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    MS
    Earnings call· Dec 2024(Q4 FY24)

    MORGAN STANLEY MS

    Jan 16, 2025 Source

    Executive summary

    Morgan Stanley Q4 FY24 — Record Top Line and Strong Earnings Drive Integrated Firm Strategy

    Morgan Stanley concluded FY24 with record Q4 revenues and strong full-year performance, driven by consistent execution across its integrated business segments. The firm is strategically focused on leveraging its 'Integrated Firm' model, emphasizing durable earnings growth and 20% returns through the cycle, supported by robust capital levels and disciplined investments. Management expressed confidence in a rebound in deal-making activity and continued growth in wealth management assets, despite ongoing macroeconomic and geopolitical uncertainties.

    Highlights

    5

    • Fourth quarter revenues reached a record $16.2 billion, contributing to one of Morgan Stanley's strongest years.

    • Full year 2024 Return on Tangible Common Equity (ROTCE) was 19%, making significant progress toward long-term goals.

    • Institutional Securities delivered very strong annual results with full year revenues of $28.1 billion, including record equity revenues.

    • Wealth Management achieved record full year revenues of $28.4 billion and pretax profit of $7.7 billion, with fee-based flows of $123 billion.

    • The firm accreted over $5.5 billion of CET1 capital in 2024 while prudently growing the dividend and repurchasing $3.3 billion in common stock.

    Concerns

    5

    • Real estate charges of $62 million impacted full year EPS by $0.03.

    • Fourth quarter Wealth Management margin was negatively impacted by approximately 140 basis points due to DCP and real estate-related charges.

    • ISG net charge-offs for the quarter were $62 million, primarily related to several commercial real estate loans provisioned in prior quarters.

    • Potential for higher amortization costs in the short run due to modernization efforts focused on decommissioning legacy technologies.

    • Geopolitical uncertainty and the reemergence of inflation continue to present macroeconomic headwinds.

    Guidance & targets

    6
    CategoryTargetConfidence
    M&A pipeline health
    Healthy and diversified, outpacing recent years
    high materiality
    High
    First quarter Net Interest Income (NII)
    Should not fluctuate materially from our fourth quarter results
    medium materiality
    Medium
    Full year 2025 tax rate
    Approximately 24%
    low materiality
    High
    Wealth Management margin target
    30%
    high materiality
    High
    Total client assets
    $10 trillion plus
    high materiality
    High
    Firm efficiency ratio goal
    70%
    high materiality
    High

    Segment performance

    8
    SegmentRevenueYoYQoQMargin
    Firm-wide
    Fourth quarter revenues were a top line record for the firm.
    		$16.2 billion———
    Firm-wide
    Full year 2024 revenues.
    		$61.8 billion———
    Institutional Securities
    Delivered very strong annual results across business and regions. Q4 revenues remained active, bucking typical seasonal slowdown. Operating margin for the full year was 31%.
    Investment Banking revenues: $1.6 billionEquity revenues: $3.3 billionFixed Income revenues: $1.9 billion
    		$7.3 billion——31% operating margin
    Institutional Securities
    Full year revenues included highest reported equity revenues and highest results across combined equity and fixed income markets.
    Equity revenues: $12.2 billionFixed Income revenues: $8.4 billionInvestment Banking revenues: $6.2 billion
    		$28.1 billion———
    Wealth Management
    Q4 revenues and PBT margin. Margin was negatively impacted by approximately 140 basis points due to DCP and real estate-related charges. Asset management revenues set a new record.
    Asset management revenues: $4.4 billionFee-based flows: $35 billionNet new assets: $57 billionTransactional revenues: $1 billion (excluding DCP impact)
    		$7.5 billion——27.5% PBT margin
    Wealth Management
    Full year record revenues and pretax profit. Fee-based flows exceeded $100 billion for the fourth consecutive year. NNA represents approximately 5% annual growth of beginning period assets.
    Reported margin: 27.2%Fee-based flows: $123 billionNet new assets: $252 billion
    		$28.4 billion——$7.7 billion pretax profit
    Investment Management
    Q4 revenues. AUM reached a new peak at year-end. Long-term net inflows driven by fixed income strategies and Parametric customized portfolios. Asset management and related fees increased 11% YoY.
    AUM: $1.7 trillionLong-term net inflows: $4.3 billionAsset management and related fees: $1.6 billionPerformance-based income and other revenues: $88 million
    		$1.6 billion———
    Investment Management
    Full year revenues. Long-term net inflows for 2024.
    Long-term net inflows: $18 billion
    		$5.9 billion———

