Morgan Stanley

Good morning. Welcome to Morgan Stanley's first quarter 2026 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. Morgan Stanley entered 2026 from a position of strength. Amidst increased geopolitical uncertainty, the firm generated a record quarter with revenues of $20.6 billion and EPS of $343. The top and bottom line results are an ongoing demonstration of the capabilities of our integrated firm in periods when clients and markets are active. The first quarter's return on tangible of 27 percent evidences the operating leverage of Morgan Stanley's business model, a leading wealth and asset manager alongside a leading global investment bank. The consistent execution of the last two years plus is the proof of Morgan Stanley's ability to deliver on a higher plane of performance against different mini and macro backdrops of uncertainty. Wealth management demonstrated continued momentum with growing durable fee-based revenues and increasing margins. Our client acquisition funnel remains unrivaled in driving industry-leading growth, with $118 billion of net new assets and $54 billion of fee-based flows. With longstanding relationships across banking and markets, the investment bank was well-positioned to serve clients around the world, underscored by a record $10.7 billion in quarterly revenues, inclusive of $5 billion-plus in equities. A well-diversified investment management business continues to attract strong demand for parametric. Across wealth and investment management, total client assets exceed $9 trillion on the road to $10 trillion plus. In the first quarter, we deployed resources to support client activity and opportunistically bought back stock. Our reported CT1 ratio of 15.1% against the capital requirement of 11.8% translates into a capital buffer of over 300 basis points. We're encouraged by this period of enhanced regulatory transparency and balance as we move through rulemaking comments toward the finalization of Basel. It's worth noting that over the last nine quarters, we've accreted $15 billion of capital. During the quarter, we also closed our acquisition of Equity Zen. As discussed in our annual letter, we remain mindful of the known unknowns of 2026, the accelerating adoption of AI at the enterprise level and the ongoing military conflict in the Middle East. Against this backdrop, our approach is one of measured confidence. Our institutional wealth clients demonstrate continued resilience and as much as ever, seek the depth and breadth of content and market access that Morgan Stanley provides. At the same time, we remain vigilant in the context of higher asset prices, tight credit spreads, and interest rate path uncertainty. We will endeavor to navigate the upcoming period with the same level of intensity and execution that has defined our performance over the last nine quarters. The end of the end of history is now at hand, and alongside accelerating AI development, we're committed to staying in our strategic lane, to execute with rigor, humility, and partnership, and to be prepared to tactically pivot when the ongoing military disruption or technology adaptation warrants. Morgan Stanley's strategy and client-centric culture is set to raise, manage, and allocate capital with excellence, to invest in our clients and technology across the integrated firm, and to grow assets and compound earnings in a capital-efficient way. Now I'll turn it over to Sharon to discuss the quarter. Thank you, Sharon.

Thank you, and good morning. The firm produced record revenues of $20.6 billion and record EPS ex-DVA of $3.43. Our ROTCE was very strong at 27.1%. The results this quarter demonstrated the strength of our integrated model and the scale of our global platform. Clients increasingly turned to our trusted advisors across the firm, particularly when market volatility became more pronounced. For the quarter, our efficiency ratio was 65%, reflecting strong operating leverage and disciplined execution as we continue to invest strategically across the firm. Improved efficiency includes $178 million of severance charges. Now to the businesses. Institutional securities delivered record revenues of $10.7 billion. Strength was broad-based across asset classes in both banking and markets and in all regions. The year began with optimism supported by solid economic growth in the U.S., significant strategic and financial assets waiting to transact. and AI-driven transformational opportunities. AI themes followed by geopolitical uncertainty and market dispersions contributed to strong client engagement throughout our quarter. Our global team across the Integrated Investment Bank led as a trusted and long-standing partner to advise clients in an increasingly complex environment. Investment banking revenues increased year over year to $2.1 billion, led by growth in the Americas. Investments in our talent are yielding results, and despite ongoing geopolitical volatility, capital market activity remains resilient and boardroom dialogue remains active. Advisory revenues of $978 million increased 74% versus the prior year, driven by higher completed activity in the Americas. Building on the momentum in the back half of last year, M&A activity broadened across sectors with notable strength in technology and industrials. Equity underwriting revenues were solid at $396 million, led by higher issuance across IPOs and convertibles compared to the prior year. Fixed income underwriting revenues were $742 million. Outperformance was driven by record issuance in the investment-grade markets on the back of higher event-driven activity. Looking ahead to the remainder of the year, investment banking pipelines remain steady, supported by ongoing strategic activity from both corporates and sponsors, and increasing needs for strategic capital formation. Our integrated investment bank remains global, diversified, and well-positioned to effectively support clients. Turning to equity, revenues surpass previous records reaching $5.1 billion for the first time. The performance reflected year-over-year growth across businesses and regions on the back of very strong levels of