Morgan Stanley ($MS) Q4 2025 Earnings Call

Good morning and thank you for joining us. In 2025, the US economy proved resilient as ever. As predicted, the capital markets are kicking in with well-capitalized corporates and higher-end consumers driving the economy forward. 2026 starts with the tailwinds of constructive fiscal policy and easier monetary policy. As the arc of history resumes, geopolitics are front and center with a broadening set of opportunities and challenges. While the higher plane of Morgan Stanley results tell a story of durable performance, we are mindful of the combination of geopolitical swirl and ambulant markets. The macro backdrop is complicated. On the one hand, the setup is ideal. We are monetizing the long-awaited conversion of capital markets green shoots across our investment banking and markets verticals, and we are scaling asset inflows and transaction activity across our wealth businesses. At the same time, we are well served to watch for any overreaching against ongoing global uncertainties and higher asset prices. 2025 results and in fact the results for every quarter over the last eight are a blueprint for Morgan Stanley success. We expect this mix of tailwinds and headwinds to prevail in 2026 and are prepared to continue to execute. We will now walk through the 2026 strategy deck entitled the integrated firm executing on a higher plane which can be found on the Morgan Stanley website. We will then detail fourth quarter and full year results.

Turning to slide three, Morgan Stanley's 2025 results are summarized by 9.3 trillion in total client assets, $10.21 in earnings per share, and a 21.6% return on tangible. The firm's trusted advisor franchise delivered across all three metrics. Slide four shows that our average earnings per share and returns on tangible over the last decade reflect the transformation of Morgan Stanley's business model. The last five years are the result of share gains and operating leverage via consistent investment in technology footprint and the successful integration of key strategic acquisitions.

Moving to slide five. We're well on track toward our firmwide goals. We've compounded wealth and investment management client assets towards 10 trillion plus. In institutional securities, we gained 100 basis points of wallet share with clients across investment banking and markets, reflecting the strength of our integrated investment bank and global franchise.

Please turn to slide six. We've moved up the firmwide goals page for review in the context of the last two very strong years. 2025 results in the fourth quarter or on an annual basis broadly met or exceeded our firmwide goals. Asset growth accelerated with last year's additional 1.4 trillion. Wealth pre-tax margins are at their highest levels ever with the fourth quarter's 31% printed result. Institutional securities gained share across underwriting and equities trading, and we closed the year with a strong advisory result. In short, the firm is running at a higher run rate. We are executing from a position of strength, multi-year investments in the core businesses, client momentum, management stability, and growing capital excess. But as I observed in the opening, there are both macroeconomic and geopolitical tailwinds and headwinds. And in our view, while we are happy to have reached many of these firmwide goals, perhaps earlier than some expected, this is not the time to overreach. These last eight quarters memorialize consistent execution against different mini macro uncertainties, and our multi-year growth plan contemplates both secular growth and available wallet and continued durable share gains. Our expectation going forward is that if this environment is welcoming, we are meant to execute at or above these firmwide goals as we did in 2025. And when the backdrop is more challenged to endeavor to achieve higher lows, the longer-term cadence we seek is a higher plane of operating performance through the cycle as we compound earnings in a capital efficient way.

Now to the forward growth plan. Please turn to slide seven where we review our major businesses. As you know, wealth has three channels. Our financial advisors, workplace, and E*TRADE, each a category leader, which taken together comprise our strategic client acquisition model. In institutional securities, we have deep client relationships and a global footprint under the integrated investment bank. We have diversification in investment management led by Parametric alternatives and fixed income. We continue to invest in each of our three business segments, wealth, institutional securities, and investment management via human capital and technology. Our growth plans embed the increasing adoption of AI tools throughout the enterprise and inside our client base. With each passing quarter, our confidence continues to increase in the potential for both the efficiency and the effectiveness of AI related technologies across the business units and infrastructure.

Slide eight. Our wealth management business is built for scale and performance. The financial advisor, workplace, and E*TRADE channels are each thriving. The business had net new assets of over 350 billion last year. Over the last 5 years, the firm attracted 1.6 trillion plus of net new assets with a doubling of fee-based flows. For 2025, Wealth achieved 32 billion in revenues, 29% margins. The funnel is working.

Please turn to slide nine. With 20 million wealth relationships, future growth is embedded in the business. Our intense focus on the value of advice, which generates movement through the funnel, allows us to capture opportunities for advisor-led assets. In 2025, we saw accelerating flows across channels with a 100 billion migrating to financial advisors. We are using our scale to invest in broadening capabilities for FAs that are difficult for others to replicate: alternatives and privates, tax-efficient investing, digitized assets, family office and OCIO, and tailored lending. Collaboration across the integrated firm is felt by clients for both their corporate and personal wealth needs.

