Morgan Stanley MS Q2 2025 Earnings Call Transcript

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DATE

Wednesday, July 16, 2025 at 8:30 a.m. ET

CALL PARTICIPANTS

Chief Executive Officer — Ted Pick

Chief Financial Officer — Sharon Yeshaya

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TAKEAWAYS

Revenue: $16.8 billion in revenue for Q2 2025, driven by improvement across Institutional Securities, Wealth Management, and Investment Management businesses.

Earnings Per Share: $2.13 in EPS (GAAP) for Q2 2025, marking six consecutive quarters of durable earnings growth through Q2 2025.

Return on Tangible Common Equity (ROTCE): 18.2% in the second quarter, and 20.6% for the first half of 2025.

Total Client Assets: Total client assets exceeded $8.2 trillion across wealth and investment management in Q2 2025, moving closer to the firm's target of surpassing $10 trillion.

Wealth Management Pretax Profit: A record $2.2 billion in pretax profit at a 28.3% margin in Q2 2025, impacted by the Deferred Compensation Plan (DCP) by approximately 70 basis points.

Net New Assets (Wealth Management): $59 billion in net new assets added in Q2 2025, including a $22 billion headwind from tax outflows, $43 billion in fee-based flows marked a new record (excluding asset acquisitions).

Institutional Securities Revenue: $7.6 billion in Institutional Securities revenue for Q2 2025, $3.7 billion from equities and $2.2 billion from fixed income businesses in the second quarter.

Investment Banking Revenue: $1.5 billion in investment banking revenue for Q2 2025, $500 million from equity underwriting and $508 million from advisory; Debt underwriting delivered $532 million, with declines in non-investment-grade issuance.

Prime Brokerage: Achieved record revenues and all-time high average client balances in the equity segment.

Asset Management Revenue (Investment Management): $1.6 billion in revenue for Q2 2025, Up 12% year over year, $11 billion in long-term net inflows and record assets under management of $1.7 trillion.

Bank Lending Balances: Increased sequentially to $169 billion, with growth largely in securities-based lending.

Total Deposits: with net interest income of $1.9 billion, steady compared to the previous quarter.

Common Equity Tier 1 (CET1) Ratio: Reported at 15%, over 200 basis points above the forward requirement, implying flexibility for capital deployment.

Dividend Increase: Quarterly dividend raised by $0.075 to $1 per share.

Efficiency Ratio: The firm's year-to-date efficiency ratio was 70%, attributed to ongoing cost control and productivity initiatives.

SUMMARY

Morgan Stanley (NYSE:MS) reported strong quarterly performance, underpinned by record client assets and recurring fee-based flows in wealth and investment management. Management emphasized progress toward exceeding $10 trillion in client assets and highlighted the firm’s improved capital position, as reflected in a CET1 ratio of 15%. Strategic clarity centered on ongoing investments in platform capabilities, disciplined capital deployment, and targeted inorganic opportunities judged by high strategic relevance. Operational leverage in institutional and wealth channels, evidenced by margin gains and net asset inflows across all business lines, signals sustained earnings durability. Regulatory reform and capital flexibility were explicitly cited as potential enablers for future growth, while management expects steady net interest income levels given current policy rates.

Chief Financial Officer Sharon Yeshaya said, "Fee-based assets stand at $2.5 trillion." highlighting the scale of recurring revenue streams.

CEO Ted Pick said, "organic development is happening and will continue to happen where we think there is operating leverage with smart risk architected deployment around clients." clarifying capital allocation priorities.

Investment management long-term net flows totaled $11 billion, with particular strength in fixed income and customized Parametric portfolios among wealth management clients.

Management indicated readiness for further capital deployment, including potential buybacks and "opportunistically buying back stock" as stated by CEO Ted Pick.

The efficiency ratio improvement stems from prioritization of controllable spending, tangible savings from space exits, and enhanced productivity via technology investment.

INDUSTRY GLOSSARY

DCP (Deferred Compensation Plan): A plan under which a portion of employee compensation is paid out at a future date, commonly used by financial institutions to align employee interests with long-term firm performance.

Prime Brokerage: A set of services offered by investment banks to hedge funds and other institutional clients, including securities lending, leveraged trade execution, and cash management.

CET1 (Common Equity Tier 1) Ratio: A key regulatory capital metric reflecting the ratio of a bank’s common equity tier 1 capital to its risk-weighted assets, significant for assessing capital adequacy.

Parametric Platform: Morgan Stanley’s proprietary portfolio customization solution focused on personalized investment strategies for clients, especially in tax management and factor exposures.

Full Conference Call Transcript

Ted Pick: Thank you, and good morning. Thank you for joining us. The second quarter unfolded with two distinct halves. The first half began with uncertainty and market volatility associated with U.S. trade policy, and the second half ended with increasing engagement and a steady rebound in capital markets. For the quarter, the firm delivered $16.8 billion in revenue, $2.13 in EPS, and an 18.2% return on tangible, completing a very strong first half of 2025. $34.5 billion in revenue, $4.73 in EPS, and a 20.6% return on tangible.

