Morgan Stanley

Thank you for joining the Morgan Stanley earnings conference. Please continue to stand by as we will be going live shortly. Thank you. Good morning. Welcome to Morgan Stanley's second 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.

Good morning and thank you for joining us. In the second quarter, Morgan Stanley again delivered top-line and bottom-line record results, with revenues exceeding $21 billion and EPS of $346, marking an exceptional first half for 2026. $42 billion of revenue, $690 in EPS, and a 27% return on tangible. Across wealth and investment management, total client assets stand at $10 trillion, fulfilling a Morgan Stanley strategic milestone. Our client acquisition funnel will continue to drive wealth management's superb performance, and with the passage of time, we seek to grow standalone wealth assets from the current $8 trillion to $10 trillion. Buoyed by active markets, our results reflect multiple years of disciplined investment and consistent execution, positioning the integrated firm to deliver strong results. Our advice-based businesses are working well together, Thank you for joining us. As institutional clients sought access to global markets, our equities franchise provided client solutions around the world, resulting in an exceptional $6.3 billion quarter. With institutional activity strong and IPO markets open, Morgan Stanley connected the integrative firm to translate institutional strength into client value through our advisor-led and e-trade channels. Wealth management added a record $148 billion in organic net new assets. Thank you very much. This business remains a diversified source of strength with parametric as an important differentiator of the integrated firm. The four pillars of Morgan Stanley, strategy, culture, financial strength, and growth remain central to how we run the firm. Financial strength is top of mind. Over the last 10 quarters, we've accreted 18 billion of CT1 capital and now have a capital cushion that is at least 300 basis points. with continuing stress test validation of our durable business model. This excess capital affords Morgan Stanley the strategic flexibility to continue to support clients globally, invest in our businesses and return capital to our shareholders. This quarter we delivered on all three of those priorities including announcing a 15% increase in our quarterly dividend to $1.15 per share. During the last 10 quarters, We have sharpened the effectiveness and connectivity of the integrated firm's core mission, which is to be the preeminent advisor to clients as they raise, manage, and allocate capital. We have a 15-year record of successfully integrating acquisitions, and we are, as a discipline, constantly evaluating potential inorganic opportunities to expand in attractive geographies, bolt on new capabilities, add new client relationships. As we've learned through hard-fought integration success, strategic rationale and cultural fit continue to be threshold criteria for any inorganic opportunity, even before we consider transaction terms. So the bar must remain high. The very good news is that we are well-placed across two major businesses, global investment banking and markets, and U.S.-dominated wealth and asset management, where the core addressable markets in the current environment are growing at nominal GDP plus, and where we continue to realize wild share gains. The integrated firm approach underscores that the organic growth opportunities right in front of us are compelling and deserve the first dollar of reinvestment. As I wrote in our March shareholder letter, two defining themes have come into sharper focus over the course of 2026. The first is the accelerating adoption of artificial intelligence, not only by consumers, but more importantly, across the enterprise. where its potential for enhanced efficiencies and productivity is only beginning to be realized. The second is the return of geopolitics as a defining force in the global economy as renewed competition among nation states and regional powers is reshaping supply chains, capital allocation, and economic prospects across our client universe. These are the known unknowns that will continue to shape the environment in which we and our clients operate. They demand disciplined execution and the agility to adapt as conditions evolve. We continue to be well-minded to proceed alongside our clients with the right combination of optimism and vigilance. Morgan Stanley enters the second half of 2026 operating from a position of strength. Our clients, retail and institutional, are seeking advice on how to respond to complicated global markets and are interested in new products and innovations. Our role as financier, underwriter, allocator is to offer our clients market access and trusted advice globally. Morgan Stanley's first half performance demonstrates our business model's operating leverage when markets are receptive and clients take action. With a clear and consistent strategy to raise, manage, and allocate capital for our clients, we continue to be intensely focused on delivering higher highs and importantly, higher lows for our shareholders through the economic cycle. Thank you, and Sharon will now take us through the quarter in greater detail. Over to you, Sharon.

