Morgan Stanley

Operator: Good morning. Welcome to Morgan Stanley's second quarter 2026 earnings call. On behalf of Morgan Stanley, I will begin the call with the following information and disclaimers. This call is being recorded. During today's presentation, we will refer to our earnings release and financial supplement, copies of which are available at morganstanley.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Morgan Stanley does not undertake to update the forward-looking statements in this discussion. Please refer to our notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release. This presentation may not be duplicated or reproduced without our consent. I will now turn the call over to Chairman and Chief Executive Officer, Ted Pick. Ted Pick: Morning. Thank you for joining us. In the second quarter, Morgan Stanley again delivered top-line and bottom-line record results, with revenues exceeding $21 billion and EPS of $3.46, marking an exceptional first half for 2026. $42 billion of revenue, $6.90 in EPS, and a 27% return on tangible. Across Wealth and Investment Management, total client assets stand at $10 trillion, fulfilling a Morgan Stanley strategic milestone. Our client acquisition funnel will continue to drive Wealth Management's superb performance, and with the passage of time, we seek to grow standalone wealth assets from the current $8 trillion-$10 trillion. Buoyed by active markets, our results reflect multiple years of disciplined investment and consistent execution, positioning the integrated firm to deliver strong results. Our advice-based businesses are working well together across our leading Global Investment Bank and scaled Wealth and Asset Management franchises to deliver industry-leading growth. In Institutional Securities, our deep client relationships, global footprint, and connectivity across businesses drove a record top-line quarter of $11 billion. Dialogue with clients remains high and strategic activity has momentum. In Investment Banking, Morgan Stanley led landmark IPOs in the quarter while helping unlock broader client pipelines. As institutional clients sought access to global markets, our equities franchise provided client solutions around the world, resulting in an exceptional $6.3 billion quarter. With institutional activity strong and IPO markets open, Morgan Stanley connected the integrated firm to translate institutional strength into client value through our advisor-led and E*TRADE channels. Wealth Management added a record $148 billion in organic net new assets, driven by large IPOs of late-stage private workplace clients. Growth led by workplace relationships reflects a cornerstone of our client acquisition funnel. Our ability to serve clients across the private-to-public continuum continues to attract assets to our world-class platform, delivering unique products, solutions, and advice. Investment Management also grew in the quarter, with AUM now reaching $2 trillion. This business remains a diversified source of strength, with Parametric as an important differentiator of the integrated firm. The four pillars of Morgan Stanley, strategy, culture, financial strength, and growth, remain central to how we run the firm. Financial strength is top of mind. Over the last 10 quarters, we've accreted $18 billion of CET1 capital and now have a capital cushion that is at least 300 basis points, with continuing stress test validation of our durable business model. This excess capital affords Morgan Stanley the strategic flexibility to continue to support clients globally, invest in our businesses, and return capital to our shareholders. This quarter, we delivered on all three of those priorities, including announcing a 15% increase in our quarterly dividend to $1.15 per share. During the last 10 quarters, we have sharpened the effectiveness and connectivity of the integrated firm's core mission, which is to be the preeminent advisor to clients as they raise, manage, and allocate capital. We have a 15-year record of successfully integrating acquisitions, and we are, as a discipline, constantly evaluating potential inorganic opportunities to expand and attract to geographies, bolt on new capabilities, add new client relationships. As we've learned through hard-fought integration success, strategic rationale and cultural fit continue to be threshold criteria for any inorganic opportunity even before we consider transaction terms. So the bar must remain high. The very good news is that we are well-placed across two major businesses, global investment banking and markets, and U.S.-dominated wealth and asset management, where the core addressable markets in the current environment are growing at nominal GDP plus, and where we continue to realize wallet share gains. The integrated firm approach underscores that the organic growth opportunities right in front of us are compelling and deserve the first dollar of reinvestment. As I wrote in our March shareholder letter, two defining themes have come into sharper focus over the course of 2026. The first is the accelerating adoption of artificial intelligence, not only by consumers but more importantly across the enterprise, where its potential for enhanced efficiencies and productivity is only beginning to be realized. The second is the return of geopolitics as a defining force in the global economy, as renewed competition among nation-states and regional powers is reshaping supply chains, capital allocation, and economic prospects across our client universe. These are the known unknowns that will continue