With six sequential quarters of durable earnings, 2022, 182, 188, 222, 260, and 213, Morgan Stanley results have a cadence that reflects consistently higher levels of performance as we execute our strategy through different market and macro backdrops. The results speak to the power of our integrated firm and the alignment of the firm's leadership team. With the expectation of a more constructive regulatory backdrop, we are intensely focused on generating returns on incremental capital deployment and investing for growth across the integrated firm globally. Total client assets across wealth and investment management climbed to over $8.2 trillion, reflecting our scale and gaining ground toward our target to exceed $10 trillion. In wealth, an excellent quarter.

Profit before tax reached a record $2.2 billion on margins of 28% plus. Net new assets of $59 billion were strong despite higher seasonal tax payments, and fee-based flows of $43 billion demonstrate the value of advice amidst a complex environment and support durable growth of recurring fee-based revenues. Ongoing investments in our world-class platform, including investments to support our advisors, a build-out of E*TRADE capabilities, and the expansion of our central workplace channel, serve as an engine for future growth. In investment management, our leading industry-leading parametric platform, as well as strong fixed income strategies, have successfully positioned this business to achieve consistent long-term inflows generating a positive $11 billion in the second quarter.

Our institutional franchise delivered revenues of $7.6 billion, supported by our leading equities markets business that reached $3.7 billion top line. Despite a slowdown in strategic and capital markets activity for half of the quarter, our multiyear investments in our client franchise and global footprint are yielding results. A resumption of investment banking activity in June highlighted the clients turned to Morgan Stanley as market windows reopen and serve as momentum heading into the second half of 2025. Boardrooms appear more accepting of ongoing uncertainty broadly, and we are leaning into our strategy to help clients navigate bouts of volatility.

While we are still in the earlier stages of the investment banking recovery, outstanding performance in equity underwriting this quarter is a positive leading indicator. Further, while there is clearly more work to do, we are beginning to see bank regulatory reform progress. The new SLR proposal and potential for CCAR reform suggest the regulatory body continues to constructively reevaluate the total capital framework. With a CET1 ratio of 15%, we are 200 basis points plus above our forward capital requirement, which affords us ongoing flexibility to deploy capital. We now have a $1 per share dividend.

Incremental capital deployment will range from supporting clients, growing our businesses, opportunistically buying back stock, and evaluating inorganic opportunities where there is clear strategic alignment. All through the lens of generating strong and durable returns for our shareholders. Looking ahead, we remain constructive on the market environment. Our strategy to raise, manage, and allocate capital for clients across the wealth institutional universe is working. Amidst continuing economic and geopolitical uncertainty, we are intensely focused on continuing to deliver outstanding durable results for clients and returns for shareholders. Sharon will now take us through the quarter in greater detail. Over to you.

Sharon Yeshaya: Thank you, and good morning. In the second quarter, the firm produced revenues of $16.8 billion. Our EPS was $2.13, and our ROTCE was 18.2%. The market backdrop varied materially over the course of the quarter, impacting investor sentiment and prompting clients to seek advice and reposition portfolios in response to evolving trends and themes. Amid this backdrop, our business performed very well. We benefited from our multiyear investments to drive organic growth in wealth and investment management and to support our global footprint across the integrated investment bank. Deepening partnerships across the integrated firm positioned us well to capture momentum in the quarter. The firm's year-to-date efficiency ratio was 70%.

Efficiency gains remain a product of continued prioritization of our controllable spend and savings from prior space exits, self-funding investments, and driving increased productivity by leveraging technology to support the firm's strategy. Improved efficiency also comes despite higher execution-related costs on the back of elevated volumes broadly. Now to the businesses. In Institutional Securities, revenues were $7.6 billion, supported by our equity and fixed income markets franchises and regionally by period-over-period strength in Asia and EMEA. Results benefited from our ongoing investments in talent, global footprint, and technology, enabling us to capture activity levels and meet clients' need for advice. The underlying businesses' performance varied throughout the quarter.

Our markets business captured client flow opportunities early on when activity levels were elevated. Investment banking paused for April and the first half of May, but activity recovered alongside rising asset levels. A rebound in the performance of IPOs that had been priced earlier in the year supported prospective issuers to successfully come to market, further establishing investor and corporate confidence. As a result, the integrated investment bank ended the quarter with strength. Investment banking revenues were $1.5 billion. Equity underwriting gained momentum following multiple years of subdued activity, and its rebound partially offset the year-over-year declines in debt underwriting and advisory. Regionally, strength out of Asia Pacific was supported by a healthy mix of activity across equity products.

