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    MS
    Earnings call· Mar 2025(Q1 FY25)

    MORGAN STANLEY MS

    Apr 11, 2025 Source

    Executive summary

    Morgan Stanley Q1 FY25 — Record Revenues and EPS Driven by Institutional Securities and Wealth Management

    Morgan Stanley delivered record Q1 FY25 results, demonstrating resilience and strength across its integrated firm despite an uncertain macro backdrop marked by geopolitical and trade policy shifts. The firm's diversified model, particularly strong performance in Institutional Securities and Wealth Management, enabled it to navigate market volatility and continue client engagement, while maintaining a robust capital position and focusing on long-term strategic investments.

    Highlights

    5

    • The Firm delivered record revenues of $17.7 billion.

    • Reported record EPS of $2.60.

    • Achieved a strong return on tangible common equity (ROTCE) of 23%.

    • Wealth Management added $94 billion in net new assets, representing a 6% annualized growth rate.

    • Equities revenue reached a record $4.1 billion, increasing 45% from the prior year.

    Concerns

    4

    • Investment Banking activity was muted, with equity underwriting revenues at $319 million, due to market volatility and uncertainty.

    • The firm incurred $144 million in severance charges related to performance management and business alignment.

    • Net charge-offs were $23 million, primarily related to commercial real estate loans in the office sector.

    • Fixed Income macro revenue declined slightly as tighter credit spreads limited secondary market opportunities.

    Guidance & targets

    3
    CategoryTargetConfidence
    Net Interest Income (NII)
    modest decline
    medium materiality
    Medium
    Investment Banking Pipelines
    remain robust
    high materiality
    High
    Net Interest Income (NII) Driver
    deposit mix will remain the key driver
    medium materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Institutional Securities
    Delivered a record quarter driven by the breadth of capabilities and geographic reach, particularly in the equity franchise and Asia. Strength in fixed income underwriting offset equity underwriting. Equities saw strength across the client franchise, with high client activity amid a more volatile trading environment. Provisions reflected portfolio growth and a cautious outlook, with net charge-offs primarily from commercial real estate loans.
    Investment Banking Revenue: $1.6 billionAdvisory Revenues: $563 millionEquity Underwriting Revenues: $319 millionFixed Income Underwriting Revenues: $677 millionEquities Revenues: $4.1 billionEquities Revenues YoY Growth: 45%Fixed Income Revenues: $2.6 billionOther Revenues: $692 millionProvisions: $91 millionNet Charge-offs: $23 million
    		$9 billion28%——
    Wealth Management
    Delivered very strong results across metrics, with robust net new assets supported by broad-based strength across channels. Fee-based flows remained strong, with assets migrating from brokerage to fee-based accounts and from the workplace channel. Client engagement and demand for advice increased amid heightened volatility, evidenced by strong transactional activity and unsolicited trades. The margin was negatively impacted by 174 basis points from DCP and severance costs.
    Pretax Profit: $2 billionPretax Profit Margin: 26.6%Net New Assets: $94 billionAnnualized Net New Asset Growth Rate: 6%Client Asset Levels: $6 trillionFee-based Assets: $2.3 trillionFee-based Flows: $30 billionTransactional Revenues: $873 millionTransactional Revenues YoY Growth (ex-DCP): 13%Bank Lending Balances: $163 billionBank Lending Balances QoQ Growth: $3 billionTotal Deposits: $375 billionNet Interest Income: $1.9 billion
    		$7.3 billion——27% (reported margin)
    Investment Management
    Reported increased revenues driven by higher average AUM. Long-term net inflows were primarily from Parametric and fixed income, supported by expanded distribution efforts. Outflows in Liquidity and Overlay Services were consistent with seasonal trends but more moderate than expected. Performance-based income was supported by gains in infrastructure investments.
    Total AUM: $1.6 trillionLong-term Net Inflows: $5.4 billionLiquidity and Overlay Services Outflows: $19 billionPerformance-based Income and Other Revenues: $151 million
    		$1.6 billion16%——

    Operational metrics

    28
    Adjusted EPS (sequential)
    $2.02
    Q4 FY23

    Sequential earnings reported by management.

    Adjusted EPS (sequential)
    $1.82
    Q1 FY24

    Sequential earnings reported by management.

    Adjusted EPS (sequential)
    $1.88
    Q2 FY24

    Sequential earnings reported by management.

    Adjusted EPS (sequential)
    $2.22
    Q3 FY24

    Sequential earnings reported by management.