Thank you, and good morning. In the second quarter, the firm produced record revenues of $21.3 billion and record EPS ex-DVA of $3.46. Our ROTCE was 26.6%. Institutional and retail client engagement remains strong throughout the quarter, and the integrated firm consistently delivered trusted advice and market access, responding to ongoing client demand. The firm's year-to-date efficiency ratio was 65%. Top-line growth and disciplined execution drove operating leverage through the first half, more than offsetting higher execution-related costs and continued strategic investments across the firm. Higher technology-driven spend relates to investments to support our infrastructure, AI-enabled efficiencies, and ongoing business growth. Now to the businesses. Momentum and institutional securities continued in the second quarter. Finance remained highly engaged. The segment delivered record revenues of $11 billion and record pre-tax profit of $4.3 billion. Results were driven by our leading equities franchise and supported by investment banking. Our longstanding global footprint and our investments in talent, technology, and research positions us well to advise clients. That strength was evident in every region contributing to the year-over-year revenue growth. Investment banking revenues were $2.4 billion. The 58% increase from the prior year reflected strength across products as momentum built across capital raising and strategic activity. Advisory revenues increased year-over-year to $798 million on higher completed activity. Revenues remain diversified across sectors, including top contributions from industrials, technology, and healthcare. Equity underwriting revenues were strong at $851 million. The significant increase versus the prior year was supported by a robust IPO market and strong follow-on and convertible activity. Fixed income underwriting revenues were a record $788 million, driven by bond issuance across non-investment grade and investment grade companies. Issuers took advantage of favorable spread environment and an increase in strategic activity supported results. The investment banking outlook is constructive and pipelines are healthy. Client dialogue is broad based across sectors and while year to date activity has been led by the Americas, global activity is building. Large corporates are executing on their strategic objectives and the need for solutions and capital continues to grow and sponsor modernization is selectively gaining momentum. Turning to equities. Our franchise delivered an exceptional quarter, with revenues reaching a record of $6.3 billion, driven by increases across all products and regions. Asia was strong, with the breadth of activity extending across the region. Active markets and technology trends serve as tailwinds, and our multi-year investments in our global franchise allowed us to prosecute greater levels of client engagement. Prime brokerage revenues rose versus the prior year, driven by higher average client balances and strong activity in Asia. Cash results were strong, led by active client engagement and higher market volumes in the Americas compared to the prior year. Results and derivatives were also very strong versus the comparative period. Investments in technology centered on building scale and dynamic risk management tools are paying off. The business was well positioned to capture global activity. Fixed income revenues were $2.5 billion, demonstrating balance across products. The cumulative growth of our secured lending business and trading discipline resulted in solid performance. Macro results were roughly flat versus the prior year. Resilience in rates offset declines in foreign exchange, where volatility traded near historic lows. Micro results increased year over year, driven by strong performance in credit corporates on the back of improved inventory management and robust primary issuance. Additionally, the cumulative growth of lending balances in securitized products further contributed to results. Commodities results improved versus the prior year, supported by higher client activity and structured transactions. Activity moderated sequentially following an exceptionally strong first quarter that benefited from energy market volatility. Other revenues reflected a loss of $152 million, largely driven by mark-to-market losses on corporate loans held for sale, inclusive of hedges. Turning to wealth management, the business generated a record of $8.9 billion in revenues, and total client assets stand at $8 trillion. The execution of our strategy, particularly our sustained investment in our client acquisition funnel, allowed us to reach more clients and deepen existing relationships. We remain the industry leader with record net new assets of $148 billion and strong fee-based flows of $39 billion. Our financial advisors Our culture of continued innovation, our ability to provide unique capabilities and products are the foundation of our business. Together, they underpin a scaled, differentiated platform with $3 trillion in fee-based assets. Further, the connectivity of our integrated firm sets us apart, positioning us to deliver for our clients. Revenues of $8.9 billion and pre-tax profit of $2.7 billion were both a record, supported by rising asset levels and robust retail engagement. The pre-tax margin was 30.5%, a reflection of the scale of our business and the intentional strategic investments for our future. Asset management revenues were $5.3 billion, driven by expanding markets, and the cumulative impact of strong fee-based flows. Transactional revenues were $1.2 billion, up 20% year over year, excluding the prior year's positive impact from DCP. Results reflect highly engaged retail clients across both advisor-led and self-directed channels. Loan growth remained strong in the second quarter with balances growing $9 billion. In a quarter with tax obligations, We saw an increase against lending of equity portfolios. Sequentially, deposits grew to $436 billion, and net interest income increased to $2.3 billion. NII outperformed on higher-than-expected sweep balances and strong loan growth. For the third quarter, we expect a modest sequential increase in NII. Lastly, net new assets were a record of $148 billion. Stock plan IPO flows represented just over half of the overall NNA this quarter, more than offsetting seasonal taxes, illustrating the strength of the workplace channel as a strong contributor to the top of the funnel. With strong capital markets, the power of our client acquisition funnel is becoming increasingly evident. Workplace brings relationships and assets onto the platform, and we are well positioned to support these new relationships. Our investments are extending our runway for growth. We continue to deliver advice and solutions to new and existing relationships, supporting the build in our fee-based assets. We are investing from a position of strength and believe these capabilities set us apart. Turning to investment management, AUM now stands at a record $2 trillion. Long-term net inflows were $7.5 billion for the quarter, driven by ongoing demand for alternatives and solutions, including parametric, as well as our fixed income strategies. Parametric remains a key differentiator, with over $760 billion in AUM today. Continued education initiatives and ongoing client demand have supported financial advisor adoption across our suite of parametric custom solutions. Revenues of $1.6 billion increased 6% compared to the prior year. Results reflect higher asset management and related fees driven by higher average AUM. Performance-based income and other revenues were $130 million. The current quarter primarily reflects net mark-to-market gains in our private funds. As we look ahead, our ongoing investments in technology, distribution, and product innovation position our diversified franchise to better serve our global client base. Turning to the balance sheet, consistent performance has generated strong capital accretion and strengthened the firm's financial position. Total spot assets grew to $1.7 trillion and standardized RWAs grew to $590 billion, supporting increased client activity. We repurchased $1.5 billion of common stock, and our standardized CET1 ratio ended the quarter at 14.8%. Reflecting the strength of our capital position, we announced a quarterly dividend increase of 15 cents, bringing the quarterly dividend per share to $1.15. While the Fed's most recent stress test does not impact our current capital requirements, It serves as further recognition of the durability of our business model. Our quarterly tax rate was 23.1%. We continue to expect our annual tax rate to be between 22 and 23%, which, similar to prior years, will exhibit some quarterly volatility. We enter the second half of the year with $10 trillion of total client assets across wealth and investment management. Together with a strong capital position and at building backlogs, the integrated firm is well positioned to provide advice and to support clients in an increasingly complex environment. With that, we will now open the lineup to questions.