Advisory revenues were $508 million, reflecting lower completed activity. Equity underwriting revenues of $500 million improved meaningfully despite a slowdown in April and much of May. Convertibles, follow-on, and IPO issuance all accelerated towards the end of the quarter as global issuers and investors gained confidence amid a market rebound. Fixed income underwriting revenues were $532 million. Results declined versus the strong comparative period, primarily due to lower non-investment grade issuance. The M&A backlog continues to build across regions, with a thematic focus on growth supported by healthcare and technology. With a similar focus on growth companies, our IPO pipeline is balanced between the Americas and Asia, and issuers are poised to launch, subject to open markets.

We have been investing in strategic hires and corporate lending to expand and deepen our coverage footprint, and our results and recent announcements prove ongoing progress. As we continue to support clients who are increasingly accepting of uncertainty and in greater need for advice, we are well-positioned to capture share as investment banking activity accelerates. Turning to equity.

Ted Pick: Our franchise continues to deliver robust results.

Sharon Yeshaya: With revenues of $3.7 billion, reflecting growth across products and regions. Volatility around changing trends and the eventual rebound in markets required clients to reposition, which drove heightened engagement globally. Prime brokerage revenues were especially strong, achieving a record. Average client balances rose to all-time highs, driving the strength of the financing revenues. Cash results increased versus the last year on higher volume across regions, with strength in EMEA. Derivative results rose versus the previous year as the business actively supported clients, particularly around tariff-related market events during the period. Fixed income revenues were $2.2 billion, driven by the strength in macro results increased versus the prior year.

The business benefited from an increase in client hedging, trending foreign exchange markets, shifting interest rate expectations, and wider bid-offer spreads, particularly early in the quarter. Micro results were solid. Strength in secured lending revenues, which continue to grow on the back of higher balances, were partially offset by heightened volatility and widening credit spreads at the beginning of the quarter. Commodity results primarily reflected lower revenues in power and gas and fewer structured trades compared to the previous period. Other revenues were $202 million. The comparison period benefited from higher net interest income and fees on corporate loans. Turning to ISG lending and provisions.

In the quarter, ISG lending provisions were $168 million, driven by portfolio growth and a moderately weaker macroeconomic outlook. Net charge-offs were $19 million, primarily related to several commercial real estate loans, which were largely provisioned for in previous quarters. Turning to wealth management. The business delivered on key metrics. Strong net new assets, exceptional fee-based flows, and healthy lending growth reinforced our differentiated wealth management franchise. Revenues were $7.8 billion, inclusive of $292 million of DCP, and the margin continued to expand, showcasing the inherent operating leverage of our scaled platform. Results reflect our investments focused on growth and our strong track record to help clients understand the value of advice.

Moving to our business results in the second quarter. Pretax profit was a record at $2.2 billion, and the pretax margin was 28.3%. DCP negatively impacted the margin by approximately 70 basis points. Higher margin shows strength of our asset growth, achieved by our investment-led strategy. The underlying business progressed towards our long-term goal of 30%. Asset management revenues were $4.4 billion, up 11% versus the prior year, driven by higher market levels and the cumulative impact of consistently robust fee-based flows. In the quarter, fee-based flows were very strong at $43 billion, marking a record, excluding previous asset acquisitions.

Clients continue to shift assets from adviser-led brokerage accounts to fee-based accounts, and we continue to invest in overall education, technology, and product innovation to benefit clients and support ongoing asset migration. Fee-based assets now stand at $2.5 trillion. Net new assets in the quarter of $59 billion, inclusive of a $22 billion headwind from tax outflows, reflect growth across channels. Advisor-led flows were particularly strong, originating from new advisors who are attracted to the strength of the workplace as well as assets that originated from workplace. Transactional revenues were $1.3 billion, and excluding the impact of DCP, revenues increased 17%.

Retail engagement was especially strong in April as clients responded to elevated market volatility, and activity persisted with momentum at the end of the quarter. Bank lending balances increased sequentially to $169 billion, predominantly driven by growth in securities-based lending. Steady growth in lending shows our progress in deepening client relationships by offering portfolio solutions, addressing both sides of the client's balance sheet. Household lending penetration grew across our adviser-led channel with greater engagement from advisers and clients. Total deposits increased $383 billion, and net interest income of $1.9 billion was flat sequentially. These results reinforce continued stability in sweep balances. Throughout the quarter, clients steadily deployed cash into the market, indicating confidence in the forward look.

As we look ahead to the third quarter, we would expect NII to remain around recent levels, subject to changes in the policy rate. Along with $6.5 trillion of client assets, our second quarter performance demonstrates that our strategy is working, benefiting from years of sustained investment and consistent execution. Our scale positions us to continue to innovate and invest in a secularly growing market. Today, we have 20 million individual relationships across our three channels, and the opportunity to deliver incremental advice and solutions across channels and our platform remains ahead of us. Turning to investment management.