Slide 10 dives deeper into institutional securities. We have an established global footprint and revenue base. Banking and markets gained wallet share delivering margins of 34%. Revenue growth supported by the recovery in investment banking is running roughly two times SLR and RWA growth since 2023, reflecting our continued focus on capital efficiency and operating leverage.

Turning to slide 11, the institutional securities value proposition is reflected in the integrated investment bank. We approach client coverage holistically and provide comprehensive solutions with the support of integrated teams. The collegiality and Morgan Stanley tenure of the leadership teams across banking and markets on average about 25 years at the firm is critical in bringing the best of our intellectual capital to clients. The themes of the equitization of global markets and the full suite of expertise to advise on cross-border M&A are at our global core. ISG share gains position us well for the global investment banking and capital market cycle in 2026 and beyond.

Please turn to slide 12. In investment management, we continue to benefit from secular growth in investing solutions and the democratization of alternatives. Parametric is the industry leader in tax-efficient investing at 685 billion in AUM and stands to benefit as more clients and asset managers seek customized solutions. Our alternatives platform has more than doubled in 5 years with investable assets now at 270 billion. These and other areas of strength are supported by ongoing investments in technology and global distribution.

Slide 13 underscores Morgan Stanley's global presence. We have 30,000 people outside the US in every business unit and in large tracts of infrastructure. 25% of our revenues this year came from outside the US with AMIA growing revenues by 40% and Asia by 50% over the last two years. We have leading businesses in Japan thanks to our almost 20-year joint ventures with our close partner MUFG and a world-class business in Hong Kong. We've grown in the EU and maintain leadership in the UK. In a world that is both deglobalizing and reglobalizing, our presence and footprint matter.

Slide 14 illustrates why Morgan Stanley wins as the integrated firm. We have scaled capabilities and a business mix that can support our clients throughout an entire life cycle. Our Morgan Stanley at Work business with its exclusive partnership with Carta positions us as an early trusted advisor to over 50,000 private companies. As workplace companies grow, we can provide traditional institutional services. Employees across our workplace companies benefit from our management of equity compensation plans, liquidity opportunities, and our full-service advice. We are focused on both the public and the private ecosystems augmented by our recent acquisition of Equity Zen. The objective is to cover growth companies and their employees from founding to their public maturity while broadening access for investors to the growing stack of private companies. Again, our technology, leadership, and wealth enables us to deliver a holistic client experience.

Please turn to slide 15. Our durable business model and strong earnings profile have kept capital levels high during a period where the regulatory capital framework has normalized. As we have grown fee-based revenue streams, our regulatory minimum CET1 ratio has steadily come down. At a CET1 ratio of 15%, we have over 300 basis points of excess capital. With the passage of time, the continued durability of the business model may be enhanced by further regulatory relief. Prudent dividend growth comes first, and accordingly, we have raised our quarterly dividend by 7.5 cents for four years in a row to now a dollar per share.

As we've discussed in previous years, excess capital will be directed to continued dividend growth and to ongoing investment in clients and technology across the integrated firm. We will also continue to opportunistically buy back stock. We are keeping full watch on potential M&A adjacency, but we will continue to be patient because we have worked diligently through the acquisitions of Smith Barney, Solium, E*TRADE, and Eaton Vance over the last 15 years. We know what level of focus and energy is required across the entire firm to make a multi-year integration successful. In short, we are endeavoring to keep the bar for acquisitions high, bearing in mind that many asset classes, private and public, trade at elevated levels, that there is no shortage of ongoing opportunities, and that the first call on capital must be to our clients and the continued growth of our core businesses. Concluding with slide 16, we're supported by our four pillars of the integrated firm: strategy, culture, financial strength, and growth. Morgan Stanley's strategy to raise, manage, and allocate capital is well understood by our clients, people, and our shareholders. Culture is about rigor, humility, and partnership. Financial strength is about capital, earnings power, and durability. And growth is about smart strategic investment into wealth, institutional securities, and investment management, and across the firm globally. The result is growing assets and compounding earnings in a capital efficient way over the long term. Thank you. Now, Sharon will review our fourth quarter and annual results and then we will both take your questions.

Good morning, Glenn.

