$MS Morgan Stanley Q1 2026 Earnings Conference Call

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. The firm produced record revenues of $20.6 billion and record EPS XDVA of $343. Our ROCE 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 US, significant strategic and financial assets waiting to transact and AI-driven transformational opportunities. AI themes followed by geopolitical uncertainty and market dispersions continued to contribute rather 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 market 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 surpassed 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 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 5 years ago through ongoing investments in technology advisor and client education and an expanded product set. Sequentially, total period-end 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 investing events. Finally, while driving exceptional quarterly results, we remain 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% 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 lines to questions.

We are now ready to take in questions. To get in the queue, you may press star and the number one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, you may press star and the number two on your touchtone telephone. You're allowed to ask one question and one follow-up and then we'll move on to the next person in the queue. Please stand by while we compile our Q&A roster. We'll take our first question from Ibrahim Poonawalla with Bank of America.

Morning.

So maybe I guess we can start with all things private credit. So we heard your prepared remarks. There were two things given kind of where Morgan Stanley interacts with private credit. You had the fund that you talked about where we had some redemptions during the quarter but just talk to us your perspective on what's going on with the private credit market. How does that change or inform your view on how you deal with the business and specifically if it's caused you to rethink how you distribute some of these products through the retail channel in wealth? Thanks.

Super clear and I guess maybe one for you Sharon just around liquidity management to the extent you can, if you can help us understand the reorg that was approved by the Fed for the German bank into the US entity like what does that mean in terms of adding liquidity and are there things that you may be able to do going forward just how should we think about the impact of that to the P&L?

Sure. I would say remember it's the bank reorg and in terms of the bank reorganization basically we moved over a hundred billion dollars of assets over the course of the quarter onto 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 and make us sort of fit for purpose as you think about how we play versus our peers and being able to distribute various products. The hundred that we moved over over the course of the quarter. You can think of about 30% of those assets at this point being able to be better funded from an you can compare unsecured funding to sort of a wholesale deposit rate. The math and being able to think about what the opportunity is that you will see just for that asset those assets over the course say starting in 2027. But it's really not just a 2027 story. This is something that over time, as I said, we were formed differently as a bank than some of our peers and we're playing now at a different playing field with our peer set. And we should be able to see more assets and more growth and more competitive pricing in certain types of product sets that we offer to our clients, which should enable us to grow within our risk envelope in the same way with just a better funding structure.

We'll move to our next question from Dan Fannon with Jefferies.

Good morning. Sharon, was hoping you could expand around your comments on organic growth within the wealth channel. You highlighted workplace, but any additional context around that strength would be helpful.

Sure. I think that that's a fantastic question. Mainly because I think what you've seen is quite encouraging over the course of this quarter. Sometimes we call out numbers over hundred billion dollars of NNA and we talk about a single driver or something that's really changed the profile of that particular quarter. In this quarter there was no one single driver that you can really point out. You still had really high levels of engagement across the advisor-led platform. But what I tried to point out in my prepared remarks is that workplace is becoming a bigger and bigger contributor and a more effective, thoughtful way of where we're actually seeing new client engagement. Specifically with this quarter you'll see that often and not surprisingly that in the first quarter you'll see uninvested assets vest. And what we saw in workplace this quarter is greater retention of the assets that vested. So that's the first step right in this kind of funnel concept of what's going on with workplace. The first is we retain those assets and we'll see in this particular quarter we saw greater asset retention from workplace which translated into NNA and then over time, and this is what I was highlighting at the sort of conclusion of my wealth management comments, is we are seeing channel migration and that's with technology and investment where those workplace assets are now actually seeking advice and that migration is something that has helped to contribute to over $1 trillion dollars of total assets in our advisor-led strategy.

Thanks. That's helpful. And then sticking with wealth, there's been a lot of discussion around client cash optimization. And so longer term was hoping you guys could talk about how you think about your ability to earn NII on client cash as there are more tools available to move cash around more efficiently.

Yeah, I think that's a great question and certainly very topical. The wealth management team with Jed and Andy at the helm have always been there sort of thinking about ways to disrupt and continue to think about disrupting ourselves and what tools will be available in the new frontier. As you know, for us and as you think about the current client sweeps balances, those sweeps we've largely said have behaved, there are certain places that are similar where they're looking for yield seeking behavior but then there's also a transactional nature to that cash itself and that's what you've seen bottom out. So that's right now in the near term. Over the long term we're moving towards thinking about ways that in this new world you actually have value of advice. So if you talk all you know where do you work through a tokenized world how do you think of an on-chain world where you can move assets quickly the same way you'd be able to move those liabilities quickly. We would be there to offer different types of products on the asset side. So what types what kinds of things might exist on the lending side for on-chain advice and then how do you also move and think about all of those digital assets be that things that are yield seeking or like we said on the asset side that you're also able to get advice so how do you actually act and execute. So I think that as things move on there's a lot of creative space in terms of the advice-driven model and we do as you know currently also offer for ways to move around cash that's currently yield seeking in nature.