Ted Pick: The business delivered strong results with revenues of $1.6 billion, increasing 12% year over year. Total AUM reached a record at $1.7 trillion. Our franchise generated positive long-term net flows of $11 billion, bringing year-to-date inflows to $16 billion. Strong organic growth is the product of leveraging our global distribution, with a particular emphasis in fixed income. We are also continuing to see strong demand for Parametric customized portfolios, especially among our wealth management client base. Asset management and related fees were $1.4 billion, driven by higher average AUM across asset classes. Performance-based income and other revenues were $118 million, largely driven by gains in infrastructure funds.

Liquidity and overlay services had outflows of $27.3 billion, reflecting institutional outflows partially related to deployment into markets and corporate CapEx. Overall, we are seeing the benefits of our investments and continued focus on global distribution capabilities. By leveraging the integrated firm, we are focused on our ability to generate sustainable growth and long-term flows and fee-based revenues. Turning to the balance sheet. Total spot assets increased $54 billion from the prior quarter to $1.4 trillion. Our standardized CET1 ratio stands at 15%. Standardized RWAs increased sequentially to $523 billion as we actively supported our clients. Our stress test results reflect the durability of our business model and show consistent improvement in our results over the past five years.

We announced a quarterly dividend increase of $0.075, bringing our quarterly dividend per share to $1. Our quarterly tax rate was 22.7%, reflecting our global mix and level of earnings. We expect a tax rate of approximately 24% in the second half of this year, consistent with our initial guidance. The second quarter results were strong. As we look ahead, we are entering the third quarter with momentum. Investment banking pipelines are healthy, dialogues are active, and markets have proven resilient. And wealth and investment management will continue to gather assets, with total client assets now reaching $8.2 trillion. With that, we will now open the line up to questions. We are now ready to take in questions.

If your question has been answered or you wish to remove yourself from the queue, and then we will move to the next person in the queue. Please standby while we compile the Q&A roster. We will take our first question from Ebrahim Poonawala with Bank of America. Your line is now open.

Ebrahim Poonawala: Good morning, Ted. I had a question. I think in your prepared comments, you mentioned incremental return on capital. And as we think about whether this franchise can, you obviously have your targets out there. But when we think about this in the context of changes on the regulatory backdrop, the work you have done to integrate this franchise globally across businesses, how should we think about the incremental return on the capital? Could this be an even more profitable bank than what we have seen so far? Would love your thoughts around both in terms of what this franchise is capable of and what the regulatory environment may mean for future profitability.

Ted Pick: Well, I think that is the number one question. So it is great to have you open the call with that because it is what we are much focused on, what the franchise can afford and what the environment can afford incrementally via regulatory reform and animal spirits synchronizing around the world. Those are both clearly tailwinds. The business model as we sit here is generating earnings growth and incremental excess capital, which continues to grow our flexibility. We are, as we speak, deploying additional capital into the core businesses. So organic development is happening and will continue to happen where we think there is operating leverage with smart risk architected deployment around clients.

Core examples of that would be in investment banking, got a world-class sales force, coverage universe that we continue to add to. We are deepening the footprint with corporates and clients through additional credit extension, and there is clearly more to do there around a relationship and event. And so investment banking is right at the top of the list along with wealth as we go into the next stage of the cycle. Second is wealth itself. I have called that out on the last number of calls with Sharon. There is more to do with these 20 million relationships that are growing every day.

And in workplace, around broadening our lending capabilities in a prudent way, see the tick up year over year. That is going to continue to happen as we supply clients with additional breadth and depth of product. And then third, the area that we are much focused on is the markets business, specifically financing businesses that are durable, where we are well known to the client and vice versa, where we can act as a leader in places like Prime Brokerage and Secured Lending. So investment banking, writ large, wealth management, writ large, and markets, writ large. That covers a lot of the business where we can clearly put additional capital to work.

That is a process that has begun, and it continues to intensify as we generate incremental capital with each passing quarter. Inside of that, there are inorganic opportunities that come by along the transom, and we are looking at them, of course. But the bar is super high. We have a record of integration that is a good one, but we have humility around what it takes to make integrations work. And so the bar with the management team is a high one. But we look at those integrations, those potential tuck-ins, in the context of what the core strategy affords.

Are they acquisitions that actually are near the bull's eye or better on the bull's eye that would actually help grow the core strategy across wealth and investment management and the investment bank such that we can continue to grow capacity that way? So you are hearing, Ebrahim, both organic and inorganic. But the specific answer to your question on the organic opportunity is that the first half affords an example of the operating leverage that the firm is able to demonstrate where the environment has been murky. When the environment stabilizes a bit, we are one pronged to the three-pronged administration effort.

We would expect areas like M&A business and underwriting business to pick up, and that will continue to afford us additional operating leverage. So we are contributing to that. The dividend is number one and will continue to be paramount. The cadence in the increase of dividend dating back to when it was scrip all the way to now a dollar share and a 2.8% yield at current prices is one that we will continue to put at the top of the list for its durability and something that our core investors have come to expect as a key signpost of the core strategy itself. And then finally, the buyback we are at a $4 billion pace per annum.