    Adjusted EPS (sequential)
    $2.60
    Q1 FY25

    Sequential earnings reported by management.

    Return on Tangible Common Equity (ROTCE)
    23%
    Q1 FY25

    Firm-wide ROTCE for the quarter.

    Efficiency Ratio
    68%
    Q1 FY25

    Firm-wide efficiency ratio.

    Severance Charges
    $144 million
    Q1 FY25

    Related to performance management and business alignment.

    Institutional Securities Revenue Growth
    35%YoY
    Q1 FY25

    Revenue growth in Asia for the Institutional Securities business.

    Private Alternatives in Wealth Management
    $200 billion
    Q1 FY25

    Total private alternatives on the Wealth Management platform, representing 5% of qualified assets.

    Global Investment Committee Recommendation for Private Alternatives
    15%
    Current

    Recommendation for qualified investors to allocate to private alternatives.

    Adviser-Side Trading Volumes Increase
    50% to 100%larger than last 30 trading days
    Last 2 weeks

    Increase in trading volumes from the adviser side, indicating high client engagement.

    Headcount Reduction (ex-FAs)
    3%
    Q1 FY25

    Reduction in headcount excluding financial advisors, following a rigorous year-end performance review.

    Effective Tax Rate
    21%
    Q1 FY25

    Lower rate supported by share-based award conversions, which largely occur in the first quarter.

    Common Equity Tier 1 Capital Accreted
    $1.9 billion
    Q1 FY25

    Amount of CET1 capital accreted during the period.

    Common Stock Buyback
    $1 billion
    Q1 FY25

    Amount of common stock bought back during the quarter.

    Standardized Risk-Weighted Assets (RWAs)
    increasedQoQ
    Q1 FY25

    Increased quarter-over-quarter, consistent with seasonal trends and active client support.

    CECL GDP Expectation
    1.5%down from 1.9%
    End of 2025

    The quantitative metric most important for CECL perspective, showing a decrease in expectation.

    Net Charge-offs
    $23 million
    Q1 FY25

    Primarily related to commercial real estate loans in the office sector.

    Bank Lending Balances
    $163 billionup $3 billion QoQ
    Q1 FY25

    Driven by balanced demand across products, with a pickup in securities-based lending.

    Total Deposits
    $375 billionup QoQ
    Q1 FY25

    Demand for savings offerings partially offset by modest decline in sweep balances; overall movements in line with seasonality.

    Net Interest Income
    $1.9 billionup modestly QoQ
    Q1 FY25

    Modest increase quarter-over-quarter.

    Total Assets Under Management (AUM)
    $1.6 trillion
    Q1 FY25

    Total AUM at the end of the quarter.

    Wealth Management Client Assets
    $6 trillion
    Q1 FY25

    Total client asset levels across the franchise.

    Wealth Management Fee-based Assets
    $2.3 trillionunchanged compared to end of year
    Q1 FY25

    Highlighting the diversified nature of adviser-led fee-based account flows.

    Wealth Management Net New Assets
    $94 billion
    Q1 FY25

    Strong net new assets for the quarter, supported by broad-based strength across channels.

    Wealth Management Fee-based Flows
    $30 billion
    Q1 FY25

    Strong fee-based flows, supported by asset migration from brokerage to fee-based accounts.

    Wealth Management Transactional Revenues
    $873 millionup 13% YoY excluding DCP
    Q1 FY25

    Supported by higher levels of client activity and strong daily average trades.

    Industry KPIs

    1
    MetricValueDetails
    Cet1 ratio15.3%%

    Deals & partnerships

    1
    MUFGStrategic partnership in institutional and wealth contextsmulti-decade play

    Morgan Stanley intends to continue expanding its extraordinary partnership with MUFG, both in the institutional and wealth contexts, with a focus on Japan.

    Risks & headwinds

    5
    Geopolitical and Trade Policy UncertaintyNear-term to medium-term

    Muted activity in equity underwriting; deferral of strategic activity by some clients; higher structural volatility expected for a while.

    Mitigation: Leveraging global reach and depth, insights and advice; focusing on client engagement and execution capabilities; adapting to market conditions.

    Increased Risk of RecessionNear-term

    Economists are telling us the risk of recession has materially increased, but the consensus today is softer, not negative growth.

    Mitigation: Prudently planning for the longer-term horizon; maintaining financial strength and durability; focusing on client wallet and long-term operating results.

    Unclear Path of InflationNear-term

    Inflation continues to swing between declining and sticky; the forward path of prices along the supply chain to producers and consumers is unclear.