to shape the environment in which we and our clients operate. They demand disciplined execution and the agility to adapt as conditions evolve. We continue to be well-minded to proceed alongside our clients with the right combination of optimism and vigilance. Morgan Stanley enters the second half of 2026 operating from a position of strength. Our clients, retail and institutional, are seeking advice on how to respond to complicated global markets and are interested in new products and innovation. Our role as financier, underwriter, allocator is to offer our clients market access and trusted advice globally. Morgan Stanley's first half performance demonstrates our business model's operating leverage when markets are receptive and clients take action. With a clear and consistent strategy to raise, manage and allocate capital for our clients. We continue to be intensely focused on delivering higher highs and importantly, higher lows for our shareholders through the economic cycle. Thank you, and Sharon will now take us through the quarter in greater detail. Over to you, Sharon. Sharon Yeshaya: Thank you. Good morning. In the second quarter, the firm produced record revenues of $21.3 billion and record EPS ex-CVA of $3.46. Our ROTCE was 26.6%. Institutional and retail client engagement remained strong throughout the quarter, and the integrated firm consistently delivered trusted advice and market access, responding to ongoing client demand. The firm's year-to-date efficiency ratio was 65%. Top-line growth and disciplined execution drove operating leverage through the first half, more than offsetting higher execution-related costs and continued strategic investments across the firm. Higher technology-driven spend relates to investments to support our infrastructure, AI-enabled efficiencies, and ongoing business growth. To the businesses. Momentum in institutional securities continued in the second quarter. Clients remained highly engaged. The segment delivered record revenues of $11 billion and record pre-tax profit of $4.3 billion. Results were driven by our leading equities franchise and supported by investment banking. Our longstanding global footprint and our investments in talent, technology, and research positions us well to advise clients. That strength was evident in every region contributing to the year-over-year revenue growth. Investment banking revenues were $2.4 billion. The 58% increase from the prior year reflected strength across products as momentum built across capital raising and strategic activity. Advisory revenues increased year-over-year to $798 million on higher completed activity. Revenues remain diversified across sectors, including top contributions from industrials, technology, and healthcare. Equity underwriting revenues were strong at $851 million. The significant increase versus the prior year was supported by a robust IPO market and strong follow-on and convertible activity. Fixed income underwriting revenues were a record $788 million, driven by bond issuance across non-investment grade and investment-grade companies. Issuers took advantage of favorable spread environment and an increase in strategic activity-supported results. The investment banking outlook is constructive. Pipelines are healthy. Client dialogue is broad-based across sectors, and while year-to-date activity has been led by the Americas, global activity is building. Large corporates are executing on their strategic objectives. The need for solutions and capital continues to grow. Sponsor monetization is selectively gaining momentum. To equities. Our franchise delivered an exceptional quarter, with revenues reaching a record of $6.3 billion, driven by increases across all products and regions. Asia was strong, with the breadth of activity extending across the region. Active markets and technology trends serve as tailwinds, and our multi-year investments in our global franchise allowed us to prosecute greater levels of client engagement. Prime brokerage revenues rose versus the prior year, driven by higher average client balances and strong activity in Asia. Cash results were strong, led by active client engagement and higher market volumes in the Americas compared to the prior year. Results in derivatives were also very strong versus the comparative period. Investments in technology centered on building scale and dynamic risk management tools are paying off. The business was well-positioned to capture global activity. Fixed income revenues were $2.5 billion, demonstrating balance across products. The cumulative growth of our secured lending business and trading discipline resulted in solid performance. Macro results were roughly flat versus the prior year. Resilience in rates offset declines in foreign exchange, where volatility traded near historic lows. Micro results increased year-over-year, driven by strong performance in credit corporates on the back of improved inventory management and robust primary issuance. Additionally, the cumulative growth of lending balances in securitized products further contributed to results. Commodities results improved versus the prior year, supported by higher client activity and structured transactions. Activity moderated sequentially following an exceptionally strong first quarter that benefited from energy market volatility. Other revenues reflected a loss of $152 million, largely driven by mark-to-market losses on corporate loans held for sale, inclusive of hedges. Turning to wealth management. The business generated a record of $8.9 billion in