That is obviously a lever that we will use tactically and accordingly. So that is some detail, but clearly you are hearing we are giving this quite a bit of thought because as you rightly point out, we printed 15% CET1. We are at 13 with clearly indications that you see from the most recent that the numbers are going in our direction on the back of continued regulatory reform. So that kind of buffer, we should be thinking about this and taking steps, and we are as we speak.

Ebrahim Poonawala: That was very comprehensive. One quick follow-up. I think both Sharon and you implied there is a higher tolerance across boardrooms for the macro volatility. We are seeing some pickup in rhetoric around tariffs. Do you think this is different than what we saw in March and April where there is a huge hit to corporate sentiment around deal activity that is unlikely or less likely to happen on a go forward? Thank you.

Ted Pick: My sense in recent weeks is that if the use the word cadence again, if the cadence of tariff policy execution is such that it is viewed to be sort of within broadly expected parameters, and obviously, the part of the negotiation is for administration to optimize results. But if there is a sense that it is within sort of bands of outcome, and that the negotiation will take a certain amount of time as appropriate, but it is sort of quantifiable, that is clearly going to be a catalyst for further clearing of uncertainty. What is interesting in the last month has been that the strategic activity has really started to pick up.

And in fact, the strongest sponsors of the group because as you know, sponsor activity is consolidated to the winners. They are also actually quite aggressive on the acquisition front. So we are seeing real interest on the buy side from both corporates and from strategics. And clearly, the fact that an IPO market on the back end is working means that the value chain seems to be in pretty good shape. So I think that if we continue along into the fall, with what we saw in the last month, it should be a quite strong second half going to 2026.

Operator: We will move to our next question from Dan Fannon with Jefferies. Your line is now open.

Dan Fannon: Morning, Ted. Wanted to follow-up on your previous comments just around inorganic. Sounds like these would be more tuck-in or complementary type of deals if they were to happen. But if you could talk to, you know, maybe financial or strategic, you know, factors that would, you know, take you to over the threshold to get to completing a transaction. That would be helpful.

Ted Pick: It has to fit squarely within the strategy to raise, manage, allocate capital for clients. We have a record of integration, but we are not looking to make acquisitions just for the sake of it. The opportunity set within Morgan Stanley proper is extraordinary as you look across wealth management. The entire funnel is showing growth up and down even at this stage of uncertainty. We are seeing inflows and growth in investment management across multiple pieces. We are just getting going on the growth of Parametric in investment management, and the full opportunity that underlies E*TRADE and Wealth Management.

And the investment banking franchise is a world-class franchise that after more than a dozen years of financial repression is now actually able to go out and do its thing. This has been a franchise that we have nurtured as a global business. We are one of only a very small number, as you know, running global businesses, and the ability to execute complex cross-border strategic transactions is now right in front of us. So the organic opportunity set is enormous. If there are tuck-ins, which we see many come through, that can actually add to the operating leverage, to the plant without actually distracting us from the opportunity set in front of us. Sure. We are looking at them.

But the name of the game is to just continue to prosecute against the strategy deck that you saw. We are marching our way durably. Obviously, asset prices can move around. But $10 trillion, we are on our way. You see the margins in wealth. They are now in the high twenties. You see that the efficiency ratio for the first half was 70%, and you see that we are durably very judiciously growing share across the investment bank. That is what we set out to do. And we intend to just stick to our knitting and get that right and generate real returns and incremental capital for our shareholders.

Dan Fannon: Great. That is helpful. And then, Sharon, can you expand upon your comments around NNA? You highlighted, you know, new adviser strength, but maybe talk about flows more broadly. And then also just the characterization of the recruiting backdrop today for new advisers joining the platform.

Sharon Yeshaya: Sure. Why do not we take it step by step? So just recruiting generally, take it from the bottom is there is obviously a great platform. We have recruits that are interested in what we have been investing in, so that has been great to see. We talked about it in the last call. Think for NNA, which is really wonderful, is to see that we have strength in all three channels. It is not just one channel. From the adviser-led side, we do have recruiting, but we also have flows coming in from workplace.

So I have given these numbers before, but you start from a workplace perspective, and we have new flows that generate from workplace that are going into the adviser-led channel. And then those are actually also becoming fee-based flows. So we are seeing that increase of the net new assets are really coming in originating from the workplace. And then we have the new flows that transfer have both the existing flows, but 70% of the flows that come from workplace that originate from workplace is actually net new assets to the firm.

So that is an incredible number when you think about the net new assets and how they are generating from what we intended to see in the investments in Workplace. We were looking at, just a step back, not just on NNA, just so that you do have these numbers. We used to say, you know, we had about $16 billion per year that were originating from workplace. This year, we are running ahead of those numbers. It just shows you the strength of all of the channels. So adviser-led is coming both from existing advisors as well as recruits. The origination of workplace. And then self-directed, we should talk a little bit about E*TRADE.

