Release Date: April 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Morgan Stanley reported strong revenue of $15 billion, with a 71% efficiency ratio.
- Earnings per share were $2.02, with a 20% return on tangible equity.
- Wealth Management client base showed greater activity, resulting in higher adjusted margins of 27% and net new assets grew by $95 billion.
- Investment Management generated positive long-term flows, with total client assets growing to $7 trillion.
- Institutional Securities generated solid results, with revenues of $7 billion up 3% versus the prior year.
Negative Points
- There remains a backdrop of economic and geopolitical uncertainty that could impact future results.
- Advisory revenues declined due to a decrease in completed M&A transactions.
- Fixed income revenues slightly declined compared to the previous year's strong results.
- Wealth Management's net interest income remained flat sequentially, indicating potential stagnation.
- The international wealth management business is small, which may limit growth opportunities in that segment.
Q & A Highlights
Q: Can you size the non-U.S. wealth piece, whether it be in client assets or revenue for us? And do you think this impacts any day-to-day or your ability to grow and onboard clients in the future?
A: (Sharon Yeshaya - CFO) The international business is small. There are no strategic changes to our business, no changes in our ability to do business, and we're extremely confident in our ability to grow and to deepen the relationship with the breadth of firm offerings that we have to serve our clients.
Q: How resilient do you see the investment banking trends and the desire and appetite for corporates to engage in either DCM, ECM, or M&A, large M&A activity as we look into later in the year into the U.S. elections?
A: (Edward Pick - CEO) The pipeline is growing across sectors and on a cross-border basis. We are in the early innings of a multiyear M&A cycle. On the back of that, we should continue to see all kinds of underwriting. The C-suite wants to act, and we are very active in Japan where we think activity will be heightened for years to come.
Q: On the wealth management NII and sweep deposits, should we stop worrying about a big cliff event where NII declined meaningfully from where we are?
A: (Sharon Yeshaya - CFO) Our suite models and the client behavior is following client expectations. It does feel as though we are reaching that frictional level of cash. We are in a place where you have what we would say is intra-quarter volatility associated with things that might be T-bills maturing, people putting things in markets. But that, again, is frictional levels of cash rather than large changes or movements in real client behavior.
Q: How should we be thinking about incremental margins as these businesses and particularly fees start to grow?
A: (Sharon Yeshaya - CFO) We're making progress towards our goals. We're focused on migration to advice, solutions and products, and the benefits of scale. All three things are working. We're trying to make sure that we also have the right trade-offs between investing in the business, giving ourselves room for technology, and being able to build a 30% margin for a sustainable business and durable revenues over time.
Q: Can you explain how the firm-wide NII diverged from the Wealth Management NII?
A: (Sharon Yeshaya - CFO) The reason that we point you to the wealth management NII is that it's a business-driven NII. When we look at the trading NII and firm NII, it really depends on the products that you have where you're booking them, what you're using as your funding sources that falls into the various pieces of the trading revenue.
Q: You had big year-over-year growth in wealth management client assets but the wealth management revenues increased by a smaller percentage. What kind of wealth management client assets are you growing?
A: (Sharon Yeshaya - CFO) We're growing the funnel, and then beginning to see this movement towards advice. The asset management revenues are at a record high, which is proof that this model is working.
Q: How do you think about the revenue opportunity as wealth management client cash is eventually redeployed?
A: (Sharon Yeshaya - CFO) We did see the percentage of client cash down slightly, not because of actual cash levels coming down, but rather than the equity markets have risen. There is still room to see the deployment of cash over time into the market.
Q: Can you provide some context in terms of the size of the family office business for you?
A: (Sharon Yeshaya - CFO) We formally enhanced our family office offering in 2021. It's a way to offer our wealth management clients different solutions from institutional securities. The reason we pointed out is also to highlight to you that there are lumpy flows that come through these channels.
Q: What are some of the biggest opportunities in the growth algorithm for trading?
A: (Sharon Yeshaya - CFO) The expansion of the wallet and consider where we came from and where we are now. There are many solutions that a bank such as ourselves, can offer, be that from a global perspective. There are corporate solutions that you see we expect to see growth in from a wallet perspective. And there's also financing where you have different types of markets and channels that are growing private credit being an example.
Q: How is the competition from the private credit side in the high-yield and leveraged loan market?
A: (Edward Pick - CEO) The competition is real. We all need to adapt to stay relevant in the ecosystem. I think there's going to be room for folks in the private space to participate in deals, but I certainly do not believe as some seem to suggest that the global investment banks will not have a large role to play as underwriters of securities and all the benefits that, that brings to the issuer versus someone issuing private credit and potentially being the owner over time if things don't go well.
Q: If we get into a really higher for longer rate environment, does that kind of weigh on some of the optimism of the outlook that you presented today?
A: (Edward Pick - CEO) It depends on whether rates are higher because they are sustaining continued growth in the U.S. or if they are higher for a period of time and are followed by a tough landing, in which case, we're in recession and clearly then things will slow down. Our view is that the U.S. economy continues to progress quite nicely that balance sheets amongst our client base are quite strong, both on the institutional side and on the wealth side and that there is plenty to do and that the higher rates that we see are in part, if not more than in part, dictated by a view that we continue to have some inflation and that the economy is in healthy shape.