Well, I think that's the important question for the day. We had a robust conversation about it but in the end the decision was really pretty easy. I think the view is that the shareholders ultimately want to see an enterprise that can operate at high levels with the kind of ballast that you began to see over the lows in the last decade and that on the forward we can achieve effectively higher lows. And I think the tendency has been when a target is hit, the view would be well we hit it, let's take it further. And there is no view that the net winds are headwinds. They are in our view secular and cyclical tailwinds that work for us both in terms of wallet and in terms of market share across all of the major businesses and we have even more operating efficiency that we think we can continue to earn from the infrastructure by way of AI over time. But I think part of the premise of rigor and humility at our place is that we do this in a way where we compound earnings again and again right through the cycle. And of course we will revisit these targets in the late year to come and if then we've passed through them very clearly and it's time to take them higher, we will certainly consider that. But I think the view is we're a couple of years in, each of the quarters has been by many measures quite excellent and the two years taken together each on their own and then taken together also excellent. But I think, you know, mistakes that I'll make Glenn, this won't be one of them, which is to kind of hit the new target slide at the beginning of, you know, year three because we're feeling our oats. I think we have a very positive view of where the firm is positioned. We like the spaces we're in. But we think that demonstrating our ability to compound earnings through the cycle is what the owners want to see, what you want to see, and that when things are bumpier, they're choppier, we'll have higher lows, and if we can continue to compound earnings at 20% returns, we're going to have happy owners.

Morning Dan.

Thank you so much for the question. I think it's both. We have consistently added fee-based flows, that is demonstration that the funnel is working. So from the revenue line items, the drivers of continued expanded market are twofold. One is building out the fee-based revenues and the fee-based assets and that is happening as we do introduce new clients to the power of the advice-based model. But there are also clients who just want self-directed activity and we have been investing in that business in the E*TRADE franchise, in E*TRADE Pro, and you see that our transactional revenues are also increasing. So that's an investment story in technology. And the second piece that you mention is efficiency. We are also using technology...

To help us from an efficiency perspective, both on the cost and the revenue side. I'd note to you that some of the AI that we've been doing is actually also on the revenue side. So Lead IQ, for example, which is helping us introduce our advisors to our clients who are interested in advice, that's happening using AI. So there's technology that can be used both on the revenue side and on the expense side that should help us drive the margin on both the top and the bottom line. Workplace is particularly exciting as a way to bring the entire enterprise together to help drive both the corporate client base and personal wealth into a broader Morgan Stanley funnel. So that plank of the funnel has been particularly extraordinary.

Excellent. I actually, sorry to be a little repetitive, but I'd love to have another question here on the targets because it does seem as though we've got maybe a shift in how you guys are thinking about them. And you made some comments around, I totally get not wanting to chase the dragon, right? And continuing to raise the targets and think about what the peak could look like. You spoke to higher lows in addition to higher highs. So is the right way to think about how you're framing the targets and how you're thinking about managing the business as more like a central tendency through the cycle? Or is it even feasible as you continue to scale to think about how this might be? You never want to use terms like floors in businesses like you have because of the market sensitivity and whatnot. But potentially what you could be looking to do even in more challenging markets as we continue to progress forward. Thanks for taking my question.

Sure. There is a chasing dragon element to this, of course. You hit some of the targets once and you feel you got to sort of bump and raise. We want this to work organically over the very long term. This is part of the reason on slide four we put up a decade of results. The area is cyclicality in the business. There is no philosophical frame shift, though. I think we just now have the kind of confidence where we can start talking about what it would be like if there was a more challenging environment and our ability to still generate 17.5% returns on tangible with an environment where earnings could be below eight bucks. That we don't have that in the plan. But it is an important balance when we think about the earnings multiple that you put on the currency that there's a view that we can continue to generate real operating leverage through performance in tougher periods. That is a tough thing to tell the market you have confidence in unless you've done eight quarters as we have in these sort of mini macro uncertain periods where we've been able to see performance driven by the two major segments separately and then together. It is the case, though, that with the compounding of earnings and the continued growth of these businesses, it is quite possible that we are going to be moving right through these firmwide goals. By definition, the math should take us through the 10 trillion. It's compounding math and you've seen our performance on that score over the last several years. And we printed wealth margins that were in fact above 30%. We continue to gain share inside the investment bank. As Sharon went through, we had margins for the enterprise, i.e. efficiency ratio, that was below 70% and our ROE was 21-22. So we demonstrated it. It's just not in our prudent kind of long-term thinking that is the Morgan Stanley today that we should just move the targets higher because we've had a couple good years. I think the view is we are going to continue to compound earnings. We are going to not push on robust objectives when in fact 20% returns are pretty darn good if we're continuing to gain wallet and secure market share in the businesses that we care about, whether they are in core investment banking, in the mergers business. You see our advisory number was excellent this quarter, in our equities business which has become again the kind of competition that it was some years ago where the leadership group is moving away from the pack, in fixed income secured lending where we have a great client touching business, and then really across that wealth funnel which is really quite extraordinary. So there is an element of we're going to keep our heads down and execute as opposed to kind of here are some targets just to get everybody excited in the moment and then let's see if we ever hit them. I think our view is let's hit them again and again to the point where it kind of gets louder like when are you guys going to take this up because it's sort of a no-brainer for you now and when we get to that point that'll be a happy day. But in the meantime let's compound earnings. Let's do it the right way. Got a lot of long-term plans around the durability of the business model and we're playing for the multiple too. It's the P and the E and part of the way to get a premium earnings multiple in the marketplace is to demonstrate our ability to say what we're going to do and just go out and do it again and again.

