Release Date: July 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Morgan Stanley (MS, Financial) generated $15 billion in revenue and $1.82 in EPS for the second quarter of 2024.
- Institutional securities revenues increased by 50% year over year, with a notable 70% rise in fixed income underwriting.
- Wealth management posted strong margins of 27% and grew total client assets to $7.2 trillion.
- The firm announced a dividend increase for the third consecutive year, reflecting durable earnings growth.
- Morgan Stanley (MS) maintained a strong capital position with a CET1 ratio of 15.2%, providing flexibility for dividend growth and stock buybacks.
Negative Points
- Net interest income (NII) faced challenges, with potential declines expected in the third quarter.
- Transactional revenues in wealth management were impacted by seasonal tax payments and increased client spending.
- The firm experienced net charge-offs of $48 million, primarily related to commercial real estate loans.
- Investment banking revenues, while improved, remained below historical averages in some areas.
- The firm faces ongoing geopolitical uncertainties and regulatory expectations that could impact future performance.
Q & A Highlights
Q: Glenn Schorr, Evercore ISI - Analyst: Can you provide more details on the impact of changes in rate paid on advisory deposits and the offset on NII?
A: Sharon Yeshaya, CFO: The changes impact a small portion of the overall BDP, specifically the advisor-led channel. The increase in pricing will be offset by the repricing of the investment portfolio as it matures.
Q: Ebrahim Poonawala, Bank of America Merrill Lynch - Analyst: Can you discuss the visibility into NII and the potential impact of rate cuts on client behavior and NII stabilization?
A: Sharon Yeshaya, CFO: We expect NII to inflect higher over the next year due to stabilization in sweep deposits, benefits from rate cuts, repricing of the portfolio, and lending growth. This quarter showed the first lending growth since rate hikes began.
Q: Mike Mayo, Wells Fargo - Analyst: Why do you believe the investment banking rebound is real this time, and how will higher interest rates affect this?
A: Ted Pick, CEO: We are seeing tempering inflation and normalization of rates, leading to broader corporate finance activity. Despite higher rates, the need for M&A and IPOs remains strong, driven by the sponsor community and corporate needs.
Q: Dan Fannon, Jefferies - Analyst: Can you provide more color on the sources of wealth management flows in the quarter?
A: Sharon Yeshaya, CFO: Flows were broad-based across workplace accounts, advisor-led accounts, and self-directed channels. The interplay between these channels, especially net new clients from workplace, is crucial for our differentiated platform.
Q: Brennan Hawken, UBS - Analyst: Can you elaborate on the repricing changes in the securities book and their impact on deposits?
A: Sharon Yeshaya, CFO: The changes will occur in the third quarter and are based on competitive dynamics. They will be limited to sweeps in the advisor-led channel.
Q: Devin Ryan, JMP Securities LLC - Analyst: How does increased client spending impact wealth management flows, and is this trend expected to continue?
A: Sharon Yeshaya, CFO: Higher net worth clients are spending more on homes and tailored investments, impacting flows. This trend is seen in our data and is expected to continue.
Q: Steven Chubak, Wolfe Research, LLC - Analyst: What is the sustainable incremental margin for ISG as activity builds, especially with more compensable investment banking growth?
A: Sharon Yeshaya, CFO: Focus on the firm's efficiency ratio target of 70%. The margin depends on revenue sources, but the enterprise aims for a 30% margin over time.
Q: Gerard Cassidy, RBC Capital Markets - Analyst: How will a stronger investment banking market impact the workplace channel and overall revenues?
A: Sharon Yeshaya, CFO: A stronger investment banking market will increase workplace assets, client assets, and new corporate participants, enhancing the ecosystem and driving net flows.
Q: Saul Martinez, HSBC - Analyst: How do you see the wallet evolving for sales and trading businesses, and can you grow revenues from the current base?
A: Ted Pick, CEO: We aim to grow share durably by offering products to core clients globally. The integrated investment bank structure allows us to provide bespoke advice and financing, supporting responsible growth.
Q: Saul Martinez, HSBC - Analyst: What is the outlook for institutional securities ROE as the investment banking cycle progresses?
A: Ted Pick, CEO: We are early in the cycle and expect operating leverage to improve. The goal is to achieve sustainable 70% efficiency and strong returns across the firm.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
