Morgan Stanley

Good morning. Welcome to Morgan Stanley's second 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.

Thank you and good morning. Thank you for joining us. The second quarter unfolded with two distinct halves. The first half began with uncertainty in market volatility associated with the U.S. trade policy, and the second half ended with increasing engagement and a steady rebound in capital markets. For the quarter, the firm delivered $16.8 billion in revenue, $2.13 in EPS, and an 18.2% return on tangible, completing a very strong first half of 2025. $34.5 billion in revenue, $4.73 in EPS, and a 20.6% return on tangible. With six sequential quarters of durable earnings, 202, 182, 188, 222, 260, and 2013, Morgan Stanley results have a cadence that reflects consistently higher levels of performance as we execute our strategy through different market and macro backdrops. The results speak to the power of our integrated firm and the alignment of the firm's leadership team. With the expectation of a more constructive regulatory backdrop, we're intensely focused on generating returns on incremental capital deployment and investing for growth across the integrated firm globally. Total client assets across wealth and investment management climbed to over 8.2 trillion, reflecting our scale and gaining ground toward our target to exceed 10 trillion. In wealth, an excellent quarter. Profit before tax reached a record 2.2 billion on margins of 28% plus. Net new assets of 59 billion were strong despite higher seasonal tax payments. and fee-based flows of $43 billion demonstrate the value of advice amidst a complex environment and support durable growth of recurring fee-based revenues. Ongoing investments in our world-class platform, including investments to support our advisors, a build-out of E-Trade capabilities, and the expansion of our central workplace channel serve as an engine for future growth. In investment management, our industry-leading parametric platform as well as strong fixed income strategies, have successfully positioned this business to achieve consistent long-term inflows, generating a positive $11 billion in the second quarter. Our institutional franchise delivered revenues of $7.6 billion, supported by our leading equities markets business that reached $3.7 billion top line. Despite a slowdown in strategic and capital markets activity for half of the quarter, our multi-year investments in our client franchise and global footprint are yielding results. A resumption of investment banking activity in June highlighted the client's turn to Morgan Stanley as market windows reopen and serve as momentum heading into the second half of 2025. Boardrooms appear more accepting of ongoing uncertainty broadly, and we are leaning into our strategy to help clients navigate bouts of volatility. While we're still in the earlier stages of the investment banking recovery, The outstanding performance in equity underwriting this quarter is a positive leading indicator. Further, while there is clearly more work to do, we are beginning to see bank regulatory reform progress. The new SLR proposal and potential for CCAR reform suggest the regulatory body continues to constructively reevaluate the total capital framework. With a CT1 ratio of 15%, we are 200 basis points plus above our forward capital requirement which affords us ongoing flexibility to deploy capital. We now have a $1 per share dividend. Incremental capital deployment will range from supporting clients, growing our businesses, opportunistically buying back stock, and evaluating inorganic opportunities where there is clear strategic alignment, all through the lens of generating strong and durable returns for our shareholders. Looking ahead, we remain constructive on the market environment. Our strategy to raise, manage, and allocate capital for clients across the wealth and institutional universe is working. Amidst continuing economic and geopolitical uncertainty, we are intensely focused on continuing to deliver outstanding, durable results for clients and returns for shareholders. Sharon will now take us through the quarter in greater detail. Over to you.