We are seeing really great flows from the self-directed channel, year-over-year improvement there. That comes from investments in marketing and business development. We have put in new tools like E*TRADE Pro. You are seeing all of that marketing pay off across the channels. And I think that understanding that this is all happening against the backdrop of a tax season is encouraging. And then the fee-based flows, which you know, you did not ask about but I will just touch on, are also very, very strong, just underscoring how well the funnel is working. Our next question comes from Devin Ryan with Citizens Bank. Your line is now open.

Devin Ryan: Good morning, Ted. Good morning, Sharon. I have a question on Stablecoins and kind of the broader theme of tokenization. Obviously, stablecoin legislation likely to pass probably in short order here. You have market structure legislation that is probably not too far behind. So just love to hear about how you are thinking about the opportunity from Morgan Stanley. Is this something that you think could be big, or is it just kind of an evolution of market structure? And then are there any specific areas that you are focused on as we get more regulatory clarity?

Sharon Yeshaya: Yes. Sure. I am happy to take that. As you would expect, we are actively discussing it. We are looking both at the landscape and the uses in the potential uses for our own client base. But it really is a little early to tell. It is especially for the businesses that we run versus businesses that you might see from competitors on how Stablecoin would necessarily play in. But we are very, very close to the landscape. We are understanding this as well as the evolution across all technological advancements. You know, AI, crypto, you name it. All of them sort of have an ecosystem that we are very focused on.

Devin Ryan: Okay. Great. Thank you. And then just a follow-up on the trading environment. Obviously, second quarter there is a lot going on between tariffs and geopolitical. So it is a bit hard to gauge, you know, how much maybe activity was elevated relative to repositioning for institutions compared to maybe a more normal second quarter. So just love to hear about how the market backed off is evolving. Sharon, I heard comments about markets have been resilient in the third quarter thus far, so I am not sure if that was a reference to trading, but just a little bit of flavor around the market backdrop.

And then if you can weave in as well just some of the efforts you are taking to kind of improve market share, obviously, doing more on prime brokerage as well. So love to just kind of weave that in as well for the question. Thank you.

Sharon Yeshaya: Sure. Why do not I take again? I will take the bottom question first. Just in terms of improvement of market share. We have been actively investing in the global franchise, and that global nature is one that you can see bearing out in the results. I called out specifically even in equities this quarter a record coming from EMEA. There have been previous quarters. We have talked a lot about Asia. And when we talk about Asia, you know, you speak about it as one region, but there are multiple countries that are involved in that.

And the relationships that we have with MUFG, what we are doing in India, Greater China, all of that becomes relevant, and that is what we think of when we talk about moats around the business, just where we continue to invest and see a lot of improvements in results and an ability to gain durable share. In terms of client repositioning and momentum, it was not just specific to the institutional business. The retail business was extremely strong as well. I spoke about it on the April call about seeing resilience from retail engagement and a continuation of a buy-the-dip mentality even through the tariffs. You will probably remember that.

And so that continued throughout the course of the quarter. It was not specific just to April. You saw inflows to markets from sweeps, etcetera, across the entire course of the quarter. And I even mentioned it in the liquidity flows. When you think about liquidity and where those outflows went, they went into market. They went into CapEx exposure. So the repositioning and the rebalancing is on the institutional side throughout the quarter across, you know, the equities businesses, across the retail businesses, and across the IM business. And we are there to capture all of that.

Ted Pick: Yeah. What I would add to that is, in the case of equities, we have talked for many years about what it takes to run a global fully laid out equities business. The old nine boxes where you have Prime Brokerage, derivatives, and importantly cash, and then the three regions. And the cost to run that business, just dollars in the ground to turn on the lights every year, those costs, as you know, have only gone up. And so not surprisingly, the top of the competitive heat is able to endure operating leverage and above-market returns, and the rest have to slug it out just to sort of make the nut.

What is remarkable about this year or worthy of calling out, and Sharon made reference to it, is this quarter in Europe, we had a record quarter in equities. In the first half, we have had a quite extraordinary half in Asia, which is obviously Hong Kong and Tokyo led. So it is not just about the electronification of the product and the span of the product palette, but it is also the ability to run the business globally. I would also just touch on fixed income not so many years ago. We were talking about trying to get to a billion dollars a quarter.

And now fixed income is quietly put up $2 billion a quarter through every imaginable kind of environment for a whole bunch of quarters. So part of the strategy here is to not only generate operating leverage but to impute durability in the results that actually are in line with how we want the strategy to be presented around clients. The last piece to this, which is absolutely critical, is this idea of the integrated firm. Where, as appropriate, we are knitting clients across the plant, across the world together, whether it is in getting them access to capital, to ideas, financing, strategy, the whole thing.

And that is most dependent on a culture at the very top of the house where the capital to the earlier question that is deployed, and the resourcing that we add on is good for the franchise as a whole, as opposed to nurturing just one particular division. And that is obviously something that is years in the making, and we think will prove to be a real competitive advantage as we flex some of that incremental capital.