    Operational metrics

    38
    Return on Tangible Common Equity (ROTCE)
    19%
    FY24

    Full year ROTCE, making significant progress toward long-term goals.

    Return on Tangible Common Equity (ROTCE)
    20.2%
    Q4 FY24

    Fourth quarter ROTCE.

    Diluted EPS
    $7.95
    FY24

    Full year EPS. The fourth quarter EPS of $2.22 was the highest in over 15 years.

    Efficiency Ratio
    71.1%
    FY24

    Full year efficiency ratio, demonstrating ability to grow revenues and prioritize controllable spend.

    Real estate charges
    $62 million
    FY24

    Impacted full year EPS.

    ISG provisions for credit losses
    $202 million
    FY24

    Full year provisions.

    ISG provisions for credit losses
    $78 million
    Q4 FY24

    Quarterly provision driven by portfolio growth and a build in individual assessments.

    ISG net charge-offs
    $210 million
    FY24

    Full year net charge-offs.

    ISG net charge-offs
    $62 million
    Q4 FY24

    Primarily related to several commercial real estate loans largely provisioned for in prior quarters.

    Bank lending balances
    $160 billiondoubled from $80 billion in Q4 2018
    Q4 FY24

    Loan growth of $4 billion in Q4 was driven by securities-based lending.

    Loan growth
    $4 billion
    Q4 FY24

    Driven by securities-based lending, with demand for new lines and a decline in paydowns.

    Total deposits
    $370 billionup 3% sequentially
    Q4 FY24

    Driven by higher sweep balances, which have increased for two consecutive quarters.

    Asset management and related fees
    $1.6 billionup 11% YoY
    Q4 FY24

    Driven by higher average AUM. Performance fees are recognized annually, largely in Q4.

    Performance-based income and other revenues
    $88 million
    Q4 FY24

    Gains concentrated in infrastructure, U.S. private equity, and private credit.

    Standardized RWAs
    $473 billiondeclined sequentially
    Q4 FY24

    Driven by year-end seasonality and market dynamics. Lower RWAs at period end have begun to reverse in the new calendar year.

    Common Equity Tier 1 (CET1) capital accretion
    $5.5 billion
    FY24

    Accreted while continuing to return capital to shareholders.

    Common stock buyback
    $3.3 billion
    FY24

    Executed for the full year.

    Effective tax rate
    23.1%
    FY24

    Full year tax rate.

    Effective tax rate
    24.1%
    Q4 FY24

    Quarterly tax rate, reflecting the level and mix of earnings.

    Quarterly dividend per share
    $0.925raised by $0.075
    Q4 FY24

    Aligned to the growth of fee-based earnings.

    Wealth and Investment Management combined revenues
    $34 billiongrown from $20 billion
    FY24

    Represents a significant step function change in growth over the last 6 years.

    Net new assets
    $250 billionin each of the past 2 years
    Annual

    Contributing to the goal of delivering $10 trillion plus of total client assets.

    Net new assets
    $252 billionapproximately 5% annual growth of beginning period assets
    FY24

    Adviser-led channel drove results, benefiting from existing and new clients.

    Net new assets
    $57 billion
    Q4 FY24

    Quarterly net new assets.

