Morgan Stanley (MS) Q1 FY26 earnings call: guidance and Q&A

Asked for Ted Pick's perspective on the private credit market, its 'learning moment,' and how it influences Morgan Stanley's business, particularly distribution through retail wealth channels.

Ted Pick described private credit as having an 'adolescent moment' but emphasized its resiliency as credit performs when the economy is strong. He noted Morgan Stanley's modest exposure (1% of wealth alts, <1% of IM AUM) and highlighted net buying by sophisticated institutional clients in Q1, indicating continued interest at the right price.

“But the reality is it's credit and credit is going to broadly perform when the economy is in the kind of good shape it's in right now.”

asked by Ebrahim Poonawala · answered by Ted Pick

Inquired about the impact of the Fed-approved reorganization of the German bank into the U.S. entity on liquidity and the P&L.

Sharon Yeshaya explained that moving over $100 billion of assets to the U.S. bank entity allows for more effective funding and increased competitiveness. She noted that approximately 30% of these assets could be better funded, leading to P&L benefits starting in 2027 and enabling growth with a better funding structure.

“Basically, we moved over $100 billion of assets over the course of the quarter on to the bank. When looking at that, that will allow us to fund assets more effectively and make us more competitive, more broadly like our peer set...”

asked by Ebrahim Poonawala · answered by Sharon Yeshaya

Asked about the implications of the Fed's new Basel III capital proposal, particularly regarding G-SIB surcharge and stress test changes, and how it might affect Morgan Stanley's comfortable CET1 level.

Sharon Yeshaya stated that the proposed G-SIB bucket buffer would reduce from 3.5% to 2.2% for Morgan Stanley. While RWA inflation is expected from the Basel proposal, the firm anticipates being capital-neutral to modestly positive overall, pending finalization of all three proposals (models, G-SIB, stress testing).

“If you look at the 3.5% G-SIB bucket buffer that we were in at the end of the fourth quarter. That number in the new framework, as proposed currently would be 2.2%...”

asked by Steven Chubak · answered by Sharon Yeshaya

Questioned the market's perception of AI as a negative for wealth management and asked for management's view on its implications for the business, given Morgan Stanley's investments.

Ted Pick asserted that 'AI is our friend,' viewing it as the latest generation of technology driving continuous improvement. He highlighted its potential for efficiency (automating routine tasks) and effectiveness (enhancing financial adviser-client interactions through 'co-piloting' and 'super agents'), as well as applications in equities and infrastructure.

“AI is our friend, okay? It is just the latest generation of technology that is going to be part of the ecosystem.”

asked by Devin Ryan · answered by Ted Pick

Asked about the equity pipeline, the trend of large IPOs favoring retail allocation, and how Morgan Stanley uses E-TRADE in its selling process.

Sharon Yeshaya confirmed the trend of product democratization and the use of Equity Zen to facilitate private market transactions before IPOs. Ted Pick added that private equity firms are eager to monetize their portfolios, with increased 'bake-offs' (dual-track processes for sale or listing). He expects a 'reasonable drumbeat' of leading sponsor and company IPOs if the macro environment permits, but noted selection will be high, favoring large, high-quality companies.

“I do think that the desire for private equity sponsors to begin steadfastly to liquefy chunks of their portfolio in order to get to the next, which is to deploy capital into the next leg of the cycle. I think that has increased.”

asked by Glenn Schorr · answered by Sharon Yeshaya, Ted Pick

Followed up on AI, specifically asking about increased cyber risk with advanced AI models like Anthropic's Claude Mythos, and what extra steps Morgan Stanley is taking.

Ted Pick acknowledged that cyber risk is an increasing threat and that the firm is permissioned on Claude Mythos preview. He stated that cyber resiliency is a top priority and that the firm, along with the industry, will 'get our gloves up and take it to another level' to address the increased ecosystem risk, while still emphasizing AI's transformative benefits.

“if the ecosystem risk is likely increasing because of the quality and muscularity of the model than we do need to get our gloves up and take it to another level, and that's exactly what you'd expect, and we very much intend to do so.”

asked by Michael Mayo · answered by Ted Pick