Operator: We will move to our next question from Glenn Schorr with Evercore.

Glenn Schorr: Good morning, Ted. Just a follow-up on that. I appreciate all the comments you made to the first question. I was curious a little bit about why asset management is not included in that potential deployment of capital, being that you are already great and hopefully getting greater in wealth management. Same kind of comment across banking and trading. And I felt like from a total dollars of capital, you could probably do the most help in terms of the asset management franchise. Maybe just put that in the wrapper of how you think about balancing capital deployment and making sure asset and wealth are still the big primary identities of driving the stock and the returns. You know?

So this it is basically a balancing the mix of businesses, if you will.

Ted Pick: Yeah. It is actually a good pickup there. That was not intentional. In fact, the investment management numbers this quarter, as you know, were really quite outstanding with $11 billion of inflows and then the continued growth of Parametric. I think it is fair to say that the opportunities across investment management, which is your question, Glenn, on sort of a standalone basis. Given the fragmentation of the industry, and given how some folks are doing a lot better than others, there are many, many acquisition opportunities in the asset management space. As you are well aware. We are being very careful about that.

To the extent we can add an advance before people have figured out what Parametric is all about. Or we can make an acquisition of Solium before people understand that is the linchpin to Workplace. If we can add E*TRADE as filling out the funnel. I think part of the thinking is to not only imagine what the asset is worth in and of itself, but what the platform effect to the core strategy is from being inside the wealth funnel or being inside the investment management universe. And I think you know well that investment management roll-ups have had very mixed experience.

So to the extent that we can bring in a strategy or bring in a business that fits with Morgan Stanley culture, that fits with our client perspective, and can afford us incremental operating leverage, well, sure. That would absolutely check a whole bunch of boxes. It could give us incremental margin. Clearly additional AUM. But I am much focused, Glenn, on folks hearing that first and foremost, we are really focused on what is in front of us. In our operating and management committee and leadership meetings around the firm. Every day. Because there is a ton of demand for incremental capital, incremental resources that is coming straight from clients through our people to us.

So the nurturing of what we have in the core strategy of raise, manage, and allocate capital to clients affords us a heck of a lot of runway. But you are right. There are investment management strategies and opportunities. Some of them are very clear, and some of them may be more hidden gems like a Solium, which I thought was ingenious, that can be brought in to actually help transform where the firm is going to go with clients.

Glenn Schorr: I appreciate that. Sharon, if I could ask a quick follow-up on your comment around NII, around steady and the current rate backdrop. There are like five or so rate cuts expected through now through the end of next year. I mean, you have offsets. Your business probably does well if rates are going down. But can you talk about NII in a forward curve setting or however else we should think about the balancing of lower rates?

Sharon Yeshaya: Sure. I will not give specific guidance as you probably expect, Glenn, as it relates to next year. But I will highlight to you that if you use the word offsets, yes. Generally speaking, in a lower rate environment, we see inflows, right, of sweeps. So I think that there are places that you can certainly better understand where we are today and we look ahead. I have stated that we are in a similar range largely because we have not really seen sweeps move. And you are in a position where there are stable rates. But what you will also gain over time is the increases from lending balances.

Which is why I have paid, you know, I spent a lot of time talking about that in the prepared remarks because in my mind, that is an incredible forward-looking indicator for just the strength of the business and how we have seen an increase in household penetration from a lending perspective. So more and more of those advisers and users are thinking about our lending product on the wealth management side. As it will play out specifically from an interest rate perspective and sweeps, those will be likely, you know, factors that will be driven by the policy rate. But, yes, generally speaking, when rates do go down, we generally see sweep balances broadly go up.

Operator: Our next question comes from Mike Mayo with Wells Fargo.

Mike Mayo: Good morning, Ted. I just want to ask about a trend of more lending through the capital markets division. So in other words, Ted, you talked at the moment a wow on your last presentation. That was memorable to me. But I think one wow to me is just, you know, the extent that banks used to lend direct to the commercial customers, and now they are lending more to non-bank financial firms than directly lending those traditional commercial customers.

So my question is, how do you see that trend where it has been, where it is going, and how much lending do you do through your capital markets business as a percentage of the because it is all kind of jumbled together and those of us on the outside had a tough time quantifying that.

Ted Pick: That is an interesting one, Mike. I do think you are touching on we have to see how the regulatory environment plays out, but I think we sort of sense that, you know, the fifteen-year dam is breaking. And that reform is in the offing. See indications of that in SLRs, you know, and recent strong results from the group in this recent CCAR exam. I do think that some of the share that we seeded as an industry group at the top, the big banks, writ large, the, you know, the six of us, that in part was a function of, you know, regulatory limitation. Broadly. And that regulatory limitation may well be normalizing.