We'll move to our next question from Steven Chubak with Wolf Research.

Hey, good morning and thanks for taking my questions. So, Sharon, I was hoping you could speak to the Fed's new Basel 3 capital proposal and given you should benefit from long overdue changes, notably to the G-SIB charge calculation, removal of double counting in the stress test, how that might inform where you could be comfortable running on CET1 longer term versus say the older legacy framework.

Yeah. So let's just take a step back and just talk about what's actually been proposed. There are three proposals that I think about. One is the models that obviously we've put comments in. Two Basel and three G-SIB. So first taking G-SIB since that's the most obvious quantitative metric. If you look at the 3.5% G-SIB 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%. So that gives you a sense of just the base in terms of the rebase from where you would be from G-SIB. But as you know very well, Steve, you'd also be in a position that you'd see RWA inflation associated with the Basel proposal. And we would hope that there'll also be some comments taken from the stress testing models in terms of PPNR and the way you think about income-based modeling sort of for fee-based assets and the wealth management business as well as expenses. If you take all of that together, we would expect that we're, you know, would modestly up here either where we are today from capital neutral to modestly positive in terms of the overall amount of capital that we should have. But we'll have to see to quantify that really where all three of those land and the interplay between them. In terms of the actual CET1 metrics, you'll see that we are using excess capital. We did see specifically we had the relaxation or the change I should say the overall change of SLR. We deployed SLR and leverage-based capital over the course of the quarter and we continue to increase our RWAs to support our client base.

That's great. And for my follow-up, if I could just double click a little bit more into some of the organic growth opportunities. You talked about leaning more heavily into markets. We certainly saw a nice uptick in loan growth in the quarter. Just want to get a better sense as we start to look under the new proposal. What are some opportunities that might be more compelling just given the strength of your capital position that you might be more inclined to lean into here?

We'll move to our next question from Brennan Hawkin with Capital Markets.

Good morning, Ted. Good morning, Sharon. Thanks for taking my question. I'd love to circle back on some of the comments Sharon you made on cash. You spoke to on-chain. I don't know if you guys saw, but a competitor in the annual report, JP Morgan, put out that they're planning to reduce some of the friction on brokerage cash. Is it right that in your comments around on-chain, that's the direction you guys are thinking of going as far as reducing that friction? And then relatedly, today's the 15th, tax day. It tends to be a big event seasonally for you in your wealth business. How should we think about cash and then net new and what the expected impact is on that this year?

Thanks so much, Brennan. Going first just to cash, we continue to offer our clients different ways to access cash, talk about cash, talk about cash management. As we've talked about before, there are a lot of different places for people to think through, and we have been talking to our clients around various cash management over time, just given what's gone on over the course of the last five years. But we're obviously, as you know, always looking at ways to continue to enhance conversations that we have with various clients. As it relates just to tax day and what we've seen so far this quarter, so far right now taxes are as we would have expected. But it's worth noting that from an SPL perspective, we've started the quarter strong. So the lending growth that we've talked about even at the beginning of this year continues, and we've put in a lot of resources towards lending products more broadly. So digital tools, digital enhancements, and using automation to be able to help with the paper backlog associated with some of the various lending products more broadly.

Got it. Thank you. And Ted, you spoke to an adolescent moment for private credit, which I thought was an interesting way to put it. You also flagged as a distributor, you know, 1% of client assets in private credit, obviously very small, but curious what... but you do have great touch points across your wealth management business, and clearly all the attention here is around wealth specifically given these vehicles. And what are you hearing from the field around the temperature on some of these non-traded BDCs? Is the concern coming from more the FA population or the investor side? And is there any emerging signs of looking at other asset classes beside credit?

We'll move to our next question from Devin Ryan with Citizens Bank.

Thanks. Good morning. Good morning, Ted. Good morning, Sharon. Question on wealth management. You know, stocks obviously sold off several times during the quarter on AI feature announcements, the customer cash sweep optimization. I think the Dan's question was one of the events, but other automation tools, I think, and just potential implications on revenue models. So the market seems like it's currently weighing AI as a negative for wealth or it's a risk, and I suspect you don't agree with that. So it just would be great to hear more about your view on some of the biggest implications of AI on the business. I know you guys have been investing for a number of years here. Thank you.

Thank you, Ted. Appreciate that color. As a follow-up, want to touch just on Asia. 45% of the firm sequential revenue improvement came from Asia. It's only 16% of firmwide revenues. I know a lot of that delta is from prime brokerage, but can you just expand a bit on the momentum in Asia? How sustainable is it? Further growth opportunity in the region just given the big step up we've been seeing here?