Yeah, we like the tailwinds. Sharon will improve my answer here. We really like this business. I think one of your colleagues likes to ask sometimes what inning we're in. I think in the capital markets business as a whole I kind of put us in the third inning. Now there are sort of exogenous outs, sort of as I said, the geopolitical swirl, but the reality is the equitization of markets around the world is underway. It's why we put in the slides on the global presence that we have. It's not that we're trying to be all things to all people. Where we are good, though, we wish to be very good. So we are differentiated in Tokyo. We are differentiated in Hong Kong. Hong Kong was the busiest issuer of equity in the world over the last year. That will continue. And of course we have the sweet spot in the US. So there is a global theme to this. But as we talked about in prior calls too, there have been reasons why there has been some sort of stuck boardroom mentality, understandably, as we went into the pandemic and then we came out with rates having moved to try to combat inflation. But I think now there is really no more time to waste. The reality is that AI is now taking hold endogenously and you need to actually have some real scale to be able to defease the teething of putting that into your core business. And so we should see consolidation and the sponsors are just getting going. They have bought some time and taking a look at what they want to keep and what they want to run through markets. They are beginning to unglue their asset base and then of course we have very large private companies that are wildly successful that are probably going to start bridging to getting public. So I'm starting there because that's all about investment banking. And then in the equity space, rates that are above the zero floor, foreign exchange that starts to trade, and then importantly the institutionalization of the private credit class all speak to vibrant capital markets. And as you know, we are at some level stockhouse, M&A, wealth management, and then equities. And clearly getting our footing to be number one or number two in the equities business in a given quarter has been a priority of ours to do it the right way with clients. And importantly within that, the growth of the derivatives business, a relative weakness of Morgan Stanley relative to the top tier competitors, a lot of that has now been erased. So we actually are coming across now as a derivatives house as well for clients. So we like what Dan has done quite brilliantly with the integrated investment bank, which is sort of take it up another notch with clients right into the cycle where we have the global footprint and where we are ready to put capital to work, as Sharon said, in places like M&A acquisition financing, prime brokerage, fixed income secured lending, and other durable businesses that accrete to the broader integrated firm. And then my last comment would be the beauty of this, and you heard it woven into my slides and Sharon's commentary, is that a whole bunch of what we're talking about has application across both the institutional and wealth client set. Stock administration side of workplace has appeal both for the CEO and then for that firm for their wealth management business. So we're quite excited about it. The old rule of thumb is two times GDP. I would think two times GDP is not a bad way to go. Nominal GDP even. So you could see the wallet in this business continuing to grow by anywhere between five and maybe even 10% per annum. And then as you can see, we are continuing to gain share from some of the lesser firms that have incomplete offerings, which should augur well for the largest established firms, frankly the ones that reported this week, being the ones to thoughtfully gain share here over the next number of quarters.

I know. I know. I know. Sorry about that.

How about this? Maybe just ask the question again and then you're like, I gave Pick a softball.

Oh, that's sort of interesting the way you put it. So, I'll do the first part, Sharon will do the second part. Yeah, I could argue that the trading businesses in some respect have to be viewed, if we were to look back on the earnings prints years from now, maybe they're in middle innings simply because we've had this huge move in asset prices. So by definition you're off higher notionals and there's gross leverage and you've seen real capital accumulation in places where we can monetize. And maybe we're in that sweet spot right now as opposed to the pure investment banking business which is in the earlier innings. So I guess you could probably argue that. And is the case that if we have lower asset prices because we just have a drawdown or we have kind of like a blip in the economy or the geopolitical thing kind of hits tails, because there are tails. Obviously the base case, as we both know, the base case is positive just given the health of the corporate, the consumer, and the general kind of tailwind of deregulation. But if some of that creates periods where things are kind of risk off, yeah, I would agree. If there are folks that are trading and have some inventory and kind of the risk that we all know gets kind of linked to trading, could there be lower levels of performance? Absolutely. Which is by the way also part of the reason that we are emphasizing for the purposes of the investment bank kind of durable share gains and wallet as opposed to trying to show a ton of volatility around returns. Now, we can't control asset prices, but we can sort of control that which we feel like is sort of a mandate business with our institutional clients versus kind of just moment-to-moment sentiment. And that's part of the art of overseeing and risk managing these businesses. But that's something we're focused on.