client activity. Our continued investment in technology is supporting scale and access across our global franchise. Prime brokerage revenues increased versus the prior year, driven by higher average balances that outperformed market indices, particularly in Asia, with investor interest across the region. Cash results increased against the prior year, driven by higher volumes across regions. Derivative results were also a standout, up versus the prior year, driven by robust client activity across products and regions. Fixed income revenues were a post-crisis record at $3.4 billion. Our performance this quarter highlights our business mix, and our ability to capture market opportunities. Micro results increased meaningfully year over year, driven by securitized products and credit corporates. Macro results were solid, reflecting declines in foreign exchange, which benefited from a more favorable trading environment last year. Results in commodities increased significantly compared to the prior year. The business navigated elevated volatility in energy markets well. benefiting from increased flow and structured client activity. Turning to wealth management. Record revenues and robust margins in the first quarter reflected the scale of our platform that continues to drive exceptional performance. Retail clients were engaged across channels. Net new assets of $118 billion, fee-based flows of $54 billion, and growth of bank lending balances all showcase that our investments supporting both advisors and clients are working. Revenues reached a record of $8.5 billion. The business delivered a PBT margin of 30.4%. Asset management revenues grew year over year to $5.1 billion, reflecting higher market levels and the cumulative impact of consistently strong fee-based flows. We are setting the industry standard in fee-based flows, generating $54 billion this quarter, a new record excluding prior acquisitions. Transactional revenues were $1.1 billion. Daily average trades reached the second highest level on record as clients remained active in volatile markets. Results were supported by ongoing demand for our diversified alternative offering. which had record sales this quarter. This was driven by significant growth in private equity and real assets, highlighting the benefits of our scaled alternatives platform. Bank lending balances increased $5 billion quarter over quarter to $186 billion, driven by securities-based lending and steady growth in mortgages. Household penetration of lending products is now at 18%. This is up from 14% just five years ago, through ongoing investments in technology, advisor and client education, and an expanded product set. Sequentially, total period and deposits grew to $419 billion, and net interest income increased to $2.2 billion. NII growth in the quarter was supported by both lending balances and higher average sweeps. which more than offset the impact of the two rate cuts in the fourth quarter. Continued growth in lending has supported the steady build in NII over the past six quarters. Looking ahead, we expect NII to build over the course of the year with a modest increase in the second quarter compared to the first. Net new assets were very strong at $118 billion. The growth showcases our diverse asset gathering capabilities. which benefited from contributions across channels. Workplace stood out as having sourced clients who continue to aggregate assets onto our platform and benefit from stock plan vesting events. Finally, while driving exceptional quarterly results, we remained focused on long-term growth opportunities. We closed the acquisition of Equity Zen, enhancing our leadership position in the private credit markets ecosystem, and further deepening market access for clients. We launched our digital asset pilot through our partnership with ZeroHash, enabling select clients to buy and sell several major digital currencies through E-Trade, and we are investing in the development of our agentic infrastructure. Most importantly, our investments in the funnel are servicing client needs and illustrating the value of advice. Since 2020, we have generated over $400 billion of new advisor-led assets from relationships that originated from either workplace or E-Trade. Today, inclusive of workplace assets on our platform prior to the acquisition of E-Trade, the total value of advisor-led assets sourced from workplace and E-Trade exceeds $1.2 trillion. This represents roughly 20 percent of our current $5.8 trillion of advisor-led assets. The scale of our client acquisition funnel is already powerful, and combined with our ability to invest in the future, uniquely positions us as a category of one. Moving to investment management, revenues were solid at $1.5 billion. Asset management and related fees that were up 3% year-over-year on the back of higher AUM were offset by declines in accrued carried interest in our private funds. Long-term net flows were $3.3 billion, driven by ongoing demand for our parametric solutions and fixed income strategies, which help offset equity flows. Total AUM now stands at $1.9 trillion. Turning to the balance sheet, Total spot assets were $1.6 trillion. We strategically deployed leverage-based capital this quarter to help facilitate client activity in our markets franchise. Standardized RWAs increased quarter over quarter as we actively supported clients. We ended the period with a standardized CET1 ratio of 15.1%. During the period, we opportunistically bought back $1.75 billion of common stock. Our first quarter tax rate was 19.6%. The lower rate was driven by share-based award conversions, which largely take place in the first quarter. We continue to expect our 2026 tax rate to be between 22% and 23%, which, similar to prior years, will exhibit some quarterly volatility. Our integrated firm has proven critical through this period. Clients are engaged, relying on our advice in an increasingly complex environment. We are well positioned to continue to support clients as they navigate fast-moving markets, and we have the capital and the resources to do so. With that, we will now open the lineup to questions.