Morgan Stanley

Good morning. Welcome to Morgan Stanley's first quarter 2025 earnings call. On behalf of Morgan Stanley, I will begin the call with the following information and disclaimers. This call is being recorded. 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. Morgan Stanley does not undertake to update the forward-looking statements in this discussion. 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, Ted Pick.

Good morning. Thank you for joining us. The firm delivered a very strong quarter with $17.7 billion in revenue, 260 in EPS, and a 23 percent return on tangible. Wealth added $94 billion of net new assets, bringing the firm total to $7.7 trillion. Equities had a record $4 billion-plus quarter, which led to strong results across institutional securities. Morgan Stanley delivered returns while supporting clients, buying back stock opportunistically and building $2 billion of capital. Over the last five quarters, we've grown our equity capital base by about 10 percent. With a CT1 ratio of 15.3 percent, our excess capital position and financial strength give us ongoing flexibility in support of clients and shareholders. It is important that we've put up five clean quarters. Our focus on clients combined with discipline around capital, risk, headcount, and investment have generated sequential earnings of 202, 182, 188, 222, and now $2.60. This was against a backdrop that was generally favorable, but one that hasn't yet seen the tailwind of the long-awaited M&A and IPO capital market cycle. Delivering an average of 20 percent returns on tangible over the last five quarters is continued affirmation of our financial goals. We've been talking for the last three years about the end of the end of history, which is to say the end of an extended period of political and economic alignment toward globalization. History now resumes, and with that comes an adjustment period where the outlook is necessarily less predictable. The stock, bond, and currency markets are exhibiting the kind of overnight and intraday volatility that reflect rapidly changing probability assessments of different policy outcomes. Economists are telling us the risk of recession has materially increased, but the consensus today is softer not negative growth. Inflation, meanwhile, continues to swing between declining and sticky. But here, too, the forward path of prices along the supply chain to producers and consumers is unclear. The simple truth today is that we do not yet know where trade policy will settle, nor do we know what the actual transmission effects will be on the real economy. As the year progresses, markets will calibrate further clarity on trade policy against the tax and deregulatory pillars of the agenda as the U.S. endeavors to rebalance the fiscal equation and assert the national interest. Given this unpredictability, some clients are deferring strategic activity while others are proceeding. Importantly, core segments of our client universe are continuing to engage. Barring the worst-case risk-off scenario, Trade and geopolitical uncertainty will be priced into the markets over time, and the raising, managing, and allocating of capital, the lifeblood of our business, will continue, as corporates and investors cannot and will not ignore their trade, energy, and technology priorities. In volatile periods, windows to deploy and reallocate capital open and close and open again. It is in such moments that clients most value Morgan Stanley's global reach and depth, our insights and advice, our capital markets access, and our execution capabilities. The Morgan Stanley of today is in a very good place. It is worth noting that we just delivered a top line and bottom line record quarter. While we are rightly focused on near-term uncertainties and disruptions in the markets, Our approach is to prudently plan for the longer-term horizon. Our strategy to raise, manage, and allocate capital for clients is crisp and it is clear. We have an experienced and stable management team and a deep bench of talent that is focused on that which we can control. We have financial strength and durability. We have a culture of rigor, humility, and partnership across our integrated firm. With a demonstrated track record of execution, and now five strong quarters in, I am confident that Morgan Stanley will navigate this moment of history's resuming with focus and intensity, and that the firm will continue to scale client wallet and drive long-term operating results. And with that, I'll turn it over to Sharon to discuss the quarter in more detail.