Thank you, and good morning. In the second quarter, the firm produced revenues of $16.8 billion. Our EPS was $2.13, and our ROTCE was 18.2%. The market backdrop varied materially over the course of the quarter, impacting investor sentiment and prompting clients to seek advice and reposition portfolios in response to evolving trends and themes. Amid this backdrop, our business performed very well. We benefited from our multi-year investments to drive organic growth in wealth and investment management. and to support our global footprint across the integrated investment bank. Deepening partnerships across the integrated firm positioned us well to capture momentum in the quarter. The firm's year-to-date efficiency ratio was 70%. Efficiency gains remain a product of continued prioritization of our controllable spend and savings from prior space exits, self-funding investments, and driving increased productivity by leveraging technology to support the firm's strategy. Improved efficiency also comes despite higher execution-related costs on the back of elevated volumes broadly. Now to the businesses. Institutional securities revenues were $7.6 billion, supported by our equity and fixed income markets franchises. and regionally by period-over-period strength in Asia and EMEA. Results benefited from our ongoing investments in talent, global footprint, and technology, enabling us to capture activity levels and meet clients' need for advice. The underlying business's performance varied throughout the quarter. Our markets business captured client flow opportunities early on when activity levels were elevated. Investment banking paused for April and the first half of May, but activity recovered alongside rising asset levels. A rebound in performance of IPOs that had been priced earlier in the year supported prospective issuers to successfully come to market, further establishing investor and corporate confidence. As a result, the integrated investment bank ended the quarter with strength. Investment banking revenues were $1.5 billion. Equity underwriting gained momentum following multiple years of subdued activity, and its rebound partially offset the year-over-year declines in debt underwriting and advisory. Regionally, strength out of Asia Pacific was supported by a healthy mix of activity across equity products. Advisory revenues were $508 million, reflecting lower completed activity. Equity underwriting revenues of $500 million improved meaningfully versus the prior year, driven by broad-based strength across products. Despite a slowdown in April and much of May, convertibles, follow-ons, and IPO issuance all accelerated towards the end of the quarter as global issuers and investors gained confidence amid a market rebound. Fixed income underwriting revenues were $532 million. Results declined versus the strong comparative period, primarily due to lower non-investment grade issuance. The M&A backlog continues to build across regions with a thematic focus on growth, supported by healthcare and technology. With a similar focus on growth companies, our IPO pipeline is balanced between the Americas and Asia, and issuers are poised to launch, subject to open markets. We have been investing in strategic hires and corporate lending to expand and deepen our coverage footprint, and our results and recent announcements prove ongoing progress. As we continue to support clients who are increasingly accepting of uncertainty and in greater need for advice, we are well positioned to capture share as investment banking activity accelerates. Turning to equity, our franchise continues to deliver robust results with revenues of $3.7 billion, reflecting growth across products and regions. Volatility around changing trends and the eventual rebound in markets required clients to reposition, which drove heightened engagement globally. Prime brokerage revenues were especially strong, achieving a record. Average client balances rose to all-time highs, driving the strength of the financing revenues. Cash results increased versus the last year on higher volumes across regions, with strength in EMEA. Derivative results rose versus the previous year as the business actively supported clients, particularly around tariff-related market events during the period. Fixed income revenues were $2.2 billion, driven by the strength in macro products. Macro results increased versus the prior year. The business benefited from an increase in client hedging, trending foreign exchange markets, shifting interest rate expectations, and wider bid-offer spreads, particularly early in the quarter. Micro results were solid. Strength in secured lending revenues, which continue to grow on the back of higher balances, were partially offset by heightened volatility and widening credit spreads at the beginning of the quarter. Commodity results primarily reflected lower revenues in power and gas and fewer structured trades compared to the previous period. Other revenues were $202 million. The comparison period benefited from higher net interest income and fees on corporate loans. Turning to ISG lending and provisions. In the quarter, ISG lending provisions were $168 million, driven by portfolio growth. and a moderately weaker macroeconomic outlook. Net charge-offs were $19 million, primarily related to several commercial real estate loans, which were largely provisioned for in previous quarters. Turning to wealth management, the business delivered on key metrics. Strong