revenues, and total client assets stand at $8 trillion. The execution of our strategy, particularly our sustained investment in our client acquisition funnel, allowed us to reach more clients and deepen existing relationships. We remain the industry leader, with record net new assets of $148 billion and strong fee-based flows of $39 billion. Our financial advisors, our culture of continued innovation, our ability to provide unique capabilities and products are the foundation of our business. Together, they underpin a scaled, differentiated platform with $3 trillion in fee-based assets. The connectivity of our integrated firm sets us apart, positioning us to deliver for our clients. Revenues of $8.9 billion and pre-tax profit of $2.7 billion were both a record, supported by rising asset levels and robust retail engagement. The pre-tax margin was 30.5%, a reflection of the scale of our business and the intentional strategic investments for our future. Asset management revenues were $5.3 billion, driven by expanding markets and the cumulative impact of strong fee-based flows. Transactional revenues were $1.2 billion, up 20% year-over-year, excluding the prior year's positive impact from DCP. Results reflect highly engaged retail clients across both advisor-led and self-directed channels. Loan growth remained strong in the second quarter, with balances growing $9 billion. In a quarter with tax obligations, we saw an increase against lending of equity portfolios. Sequentially, deposits grew to $436 billion, and net interest income increased to $2.3 billion. NII outperformed on higher than expected sweep balances and strong loan growth. For the third quarter, we expect a modest sequential increase in NII. Net new assets were a record of $148 billion. Stock plan IPO flows represented just over half of the overall NNA this quarter, more than offsetting seasonal taxes, illustrating the strength of the workplace channel as a strong contributor to the top of the funnel. With strong capital markets, the power of our client acquisition funnel is becoming increasingly evident. Workplace brings relationships and assets onto the platform, and we are well-positioned to support these new relationships. Our investments are extending our runway for growth. We continue to deliver advice and solutions to new and existing relationships, supporting the build in our fee-based assets. We are investing from a position of strength and believe these capabilities set us apart. Turning to investment management. AUM now stands at a record $2 trillion. Long-term net inflows were $7.5 billion for the quarter, driven by ongoing demand for alternatives and solutions, including Parametric, as well as our fixed income strategies. Parametric remains a key differentiator, with over $760 billion in AUM today. Continued education initiatives and ongoing client demand have supported financial advisor adoption across our suite of Parametric custom solutions. Revenues of $1.6 billion increased 6% compared to the prior year. Results reflect higher asset management and related fees, driven by higher average AUM. Performance-based income and other revenues were $130 million. The current quarter primarily reflects net mark-to-market gains in our private funds. As we look ahead, our ongoing investments in technology, distribution, and product innovation position our diversified franchise to better serve our global client base. Turning to the balance sheet. Consistent performance has generated strong capital accretion and strengthened the firm's financial position. Total spot assets grew to $1.7 trillion, and standardized RWAs grew to $590 billion, supporting increased client activity. We repurchased $1.5 billion of common stock, and our standardized CET1 ratio ended the quarter at 14.8%. Reflecting the strength of our capital position, we announced a quarterly dividend increase of $0.15, bringing the quarterly dividend per share to $1.15. While the Fed's most recent stress test does not impact our current capital requirements, it serves as further recognition of the durability of our business model. Our quarterly tax rate was 23.1%. We continue to expect our annual tax rate to be between 22% and 23%, which similar to prior years, will exhibit some quarterly volatility. We enter the second half of the year with $10 trillion of total client assets across wealth and investment management. Together, with a strong capital position and building backlogs. The integrated firm is well-positioned to provide advice and to support clients in an increasingly complex environment. With that, we will now open the lineup to questions. Operator: We are now ready to take in questions. To get in the queue, you may press star and the number one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press star and the number two on your touchtone telephone. You are allowed to ask one question and one follow-up, we'll move to the next person in the queue. Please stand by while we compile the Q&A roster. We'll take our first question from Ebrahim Poonawala with Bank of America. Ted Pick: Morning, Ebrahim. Ebrahim Poonawala: Hey, morning, Ted. Obviously, very strong quarter. Two questions, both on wealth. One, maybe talk to us in terms of, are we at peak flows as far as the workplace channel is concerned when we look at the NNA growth, both the environment, when we think about IPO activity driving the flows, combined with the actions you all have taken as part of this integrated firm, or can we do better? Just kind of what inning are we in terms of growth tied to