    Fee-based flows
    $123 billionexceeding $100 billion for the fourth consecutive year
    FY24

    Exceptional fee-based flows, up from $109 billion in the prior year.

    Fee-based flows
    $35 billion
    Q4 FY24

    Quarterly fee-based flows.

    Long-term net inflows
    $18 billion
    FY24

    Driven by continued demand for fixed income strategies and Parametric customized portfolios.

    Long-term net inflows
    $4.3 billion
    Q4 FY24

    Quarterly long-term net inflows.

    Liquidity and Overlay Services inflows
    $67 billion
    Q4 FY24

    On the back of strong fund performance and seasonality, some of which may reverse in Q1.

    ISG lending capability growth
    15%
    YoY

    Reflects real focus and upside in lending.

    Wealth Management to adviser-led channel migration
    $300 billion
    Since 2020

    Assets originating in Workplace and moving into the adviser-led channel, contributing to fee-based flows.

    Total client assets
    $7.9 trillionup $1.3 trillion from $6.6 trillion a year ago
    Q4 FY24

    Ended 2024 with record total client assets, making progress towards the $10 trillion goal.

    Client relationships
    19 million
    Q4 FY24

    Reached through expanded offering in Wealth Management.

    Adviser-led client retention
    99%
    Q4 FY24

    Reflecting enduring trust in Morgan Stanley.

    Parametric platform AUM
    $575 billion
    Q4 FY24

    Industry-leading platform, inclusive of overlay.

    Alternatives investable assets
    $240 billionmore than doubled in size
    Q4 FY24

    Reflects investments in secular growth areas.

    Total spot assets
    $1.2 trillion
    Q4 FY24

    Balance sheet total at year-end.

    Wealth Management loan penetration
    16%
    Q4 FY24

    Indicates significant opportunity for further loan growth and deepening client relationships.

    Industry KPIs

    2
    MetricValueDetails
    Cet1 ratio15.9%%
    Net interest income$1.9 billionUSD

    Deals & partnerships

    1
    CartaExclusive partnership to refer private companies to Morgan Stanley as they move into going public.

    The partnership leverages Carta's service to private companies, providing a referral channel for those considering IPOs. This is expected to benefit both the Wealth Management and Institutional Securities segments.

    Risks & headwinds

    5
    Geopolitical uncertainty and reemergence of inflationOngoing

    Not quantified, but described as 'paradigm shifts'

    Mitigation: Well-positioned to execute against opportunities presented by these shifts, supporting clients with advice and market access; consistent execution demonstrated by top and bottom line performance.

    Higher amortization costs from technology modernizationShort run

    May result in higher amortization costs

    Mitigation: Self-funding investments remains a priority; focus on decommissioning legacy technologies and business-enabled innovation with AI to support future efficiency.

    Unpredictability around regulationOngoing

    Not quantified

    Mitigation: Management acknowledges this as a factor in M&A activity but remains confident in the overall demand for corporate finance.

    Stagflationary environmentPotential future scenario

    Not quantified, but described as a 'downside risk'

    Mitigation: Constantly running stress tests and scenario analyses around interest rate policies and their implications.

    Geopolitical tension impacting global businessOngoing

    Not quantified

    Mitigation: Navigating reequitization opportunities and outsized client risk in various regions; firm's global footprint and ability to generate consistent performance across market contexts.

    What to watch in Q1 FY25

    5

    M&A pipeline conversion

    Q1 FY25 and throughout 2025
    CurrentHighest in 7 years
    TargetIncreasing activity and deal closures

    Why it matters

    A strong M&A cycle is expected to drive significant revenue for Institutional Securities, particularly high-margin advisory fees, and has multiplier effects across the organization.

    Looking ahead to 2025, our M&A pipelines are healthy and diversified outpacing recent years.

    Q&A highlights

    8

    How much of the strong trading performance is due to a favorable market environment versus Morgan Stanley's durable share gains and strategic actions?