We'll move to our next question from Glenn Shore with Evercore.

Hello there. I wonder if we could talk about ECM and equity pipeline for a sec. Usually when the markets are this strong, it's a little bit better, but I know it's building and I know there's some really big ones out there that are talked about coming. But I thought one of the interesting angles on this was also that it seems like some of these big IPOs are very partial towards having a big retail allocation. And just curious if you thought that's true, how you use E-Trade as part of your selling process, and then just talk about the overall pipeline in general would be helpful. So appreciate that.

Yeah. So it's a great question, and I think that you do continue to see the democratization of products more broadly. That's one of the reasons when you actually think about the acquisition of EquityZen and what we're trying to do. So we see a place where there's stuff within the private domain that's actually already beginning to transact. We see that as a technology that can help us. We have already begun to see offerings come through that platform, and we would expect that to continue. So that is a market, as you know, it's growing. There are a lot of places within the retail channel that different companies are looking to attract, and we have that channel and those capabilities. So you have it already existing on the advisor side, you have it existing to some degree when you think about the underlying ERA side, but what you really need is to make sure that you also have the private market ecosystem even necessarily before you see an IPO come through the marketplace that you're able to have different access and different corporate relationships. And those are the pieces that Jed and Andy have really begun to lay the foundation and build over time. So it's not just one thing. I'd say that it's a build across the other. And I think we have that offering to many of these companies that are looking for ability to transact within retail.

And do you have any numbers you could throw at the pipeline or some soft details? You know, we've all been waiting for years on the sponsor-led pipeline, but in general, it feels like a backdrop that should be improving. Just curious on your take.

We'll move to our next question from Mike Mayo with Wells Fargo Securities.

Hi. Can you elaborate more on the financing business within trading? I assume that's for both, you know, private credit and liquid markets, and that's just been growing so much for the last year, for this decade. And a comment on the resiliency of that. Does that mean trading is less volatile than it used to be? Or if and when we get a bear market, does this shrink back down? Thanks.

Sure. Thank you so much, Mike, for the question. That is a stabilizer, I would say, over the course of the last 10 years. I mean, you've been covering us for nearly two decades, I think. The last decade in fixed income has been marked by refocusing our business on clients and also creating durable sources of revenue. What you point out to is one of those sources of revenue that is to some degree, you know, the intent is to be more stable on a balanced business. But as Ted said, it is a credit risk business. So overall, all of those types of products are looking at underlying credit, looking at counterparty risk, understanding both risk limits as well as the diversification, the structural protections that you might have, the various haircuts. What I think is important specifically about the private credit business is, as we started the call, is that you also have this ability to look down on a loan-by-loan basis, and we have the ability to both mark and margin across that. So there's a lot there within the ecosystem, but yes, that has been a stabilizing factor within our fixed income revenue results.

Sticking, and thank you for that answer, sticking to that topic of risk and following up on the other question. You know, all I have are the headlines in the paper about Anthropic and the Mythos model. Excuse me. And the articles said only a few players had that model. It sounds like you say you have the beta version of the Anthropic Mythos model, and you know, again, the articles said that you guys were summoned down to DC and that people are extremely concerned. And you say AI is your friend and you should be a beneficiary, not a victim, but I'm just wondering about the cyber risk and how that may have increased and what extra steps you're taking now that you're looking at the model, if you're allowed to disclose what you've learned.

We'll take our last question from Erica Nagarian with UBS.

Morning. Sorry to prolong an already long call, but just wanted to ask one question.

You stepped in.

You stepped in there. What was that? 25 bucks ago.

May it may just be you and me, but I'm good.

You talked about organic growth opportunities in wealth. You talked about broad-based drivers for NNA. You talked about AI being your friend. And you talked about advisors really being empowered by AI. As we think about the pre-tax margin of 30% in a quarter where wealth comp had some upward pressure, you know, should we think about the low 30s as sort of a high level where you can sustain, or is there potential for upward pressure given all of the dynamics that you mentioned?

Yeah. Thank you so much for the question, Erica, and thank you for noting all the places that we're investing. You know, we've reaffirmed our targets at 30% in the strategy deck, and we did that for good reason because we want to be in a position that we can invest. And so we've never really managed the margin quarter by quarter. We've said that multiple quarters. We always said when we were below 30% that we could cut our way very quickly to a 30% margin. But for us, what's most important is that we're constantly investing. And there are so many places within this business to invest, and it's paying off. And over time, we'll continue to move up the margin on its own organically. But the most important thing for us is to continue to put dollars to work to service both our clients and advisers and continue to be a category of one in this business.

Ladies and gentlemen, this concludes today's conference call. Thank you everyone for participating. You may now disconnect and have a great day.