    Mitigation: Monitoring market dynamics and client activity; adapting strategies to navigate volatility.

    Commercial Real Estate (CRE) Exposure in Office SectorQ1 FY25

    $23 million net charge-offs primarily related to commercial real estate loans in the office sector.

    Mitigation: Largely already provisioned for; reflecting portfolio growth alongside a more cautious outlook.

    Regulatory Capital Uncertainty (Basel III Endgame / G-SIB Surcharge)Ongoing

    SLR has been a binding constraint; need for holistic reform considering interplay between G-SIB, SLR, and CET1 metrics.

    Mitigation: Advocating for broader regulatory reform; maintaining excess capital position and financial strength.

    What to watch in Q2 FY25

    5

    Investment Banking pipeline conversion

    Next quarter / mid-year
    Currentpipelines have not meaningfully changed since the beginning of the year and remain robust
    TargetIncreased deal execution and underwriting activity

    Why it matters

    Indicates whether client 'pause' turns into 'delete' amid macro uncertainty🌐, impacting IB revenue.

    Therefore, while the timing of📎 the deal execution remains sensitive to market conditions, there remains demand for strategic advice and capital raising.

    Q&A highlights

    6

    What factors support the continued strength in equities trading, and what variables could derail this momentum?

    Ted Pick attributed the strong equities performance to client activity across all products and regions, investments in technology, and strong leadership. He noted that a 'risk off' scenario with a weaker economy and sentiment would derail it, but currently, clients remain engaged despite market volatility, leading to continued activity.

    “It is fundamentally activity-based, the bear case would be a weaker economy, weaker sentiment, i.e., the animal spirits going to hibernation. That will be constant with lower prices, negative manager performance, and that brings lower transaction levels, lower leverage levels, lower new issue activity. But that's not where we are.”

    asked by Steven Chubak · answered by Ted Pick

    2 min read6 chapters

    Detailed Narrative

    01

    Macroeconomic Outlook and Volatility

    Management discussed the current macroeconomic environment as the 'end of the end of history,' characterized by increased political and economic unpredictability. This has led to significant overnight and intraday market volatility🌐, reflecting rapidly changing probability assessments of policy outcomes. While economists note an increased risk of recession, the consensus points to softer, not negative, growth, with an unclear path for inflation. The firm acknowledges that trade policy and its transmission effects on the real economy are still uncertain.

    02

    Capital Strength and Discipline

    Morgan Stanley highlighted its robust financial position, reporting a Common Equity Tier 1 (CET1) ratio of 15.3%. The firm has grown its equity capital base by approximately 10% over the last five quarters, demonstrating its financial strength and flexibility. This capital discipline, combined with rigorous management of risk, headcount, and investment, has contributed to consistent earnings performance, with five consecutive strong quarters.

    03

    Integrated Firm Strategy and Client Engagement

    The firm's core strategy revolves around raising, managing, and allocating capital for clients. Management emphasized that in volatile periods, clients highly value Morgan Stanley's global reach, depth, insights, advice, capital markets access, and execution capabilities. Despite some clients deferring strategic activity due to unpredictability, core segments continue to engage, reinforcing the value of the integrated firm model.

    04

    Investment Banking Pipeline Resilience

    Despite current market volatility🌐 and the deferral of some strategic activity, the investment banking pipelines remain robust and have not meaningfully changed since the beginning of the year. Management characterized client behavior as 'pausing' rather than 'deleting' strategic priorities related to technology, energy, and competitive dynamics. The firm believes that if market uncertainty🌐 can be navigated and priced in, deal execution will continue, especially given the underlying demand for strategic advice and capital raising.

    05

    Wealth Management Platform Evolution and Growth

    The Wealth Management platform continues to attract both clients and advisors, benefiting from ongoing investments in E*TRADE and the Workplace product, which added an incremental $20 billion this quarter. The platform saw broad-based strength in net new assets across all channels, including adviser-led, stock plan vesting events, positive recruiting trends, and self-directed clients. This demonstrates the value clients place on advice and the platform's diversified capabilities in a volatile market.

    06

    Regulatory Environment and Capital Reform

    Management discussed the regulatory landscape, particularly regarding the SLR ratio, which has been a binding constraint in various quarters. While welcoming SLR reform, the firm emphasized the importance of a holistic review of the entire capital regime, including the interplay between G-SIB, SLR, and CET1 metrics. They noted that current regulations don't always align well and called for a more comprehensive understanding of capital requirements.

    AI-generated summary of the company’s earnings call. Not investment advice.