the workplace channel and just overall NNA growth as we look out over the next year and over the medium-term Sharon Yeshaya: Sure. Why don't I take that, Ebrahim? I think it's a great testament to the investments that we've made over the course of many years. We've always talked about the workplace channel. We've talked about the fact, I think I said it in the last call, that IPOs can serve as a form of where we get NNA, and the top of the funnel. Why don't I take a step back and just remind you that we have about 70% of the top 100 unicorns by market cap in terms of our workplace pipeline. We've spent a lot of time thinking about how do we service some of these companies at the very early stages. We've talked about privates. We've talked about how we support different private companies, think about EquityZen, and all of the investments that we've made. That gives you sort of the framework of really some of the top of the funnel. There are other places in workplace, right? There are 401K, there's relationships with E*TRADE, there's savings products, et cetera. Now, as you go through the funnel, we've talked about increased backlogs from the IPO pipeline, and that should help as you think about different companies coming to market and again, providing that with different opportunities. Of course, that will ebb and flow. We've seen that. We've had different quarters where you have different movements in NNA that come through these IPOs or might come through large integrated firm relationships, and we've talked about that too. What we're focused on now is really making sure that what we're doing is retaining those clients. We're providing them with advice. We often talk about, well, where are the dollars of investments going? They're going into product capabilities. They're going into creating our referral models. They're going into products like LeadIQ that will allow us to match individuals with advisors. Our goal is to be their principal financial advisor. Again, you might have differences in where people decide to spend their money, their relationships, but this is a long game, and it's been a long game, and we will continue to invest in the long game. What you see this quarter and you've seen in the most recent quarters is really the activity and all of this playing out as we think about the longer-term top, and then that migration of those flows into fee-based and path to advice. Ebrahim Poonawala: That's helpful. Just talking about the dollars spend towards investments, talk about when we think about the wealth management pre-tax margin, pretty strong 30.5%. I guess the average shareholder of Morgan Stanley would think that this pre-tax margin is probably drifting into the low 30s or even the mid-30s over the medium term. One, is that a reasonable assumption, appreciating you've not changed your strategic targets? Second, around maybe the investments that you're making, what percentage of those investments, if you can frame it that way, will lead to a more productive business looking out the next few years? Thanks. Ted Pick: Yeah, we're pretty disciplined, as you know, about not moving the targets during the course of the year, which is why we go through the discipline of the annual strategy deck. We're comfortable with the way it's been laid out. In periods where things are very busy and there's a considerable amount of activity, you're going to see greater PBT, and you might also see greater margin. It's going to move around. The reality is that 30 is a benchmark now we've hit a number of times, but it's not a number we're solving for. What we're solving for is a lot of what Sharon just talked about, which is to continue to drive further PBT gains. If over time it's clear that the margin hurdle is not enough and we want to take it up, we'll do that. That's something we're going to want to give a real consideration to in light of the ongoing investment we're going to make to continue to take wallet. It's not that we're just taking advantage of an open TAM, it's that we're actually gaining wallet in each of these spaces as assets migrate their way through the funnel. That's something that would be addressed at the end of the year. As you see, we've now surpassed the 30 a couple times, so it's something we will keep an eye on. Operator: We'll take our next question from Glenn Schorr with Evercore. Ted Pick: Good morning, Glenn. Glenn Schorr: Good morning. Maybe we could start out with a follow-up on the NNA, maybe we could drill down a little bit. Maybe you could talk a little bit about new versus existing clients. Then on the piece that comes from workplace and IPOs, I think it's instructive for the future, given that you have such a big position with the unicorns and there's a big IPO pipeline. I'm curious to see when the recognition comes in, meaning does everything come in on the IP? Or is there a vesting schedule? Then curious what went into advisor-led versus self-directed. Is it all self-directed and then we build towards advisor-led? Just looking for a little more color because I expect a lot more of the same. Sharon Yeshaya: Sure. Let me try and take that. I wrote some of your questions down, so if I miss something, apologies. Overall, I'd say that it's a mix, right? There are new accounts, there are existing clients that might have already had accounts, and that can be both on the workplace side and on the individual side. I mean, on the advisor-led that already exists within advisor-led, but also some of those clients that might come in through workplace might already have