    Management attributed strong performance to years of organizing the 'integrated investment bank' and prudent RWA deployment, allowing the firm to expand wallet share in a growing market. They highlighted broad-based and global growth in Institutional Securities, with a focus on client touchpoints and durable share gains without taking excessive concentration risk. The firm is now seeing acceleration in corporate finance activity, including M&A, which is expected to further benefit the investment bank.

    “We want those share gains to be durable, which is why we didn't go with quantification. We want those gains to be ones that are not gains by reaching concentration risk, counterparty risk, but the clients know we are serious about bringing ISG to the four, and that the Integrated Firm now is bringing together these world-class Wealth and Investment Management businesses with our investment bank.”

    asked by Glenn Schorr · answered by Ted Pick

    3 min read6 chapters

    Detailed Narrative

    01

    The Integrated Firm Strategy

    Morgan Stanley introduced its 'Four Pillars of Morgan Stanley: the Integrated Firm' strategy for 2025, focusing on strategy, culture, financial strength, and growth. This framework aims to leverage the firm's world-class Wealth and Investment Management franchises with its Institutional Securities franchise. The firm formalized this by positioning leadership talent at the center of client coverage, integrated data, risk management, and infrastructure to drive growth across client needs, led by Mandell Crawley with Co-Presidents Dan Simkowitz and Andy Saperstein.

    02

    Institutional Securities Performance and Outlook

    Institutional Securities delivered strong annual results with $28.1 billion in full year revenues, including record equity revenues and combined equity and fixed income markets. The segment achieved a 31% operating margin in 2024, with revenue growth significantly higher than RWA growth. Management noted a healthy and diversified M&A pipeline, the strongest in 7 years, and anticipates an acceleration in classic primary and secondary offerings, positioning the business for a strong rebound in deal-making activity in 2025.

    03

    Wealth Management Growth and Client Acquisition

    Wealth Management reported record full year revenues of $28.4 billion and a pretax profit of $7.7 billion, with a reported margin of 27.2%. The segment added net new assets of $252 billion in 2024, representing approximately 5% annual growth, and achieved exceptional fee-based flows of $123 billion. The firm's multichannel model, including self-directed and Workplace channels, drives client acquisition, with over 19 million relationships. The recently announced partnership with Carta is expected to enhance client stock plan opportunities for private companies transitioning to public markets.

    04

    Investment Management Focus on Customization and Alternatives

    Investment Management saw its AUM reach a new peak of $1.7 trillion at year-end, supported by market gains and net inflows. The Parametric platform, including overlay, grew to $575 billion, and investable assets in alternatives more than doubled to $240 billion. Long-term net inflows were $18 billion for 2024, driven by demand for fixed income strategies and customized portfolios. The firm continues to invest in technology and education to support the growth of Parametric and leverage the Integrated Firm relationship with Wealth Management for distribution.

    05

    Bank Platform Expansion and Lending Growth

    The firm continues to grow its U.S. bank platform, with total deposits increasing 3% sequentially to $370 billion, primarily from Wealth Management clients. Loan growth of $4 billion in Q4 was driven by securities-based lending, with total wealth management lending balances reaching $160 billion, doubling from $80 billion in Q4 2018. Management sees further opportunity to grow deposits and loans, aiming to increase loan penetration beyond the current 16% of households, with best-in-class peers at mid-20s.

    06

    Capital Strength and Shareholder Returns

    Morgan Stanley demonstrated strong financial strength, accreting over $5.5 billion of CET1 capital in 2024, with a standardized CET1 ratio ending the year at 15.9%. The firm returned capital to shareholders through a $3.3 billion common stock buyback for the full year and raised its quarterly dividend by $0.075 for the third consecutive year to $0.925 per share. The firm's capital deployment strategy supports client needs and earnings growth, while maintaining high capital levels for resilience and long-term growth.

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