And that will not so much dollar for dollar take share back from the private lending group because I think the private credit product has found its place. It is institutionalized. As you know, it is at $2 trillion and growing. But I think the ability for the highly capitalized global investment banks, especially if they have something special along with it. In our case, as you know, world-class wealth and investor management businesses will be able to get back after that core share around corporate product. In the mid-cap space, with corporate derivatives to unsecured but high-quality borrowers where perhaps we have been competed out to be more, soup to nuts on acquisitions and complex events.

It will still be a role for others to continue to flourish in the boutique space. The winners will continue to be winners, and there will be clearly a role for the sponsor community to do its thing.

But I think the I do not want to say the Balkanization of some of our core activities inside of the securities business and corporate investment bank amongst the big group, I think you may begin to see and you have indicated this, the tide may begin to shift where we can begin to again play a more central role in the governing of the stewardship of the corporate and sponsor capital markets acting as financier as structure, of course, as appropriate as the distribution allocation engine. So I think we have got, of course, that back end in a special way.

I think the front end has been splintered because there have been limitations that have been brought to the group. There is so much they can do, but I think it is clear and this ties to the earlier answer with respect to organic or inorganic, any kind of normalization of the regulatory environment is going to afford the largest of and most, well, capitalized and global firms a lot of running room to prosecute core lending product with sophisticated clients. The largest, most sophisticated highest net worth individuals are walking institutions. We have folks that are in the ecosystem who act as competitors, clients, frenemies, but they can also get incremental capacity from us.

And our intention, I think, would be to be competing for additional depth with those key top ecosystem players where we do not have to worry as much about hitting a limit that is sort of preordained from notional limits that were prescribed a decade plus ago. I think it is an evolving process. We want to do that prudently. We are well aware of bouts of volatility. We are aware of sort of risk architecture. So we are in no rush to do that. Which is why, you know, we are so focused on the cadence of earnings.

There is a sense of consistency in who we are lending to, how we are growing the product, how we are delivering on deposits. It is all part of sort of the broader mosaic of getting to 20% returns on tangible on an ongoing basis.

Mike Mayo: Great. That was very helpful. Thank you.

Operator: Our last question comes from Erika Najarian with UBS.

Erika Najarian: Good morning, Ted. Just two follow-up questions. First, for you, Ted, on all the inorganic opportunity. When investors see your returns, they say, oh, how does an optimized teaming business continue to optimize itself? And as you I heard you talk about inorganic. I was wondering where deposits would play into your priority. I know that you have less than 10% of trading assets in the bank sub, and some of your peers have 30 to 60%. I am wondering sort of where that would fall on your priority list.

Ted Pick: I will give Sharon this one. Go ahead.

Sharon Yeshaya: Sure. So, Erika, I think it is a really great point, and I think it is something we have been very focused on. As you know, and I know you have written a lot about the usage of the bank, the bank is clearly a priority for us. We put it into the strategic objectives purposefully to really talk about the fact that we see more potential growth as we think about eligibility. You obviously do need both sides of that balance sheet. For us, in terms of deposits, we have grown and continue to grow and diversify our deposit base, which will allow us to support ongoing growth of eligible assets that we could put on the bank.

And so this is a strategic objective. I think that it is something that we see real potential for as we move forward, and it will take time to really make sure that we do it the right way with the right infrastructure. But what you have certainly seen is that over the course of the last ten years, we have put a lot of investment into the bank product into what we have to make ourselves a real bank. That has the ability to service both sides of that balance sheet.

Ted Pick: And let me take the first half of your question, which is on the back of what Sharon just said. There should not be a conflation around having a strategy that is clear and consistent and well understood in a sense that we have no more runway on that strategy. Runway on that strategy is just effectively a byproduct of addressing enormous TAMs with large barriers entry. On the one hand, you have a $6 trillion world-class wealth management business, but the current TAM is at least $60 trillion. So we are the leader, but we only have 10% share. In the investment bank, we are a global leader, have 15% share.

Both of those businesses, as you know, are secular growers. In the investor management business, we are working away to grow our real assets business, our private credit businesses, our liquidity businesses. Those businesses now on an organic basis have the kind of runway where a very good argument could be made across give you examples in all three divisions and inside of infrastructure as well where the best answer may be to just hew to the core strategy of raise, manage, and allocate capital by continuing to invest in those businesses, to grow them, through the power of AI, but also through the extension of credit and to work closer with clients.

It may also be the case though that inorganic opportunities come across the transom that give us incremental perspective or breadth, but the bar is quite high. Not because we are not sure what we want to do next, but in fact, because we do know what we want to do next, the best use of capital is probably to continue to hammer away inside of the business given that the level of excess capital that we hold is incrementally growing at this point in the cycle. If something comes through, that is additive to the capability that we already have, we are going to go and do that.

But the IM example referencing back to Glenn's question is an appropriate one. Where we have pockets of build that are going to pay off for five, ten years with durable streams, but we may not need to go inorganic. We may be able to just hew to the organic. But the inorganic opportunity being folded inside of the organic build is the likely way we are going to go.

Operator: There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you, everyone, for participating. You may now disconnect and have a great day.

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