existing accounts. It would be a little difficult to exactly tell you where that is. The point is that for those that might not yet have the advice-based relationship, we're working on that referral model. That's something that can begin as early as the financial education spot. It can also begin, like I said, we have examples with 401Ks and new 401K assets that come in that is not necessarily an IPO-specific workplace, where we're really giving people that ability to better understand where they could use advice. There's a lot to unpack just on those pieces, but I'd say both are contributions. Now, as you move forward through, you asked a question, I think, also about vesting schedules and when. It does depend. I will not suggest that all IPOs are exactly the same. When you actually receive it will be a function of the vesting schedule, and there might be different IPOs that you might. If it's over the course of a quarter that you'd have it, then you might have to wait a couple of days. It's not necessarily instantaneous. In this particular case, we spoke, there were large IPOs, more than one that took place over the quarter, and that's largely what you're seeing here as reflected in our numbers. The way to think about it on the forward, the last point that I would make is that you're going to see different flows from different parts of the capital structure that is worth noting. Here, in this particular case, these are really employee flows. That's a positive as you think about the employees that we're going to have more relationships. We're currently at 20 million relationships. Do you remember when those numbers, Glenn, it's not that long ago, we were talking about 10, we were talking about 12, we were talking about 14, and those were big numbers. We have 20 million touch points, that's a lot of people and a lot of business to potentially prosecute over time. Glenn Schorr: Wow. That's big. Ted, maybe a quick follow-up on your comments on always looking for bolt-on. You put up great returns on a really high capital base. I guess my question is, do you keep this capital base this high for a reason? Meaning, while times are good and you're still putting up incredible returns, why not run the optionality? Are there other reasons why you're hanging on to all this excess capital? Ted Pick: I liked your answer to the question, actually, Glenn. I think that the pillar of financial strength of this firm is something that we have put some substance behind in accreting $18 billion of CET1 over the last 10 quarters. That is no small matter. Part of that was during a period where we didn't know where the regulator would come out, hopefully we're in the last innings of that. You're right. We have, depending on how you measure it, 300-350 basis points of excess CET1 capital, depending on which test, which period, and all that. We have a real SLR capacity too. The question becomes, is there demand for that capital? I can tell you that there is a lot of demand for that capital inside the four walls of our global firm. Clients wish us to do more too. That demand is coming from the investment banking client set. It's coming from the fixed income client set in credit and in macro. It's certainly coming from our equities client base in prime brokerage, and in derivatives. It's coming from our wealth management client base. It is a long list of folks who would like to get more of our capital. We are quite ruthless about how we are playing this game, which is to not squeeze out every quarter. We like the idea of there being a reasonable buffer. We like the idea of being able to therefore play through the cycle. We have been putting capital out to clients. Part of the upside of the last number of quarters is even with that, we've accreted additional capital, which then allows for more capital to be put forward on a running basis. We look at these ratios very closely. We like where we are. What I would say, as a matter of discipline, per the comments I made, Glenn, on the one hand, we believe strongly, as a senior management team, that the next dollar of assets should go straight into feeding the integrated firm and fulfilling the mission of the strategy, which is to raise manage and allocate capital, not to wander, and to do that for our most durable important clients, whether they be individuals or institutions. That is the plan, demonstrably in this environment where clients are active and clearly there's some power of pricing extraction, we are doing that, we will continue to do that, full stop. It is the case that there are attractive geographies, new capabilities, new relationships that could be bolted on inorganically. As you know our firm very well, we've done the long slog of 15 years of successful acquisitions, both from the post-crisis period all the way through EquityZen last year. It's a lot of work. It's a lot of work to get it right. We think we're pretty good at it, but we have real humility around it. Are we seeing opportunities come across the transom that are interesting? We are. Are we potentially looking at stuff that could bolt onto the strategy? We are. I would tell you right now, the bias continues to be to go organic. Now, you can do both. Because of the capital surplus, we could continue to expand organically and bolt something on. That is certainly achievable when you're 300+ over and with the kind of SLR capacity that we have. What I would tell you is we are very much focused in, as a discipline matter, reviewing candidates for bolt-on. Again, if they get us closer to clients, add