Thank you, and good morning. The firm produced record revenues of $17.7 billion, an EPS of $2.60, with a strong ROPSI of 23%. The results demonstrate the power of advice and supporting clients as the intermediary of capital across products and geographies, particularly during periods of uncertainty. With a longstanding global footprint, we are uniquely positioned to serve clients as they navigate global market events and quickly evolving macro dynamics. The first quarter efficiency ratio was 68%. Strong revenues and a continued focus on creating capacity to invest in longer-term initiatives contributed to results. Improved efficiency comes despite $144 million of severance charges, which were related to performance management and the alignment of our business needs. Now to the businesses. Institutional securities delivered a record quarter with revenues of $9 billion, up 28% versus the prior year. The breadth of our capabilities and our geographic reach, particularly in our equity franchise and in Asia, drove exceptional performance. Global activity among financial sponsors increased supporting a steady recovery in investment banking from trough levels. Market catalysts such as shifting dynamics in AI, uncertainty around global monetary policy, and U.S. trade debates created bouts of volatility during the quarter, leading to high levels of client activity and engagement. Against this backdrop, Morgan Stanley advised and supported clients as they rebalanced risk, consistent with our strengths, and our business model. Investment banking revenues were $1.6 billion for the quarter. Strength in fixed income underwriting offset results in equity underwriting. Advisory revenues of $563 million reflected higher completed deals across regions. Activity during this period was supported by a pickup in financial sponsor engagement and growth in mid-size deal announcements. Equity underwriting revenues were $319 million. Equity markets were largely open, but activity was muted as issuers and investors evaluated the evolving landscape, particularly in the Americas. Fixed income underwriting delivered revenues of $677 million. The result was very strong, with non-investment grade loan issuance driving out performance. Strong investor demand and tight credit spreads active issuance, providing opportunities for our business to capture share during the quarter. With tariff announcements and subsequent market volatility, excuse me, while tariff announcements and subsequent market volatility has disrupted near-term deal activity, our pipelines have not meaningfully changed since the beginning of the year and remain robust. Therefore, while the timing of the deal execution remains sensitive to market conditions, there remains demand for strategic advice and capital raising. Turning to equity, revenues were robust, increasing 45% from the prior year to a record $4.1 billion. The quarter reflects strength across our client franchise, a broad and deep global footprint, prudent risk management, and returns on our multi-year investments across products contributed to results. Globally, we helped clients remain agile amid shifting market themes. Prime brokerage continued to report strong results. Clients remain engaged and invested. Our cash business benefited from volumes increasing across regions. Derivative revenues were meaningfully up versus the prior year. The result reflects higher client activity amid a more volatile trading environment. Fixed income revenues were $2.6 billion, improving versus the prior year. An increase in flow trading activity offset fewer structured opportunities. Macro revenues increased versus the prior year. The business navigated higher market volatility well, particularly in foreign exchange, where client activity increased across products relative to last year. Micro-revenue declined slightly as tighter credit spreads limited secondary market opportunities versus the comparative period. This was partially offset by higher loan balances and an increase in securitization activity. Other revenues increased to $692 million, primarily driven by realized gains on the sale of corporate loans held for sale. Turning to ISG lending and provisions. In the quarter, ISG provisions were $91 million. This reflected portfolio growth alongside a more cautious outlook in response to the volatile macro backdrop in the first quarter. Net charge-offs were approximately $23 million. primarily related to commercial real estate loans in the office sector, which were largely already provisioned for. Turning to wealth, the business delivered very strong results in the quarter across metrics. Revenues of $7.3 billion, reported margin of 27%, $94 billion in net new assets, and consistently strong fee-based flows of $30 billion. Retail clients remain engaged. Strong transactional activity, increased unsolicited trading, and ongoing migration into fee-based accounts demonstrate client participation and the demand for advice amid heightened volatility. Client asset levels across the franchise remain strong at $6 trillion of assets. Fee-based assets were largely unchanged compared to the end of the year at $2.3 trillion. highlighting the diversified nature of the advisor-led fee-based account flows. Free tax profits was $2 billion, and the reported PBT margin was 26.6%. The margin was negatively impacted by 174 basis points related to DCP and severance-related costs. Net new assets for the quarter were strong at $94 billion. representing a 6% annualized growth rate of beginning period assets. The result was supported by Broadway's strength across channels, inclusive of elevated flows related to advisor-led clients, stock plan vesting events, positive recruiting trends, and self-directed clients. Asset management revenues were $4.4 billion, up 15% year-over-year, reflecting higher market levels and the cumulative impact of positive fee-based flows. Fee-based flows remain strong at $30 billion. Two dynamics continue to play through our results. First, fee-based flows in the quarter were again supported by assets migrating from advisor-led brokerage accounts to fee-based accounts. Second, assets migrating to the advisor-led channel that originated from the workplace channel. as these relationships grow, with an incremental $20 billion this quarter, adding to the roughly $300 billion accumulated from workplace since we expanded our channel in 2020. Transactional revenues were $873 million, and excluding the impact of DCP, were up 13% versus the prior year. The first quarter's results were supported by higher levels of client activity, evidenced by strong daily average trades that have continued to rise despite recent uncertainty. Bank lending balances increased $3 billion quarter over quarter to $163 billion, driven by balanced demand across products. During the quarter, we saw a pickup in securities-based lending balances, likely to satisfy upcoming tax obligations. Total deposits of $375 billion were up quarter over quarter, as demand for our savings offering was partially offset by the modest decline in sweep balances. Within sweeps, we saw clients consistently deploy cash into markets during each month of the first quarter. Overall deposit movements in the quarter were generally in line with seasonality and our expectations. Net interest income was up modestly quarter over quarter to $1.9 billion. Looking ahead to the second quarter, we expect a seasonal decline in sweeps related to tax payments, which would result in a modest decline in NII. However, over the course of the recent two weeks, we have seen a notable increase in sweep balances, exceeding our internal forecast. While this is likely associated with recent market uncertainty, it could have offsetting impacts to the NII in the second quarter should this continue. For the second quarter, deposit mix will remain the key driver of NII. Our wealth franchise sets the industry standard where both clients and advisors recognize the power of our platform. Clients continue to entrust us with more of their assets, reinforcing the value they place on advice. Advisor recruitment remains strong, reflecting our reputation as an exceptional place where financial advisors can grow their businesses. Looking towards the year ahead, uncertainty has increased the value of advice and our diversified capabilities. We are confident that our business will deliver durable results throughout various market environments. Moving to investment management. Reported revenues were $1.6 billion, increasing 16% versus the prior year. Results reflected higher asset management and related fees driven by higher average AUM. Total AUM ended at $1.6 trillion. Long-term net inflows were $5.4 billion in the quarter. The inflows were driven primarily by parametric and fixed income. and were supported by our efforts to expand distribution of these products. Within alternatives and solutions, parametric continues to grow as demand for customized direct indexing and tax advantage solutions remains a key source of retail client engagement. Liquidity and overlay services had outflows of $19 billion. These outflows were consistent with seasonal trends, but were more moderate than we had previously expected. Performance-based income and other revenues were $151 million, supported by gains in several infrastructure investments. Turning to the balance sheet, total spot assets were $1.3 trillion. During the period, we accreted $1.9 billion of common equity Tier 1 capital and continued to deliver to our commitment to return capital to our shareholders. buying back $1 billion of common stock during the quarter. Standardized RWAs increased quarter over quarter, consistent with seasonal trends and active support of our clients. We ended the quarter with a standardized CET1 ratio of 15.3%, underscoring our strong capital position. Our first quarter tax rate was 21%. The lower rate was supported by share-based award conversions, which largely take place in the first quarter. This quarter's results underscore the strong and consistent performance we strive to deliver in active markets. As a trusted advisor to our broad global client base, we continue to benefit from the strength of our integrated firm. Our client-driven model, combined with strong capital and liquidity, positions us to support clients as they navigate the uncertain landscape. And with that, I will open the line up to questions.