That was very clever. You're effectively, I did read your report. You are trying to get at moving the goals without moving the goals. Yeah, I mean Sharon put some meat on the bone but of course we expect there to be ongoing operating leverage if we are running these businesses as we have and the market backdrop is constructive. There's largely a fixed cost base and sure there's some variable costs as you go but that is why we believe we're not overreaching in saying that even with the ongoing investments we're making, back to Mike's question on AI in core technology or in ongoing AI efficiency and effectiveness tools, we would expect that if the markets are conducive and we execute, so those are two ifs, market is constructive and we execute across wealth and the investment bank and IAM as well, that we should continue to realize operating leverage. I don't think our view is that it's a linear model but our view would be that that is why we thought that the efficiency ratio at 70 was a good number and in periods of performance in the past and certainly again this year, you saw it in the fourth quarter at 68 and you saw it for the year at I believe also 68 and change, that we should be able to continue to press that further in a thoughtful way as we compound earnings.

I really like the example Sharon gave because that one is sort of a very simply put example where there should be realized efficiency from that, presumably there is effectiveness, i.e. productivity gains that come realized from insight that can then be applied to other infrastructure functions and then inside the business unit. The one thing I would say which we all know but it's worth just putting on the table is there's going to be teething pain on this stuff. I mean we don't know what the combination of languages will be, the sort of the ultimate best recipe for one institution or another. What the cost to sort of put that through the system will be, how we work the regulator, and then importantly how advanced our client base is with respect to some of this toolkit. So there will be some teething around that. Again, like the introduction of the internet, it will take several years but I did mention in the deck and Sharon called out again, this is the kind of thing where we are seeing quarter by quarter as we all are in our personal lives that the substance underlying the progress, the technological advancement is real.

Yeah, that's all right. And I would also just to tag on there, I would also call out just the early days of the digital asset transformation side of wealth. We announced a partnership with Zero Hash last year. We're looking to expand our capabilities. We're well positioned now in the crypto and tokenized asset space. So, of course, that's probably a first or second inning type of phenomenon. And there is a lot for us to do there. There is continued work that we're doing in E*TRADE to take a world-class platform and continue to make that interesting for our active self-directed community. And then in investment management, just to call that out, I mean the success of Parametric, classic case of scaling an asset from within an acquisition. Quite brilliant what the team did there to inside of Eaton Vance find this real gem and to scale it across wealth management and clients outside the building. I think there is a ton of work to do in alternatives and we continue to invest in that. So some of those are sort of in ongoing capital investments in businesses like equity derivatives where they should just improve an existing product set. But I'd argue too that there are adjacencies that we are really embryonically building inside of the institution in alts, in digital assets, inside of new customized solutions in the investment bank that exactly dovetail with the intellectual capital we're supposed to bring. But are going to take time and investment.

This is, thank you for your question. This is part of the kind of the Morgan Stanley of today where we are comfortable being in a position where we sort of sit at high ground. Yes, we have a capital surplus and indeed that surplus is growing with a buyback that's been restrained and a dividend that's been growing prudently. But we continue to grow the buffer and we're above 300 basis points. So everything you said is correct but I think we are in no rush. There are a ton of ideas that are coming at us. The bar for acquisition is super high. As I said, we know what it takes to kind of integrate an asset. Having done that four times we have humility around that. We also know that it is incrementally helpful to the institution and even to valuation that folks see that we are real stewards of our capital. Now you're saying at a certain point it gets to be where we may wish to do something incremental to the capital beyond putting into the business as Sharon and I outlined. Let's see when we get there and we'll be talking about that. But we continue to find great places to put capital in the business, a whole bunch of business lines across the integrated firm. But yes, it is a nice place to be that we are above 300 basis points. And it is also the case that we believe the business model speaks to real substance around the argument for our CET1 ratio to actually go further down. So you could argue that 300 could get bigger and then if it does we'll be talking more about how we want to prosecute against the alternatives.

Now, we did think it was important to call out the non-US businesses because the revenue growth and the margins attached to them have been quite impressive and of course our client base is global. And so you're speaking to the revenue contribution to the firm overall and that is one that may not necessarily grow relative to the total as a geographic matter but should compound nicely as we continue to grow not just in the Americas but in EMEA and Asia.