clients, add some adjacent capabilities, expand in the geographies we like. I think the most likely case, Glenn, over the next term with markets as active as they are and clients looking to access our capacity, is that we will continue to thoughtfully and prudently put out capital to those clients. We will see where the capital buffers go, but they also have to be contextualized against a much larger market cap. Yes, the buffers are nice and they're important, and we believe it's a differentiator with shareholders and with folks like you, which is very important. To underscore, there is demand, both from clients and from some of the folks running businesses that they'd love to get some more of that firepower out to clients because clearly we're in a moment of operating leverage. Operator: We'll take our next question from Mike Mayo with Wells Fargo Securities. Ted Pick: Morning, Mike. Mike Mayo: Hey, Ted. It's about a year ago when you said we were approaching the moment of wow, W-O-W, and I guess we're there or I'm not sure. I was looking for some context around this CapEx AI-driven super cycle, you had spoken about this going over the course of several years. Can you put any numbers around this? I mean, we see press reports of trillions this and trillions that, and how much has been raised and how much do you expect to be raised? Or some meat on the bones, if you could? Ted Pick: Well, Mike, it's an excellent and important question. The short answer is it's really early, and I'm not sure we altogether know because of the known unknown element of this. That would be my short answer. My longer answer though, looking to try to give you some meat on the bone, would be that AI CapEx expectations continue to move up. The forecast for 2026 on data center CapEx that was taken late last year, around November of 2025, was that $575 billion would be spent this year, and it's coming in at about $850 billion. That for 2027, the view was it would be around $700 billion, and now it's projected at $1.3 trillion. 2028 could be at $1.5 trillion. Our excellent research team, led by Katy Huberty, would observe that each major tech cycle has produced a 10-fold increase in compute capacity. Applied to AI, that would suggest a progression from roughly the last transformation, I think we'd agree was cloud. Roughly $1 trillion of cloud compute times 10 is $10 trillion of AI compute. If you think about the numbers I reeled off before, the $575 billion feels like $850 billion, the $700 billion feels like $1.3 trillion for next year, and then maybe $1.5 trillion after that. You're basically looking at us being around 10%-15% of the way through the investment cycle. It's totally reasonable to say that there are going to be periods when technology or capital investment is ahead of adoption, or that the fight for primacy in a piece of this chain will deliver poor allocated investment outcomes. That we know, and that there will be technology and power bottlenecks and constraints. I think we'd agree, Mike, that the market for intelligence for the digital meets human loop for real productivity enhancement is absolutely here. The question becomes, is $10 trillion right? How long to get there, and how big is that number? The answer there is it's a really large number. Right? Global GDP is $120 trillion. As you know, S&P is $67 trillion. I looked this morning, Wilshire is $75 trillion. $10 trillion spent over 10 years in the search for additional intelligence, which could bring an additional boost to aggregate productivity value. It's on the one hand hard to imagine, but on the other hand, it could be imagined that something like $10 trillion spent over many years. Now, our role, as you know, is to raise, manage, and allocate capital as advisor, financier, allocator. What does Morgan Stanley have? We have global reach. We have sector specialty. We anticipate what's next through that advice. We have structural expertise. We have knowledge of private and public markets. We can match sources and use of capital. We can steward the wealth creation. We also act as a principal, to Sharon's earlier point, with 20 million wealth clients, given the size and scale of the business. Again, Mike, it's early, and the numbers I just took a stab at could be dramatically altered by chip innovation, nation-state involvement, supply chain, geography, long list. One has to have humility in all of this. You asked a direct question, and there's my humble attempt. Mike Mayo: All right. Well, if you're going to do a doctoral dissertation, I guess that's your thesis. I appreciate that. Your role, the industry's role in, let's just say the $10 trillion is right. Just for how much involvement would you have in raising capital? Is it 10%, 20%, 50%? These companies will have cash. They don't always need to raise debt or equity. What's your percentage role in capital raising? Let's just use the $10 trillion number just as an example. Ted Pick: Some of that capital is going to be raised point-to-point between players in the ecosystem. Obviously, that's not the best outcome for firms like ours. We want to intermediate that. It is clear that structuring capability and creativity around how to think about planning that kind of CapEx over many years in a given period means that there's got to be real trusted relationship between the private placement or public underwriter. I think the answer is that some of it can just be done naturally through cash flow generation of the leading hyperscalers. Some of it is going to have to be with fresh capital, whether