channels. In our advisor-led channel, our effectiveness in deepening relationships is evidenced by our consistently strong fee-based flows. In workplace, our recently announced partnership with Carta puts us at the center of new client stock plan opportunities as private companies consider going public. And in self-directed, the number of active traders on the E-Trade platform grew. ending the year at levels higher than 2022. Moving to investment management, the business reported annual revenues of $5.9 billion and quarterly revenues of $1.6 billion. Our AUM reached a new peak at year-end of $1.7 trillion, supported by market gains and net inflows. Long-term net inflows were $4.3 billion in the quarter, driven by continued demand for our fixed income strategies and parametric customized portfolios. This brings 2024 long-term net inflows to $18 billion. Within alternatives and solutions, parametric remains a key differentiator for Emsom. Growth of the brand will be supported by investments in technology. ongoing education for retail clients on the benefits of customization, and tailored solutions for asset managers. Liquidity and overlay services had inflows of $67 billion on the back of strong fund performance and seasonality, some of which may reverse in the first quarter. Fourth quarter asset management and related fees of $1.6 billion increased 11% versus the prior year. driven by higher average AUM. As a reminder, performance fees are recognized on an annual basis, largely in the fourth quarter, which drove the increase sequentially. Quarterly performance-based income and other revenues were $88 million. Gains were concentrated in infrastructure, U.S. private equity, and private credit. In parallel with wealth management, MSIM is helping to deliver our asset-led strategy. Our efforts to build a business that is well diversified and focused on secular growth areas, as well as global opportunities, gives us confidence to drive incremental growth. Turning to the balance sheet, total spot assets were $1.2 trillion. Over the course of 2024, we demonstrated velocity of resources. Standardized RWAs declined sequentially to $473 billion, driven by year-end seasonality and market dynamics. Lower RWAs at period end have already begun to reverse as we enter a new calendar year. During the year, we accreted over $5.5 billion of common equity Tier 1 capital. and our standardized CET1 ratio ended the year at 15.9%. For the full year, we bought back $3.3 billion of common stock. Our tax rate was 23.1% for the full year. The quarterly tax rate was 24.1%, reflecting the level and the mix of earnings. We expect our 2025 tax rate to be approximately 24%, and consistent with prior years, we expect some quarterly volatility. As we look ahead into 2025, our franchise is well positioned for growth, exiting the year with momentum across all of our businesses with a strong capital position to invest in our clients and our businesses. We enter the year with record asset levels healthy and diversified pipelines, an engaged and institutional retail client base, and a strong global brand. We are focused on disciplined execution as we progress towards our goals. With that, we will now open the lineup to questions.