net new assets, exceptional fee-based flows, and healthy lending growth reinforced our differentiated wealth management franchise. Revenues were $7.8 billion, inclusive of $292 million of DCP, and the margin continued to expand, showcasing the inherent operating leverage of our scaled platform. Results reflect our investments, focused on growth and our strong track record to help clients understand the value of advice. Moving to our business results in the second quarter. Pre-tax profit was a record at $2.2 billion, and the pre-tax margin was 28.3%. DCP negatively impacted the margin by approximately 70 basis points. Higher margin shows strength of our asset growth achieved by our investment-led strategy. The underlying business progressed towards our long-term goal of 30%. Asset management revenues were $4.4 billion, up 11% versus the prior year, driven by higher market levels and the cumulative impact of consistently robust fee-based flows. In the quarter, fee-based flows were very strong at $43 billion, marking a record, excluding previous asset acquisitions. Clients continue to shift assets from advisor-led brokerage accounts to fee-based accounts. and we continue to invest in overall education, technology, and product innovation to benefit clients and support ongoing asset migration. Fee-based assets now stand at $2.5 trillion. Net new assets in the quarter of $59 billion were inclusive of a $22 billion headwind from tax outflows and reflect growth across channels. Advisor-led flows were particularly strong. originating from new advisors who are attracted to the strength of the workplace, as well as assets that originated from workplace. Transactional revenues were $1.3 billion, and excluding the impact of DCP, revenues increased 17% versus the last year. Retail engagement was especially strong in April as clients responded to elevated market volatility. and activity persisted with momentum at the end of the quarter. Bank lending balances increased sequentially to $169 billion, predominantly driven by growth in securities-based lending. Steady growth in lending shows our progress in deepening client relationships by offering portfolio solutions, addressing both sides of the client's balance sheets. Household lending penetration grew across our advisor-led channel. with greater engagement from advisors and clients. Total deposits increased $383 billion, and net interest income of $1.9 billion was flat sequentially. These results reinforced continued stability in suite balances. Throughout the quarter, clients steadily deployed cash into the market, indicating confidence in the forward look. As we look ahead to the third quarter, we would expect NII to remain around recent levels, subject to changes in the policy rate. Along with $6.5 trillion of client assets, our second quarter performance demonstrates that our strategy is working, benefiting from years of sustained investment and consistent execution. Our scale positions us to continue to innovate and invest in a secularly growing market. Today, we have 20 million individual relationships across our three channels, and the opportunity to deliver incremental advice and solutions across channels and our platform remains ahead of us. Turning to investment management, the business delivered strong results with revenues of $1.6 billion, increasing 12% year over year. Total AUM reached a record at $1.7 trillion. Our franchise generated positive long-term net flows of $11 billion, bringing year-to-date inflows to $16 billion. Strong organic growth is the product of leveraging our global distribution, with a particular emphasis in fixed income. We are also continuing to see strong demand for parametric customized portfolios, especially among our wealth management client base. Asset management and related fees were $1.4 billion, driven by higher average AUM across asset classes. Performance-based income and other revenues were $118 million, largely driven by gains in infrastructure funds. Liquidity and overlay services had outflows of $27.3 billion, reflecting institutional outflows partially related to deployment into markets and corporate CapEx. Overall, we are seeing the benefits of our investments and continued focus on global distribution capabilities. By leveraging the integrated firm, we are focused on our ability to generate sustainable growth in long-term flows and fee-based revenues. Turning to the balance sheet, total spot assets increased $54 billion from the prior quarter to $1.4 trillion. Our standardized CET1 ratio stands at 15%. Standardized RWAs increased sequentially to $523 billion as we actively supported our clients. Our stress test results reflect the durability of our business model and show consistent improvement in our results over the past five years. We announced a quarterly dividend increase of 7.5 cents, bringing our quarterly dividend per share to $1.00. Our quarterly tax rate was 22.7%, reflecting our global mix and level of earnings. We expect a tax rate of approximately 24% in the second half of this year, consistent with our initial guidance. The second quarter results were strong. As we look ahead, we are entering the third quarter with momentum. Investment banking pipelines are healthy, dialogues are active, and markets have proven resilient. And wealth and investment management will continue to gather assets, with total client assets now reaching $8.2 trillion. With that, we will now open the line up to questions.