it be debt or equity, and a bunch of it's going to have to be done very creatively to access the right investor base. On that one, I would say we're really early. What we do know is that the capital is available. The aggregate capital between all of the players in the private and sort of semi-public sector that can put this to work over the course of many years is there. It's a question of how does this race play out between the various would-be's? Where is the need inside the chain? What geography is actually needing the capital at what period of time? Which helps, therefore, to have a global business, to be able to allocate outside the U.S. On that one, I'd say I wouldn't attach a percentage to it, but I would say it's going to be meaningful. Operator: We'll take our next question from Chris McGratty with KBW. Ted Pick: Morning, Chris. Chris McGratty: Hey, good morning. Good morning, everybody. I guess more on the IB. My question on the IB pipeline, I think you talked about great levels here. I wonder, Ted, if you could contextualize it today versus historical periods, biases geographically, untapped potential, then also unpack the sponsor comment? Thank you. Sharon Yeshaya: I think it's a great question, and when we look at our numbers, we're not yet at the levels that we've seen historically in different areas in terms of what's actually been announced or been completed. There's clearly more to go there. What was most interesting, I think, when we reflected in the quarter and we reflected on the pipeline, was that we are seeing a broadening out. I like the fact that you asked the question directly about geographies because it was a theme that came up, i.e., we've seen it in the Americas. When you look ahead, there's pipeline in Asia, there's pipeline abroad, and so that does give you a lens that there is a broadening out of the themes that we're seeing across that kind of need for capital, as Ted just mentioned. The second piece that I would mention is specifically, this began as a cycle really around debt. We saw a lot of issuance, both investment grade, and then we saw the non-IG space, and now we're seeing the equity side. The dual tracking of the equity and the strategic side from the advisory, it's really been strategics. I mentioned, and I think others have also mentioned, we have not yet seen that complete cycle from the sponsors yet. With an IPO track and then the potential for sponsors, there is more there, and that pipeline is building. Ted Pick: Yeah. What I would add to this is if you ask, as you know, the classic M&A banker, what do they want? They want a certain element of execution certainty for their clients. We had financial repression, which queered capital calculations because the effective rate of interest was zero. The M&A environment was a little weird. We had massive in some cases, over-regulation of potential merger opportunities. Folks didn't want to get caught in abeyance, not getting sort of a result. We had the pandemic. We had rates skyrocket on the inflation burst. Now we're in a period where really all things being equal, the environment's not perfect because clearly there's some geopolitical noise. The urgency, in our view, is twofold, and it gets to the two themes of the letter. The first is AI. It doesn't necessarily mean bigger is better, you sure as heck better think about it, because you're going to spend several points running on making sure you are more efficient and then over time, that your firm is more productive. That you're actually able to realize that effectiveness premium, that size and scale can get you. That's clearly ever and present as a consideration. The second is this, I don't want to call it dereg cycle, I'll call it a normalization of regulation cycle, where we're right now in an environment where folks in the administration and amongst the regulator want to approve reasonable, rational, well-considered transactions that are to the greater good of the economy. Now you put that against the backdrop, which is the economy is in great shape. There is barely talk of the R word. The consumer, certainly at the spending higher end, is in very good shape. There is the reality of some supply chain fracturing or re-globalization, which means you have to, if you're a global company, reconsider where you make the product and how you distribute it, to put it simply. In that respect, if you put that all together, both as a temporal matter, a contextual matter, and as a pent-up matter, where M&A volumes against current market cap are still at multi-year lows. You put that against an IPO environment where it's not fun to go public and became effectively the exit trade for financial sponsors. Now again, led by some interesting thinking by the SEC to help bring some incentive for companies to go public again. You put that all together, I think it is a very favorable backdrop for M&A and for equity capital raising via IPO as growth story. Last comment I'd make is attaching to Sharon on sponsors. The sponsors are finding that in this environment, publicly traded companies are doing quite well if they're priced appropriately and receiving the right kind of treatment. The IPO exit opportunity is real. They're also finding that asset values and the environment that we're in now has put some of the better product in a place where they can achieve something that feels like their marks are better, and they want to trade and raise that capital. They've got to raise capital to pay their own partners to go out and raise the next fund and keep the thing going, especially amongst the public company set. There is, I think, a reasonably healthy competition that is taking place as between sponsors and strategic buyers. My last comment would be that the sponsors are institutionalized, are well-developed, publicly traded, are now global players. They compete in markets like Japan and France and the U.K., and throughout Asia. I'm really quite bullish, assuming the economy and the backdrop continues to be favorable, that in this period of regulatory normalization and given the pent-up element of this thing, that we are going to see continued M&A activity with good companies looking to get better by adding or purifying. Chris McGratty: That's great context. Thank you for that. I guess if I could ask a follow-up, the question of sustainability and trading is coming up a lot, and I think the industry continues to hit higher highs. Can you just speak to the mix of the trading business between finance and intermediation, where you see that going? Obviously, wins that you're getting to make the highs higher. Any color on the trading sustainability? Thank you. Sharon Yeshaya: Sure. Again, I go back to the point in the language that I just used, even talking about the IBD activity, is that you are seeing a broadening out of activity. You used to talk about, and I'll just take Asia as an example. When you used to talk about Asia, you talked just about China. Then it became China and Japan, and then a little bit of India. Now you're talking about India, you're talking about Japan, you're talking about China, you're talking about Korea, you're talking about Taiwan. Certain geographies are no longer a monolith. The access that clients want is this a broad client activity story. Like I said at the beginning, it's retail and institutional, and you're seeing those clients look for ways to gain access. U.S.-based clients, for example, to gain access more broadly. What's important is not just the sustainability of activity. I would note that for us, there's also the investments that we've been making in order to capture various parts of the share. For example, we've talked about derivatives, the investments we've made there, in the equities business, et cetera. Ted Pick: Yeah, I would put an exclamation point on that. For a lot of our investors and for a bunch in your community, the view is that we're a U.S. play, right? That has made a lot of sense in the context of the compounding and growth of the wealth management business and some of the core growth opportunities in the U.S. economy. We're also an Asia house. Very much an Asia house. As you know, we're 25% owned by MUFG dating back to the financial crisis. The interaction with our partners is more intense than it's ever been. We launched 2.0 about a 1.5 year ago, which brings together not just research and equity content, but foreign exchange. That has turned out to be a win-win. There's lots more that we're looking to do together. As Sharon points out, we have a thriving business in Taiwan. We have a thriving business in Korea. We obviously have this gateway Hong Kong effort into China and in Hong Kong itself, which is the entire equities, fixed income, commodities, and importantly, investment banking chain. We also have a wealth business that is doing quite well and is having a substantial year-over-year growth. We actually have a superb business in India. I think what Sharon and I would sort of gear you to a bit regionally is this is not a new effort for us. We've had some edge in this region for a long time. We all have the miles to prove it, we're going to continue to invest in our clients and our people in the region broadly. Operator: We'll take one question and then we'll move to the next person in the queue. Please rejoin the queue for additional questions. Our next question comes from Steven Chubak with Wolfe Research. Ted Pick: Morning, Steven. Steven Chubak: Good morning, Ted, Sharon, and thanks for taking my question. I wanted to double-click into some of the comments you made, Sharon, around workplace, specifically focusing on the competitive landscape. The NNA strength showcased certainly highlights your leading position, the benefits of the Carta partnership. There was some press coverage this quarter just highlighting efforts by smaller RIAs employing more aggressive pricing to compete for some of that business. Was hoping you could speak to how the competitive landscape's evolving in workplace? And the steps that you're taking just to widen your competitive moat? Maybe sustain some of those higher client conversion rates that you've delivered historically? Sharon Yeshaya: Sure. Thank you for the question. It's always been a competitive business. When we've thought about the ecosystem, we've constantly been thinking about being able to offer more capabilities, more options, and a greater lens of investment. For us, it starts really with the corporates, with the corporate coverage. You have the integrated firm to help you begin to build those corporate relationships. If we think of the very top of the funnel is how do you have that corporate relationship? There are multiple sides, and there's a full effort behind that. It's not just the wealth business, there's an integrated firm effort, and there's also the investment banking side. If you keep going and drilling down, you're now thinking about, what kind of financial advice and financial wellness can you offer to the clients? With no disrespect to smaller institutions, they will not have that type of breadth. Now you then bring those clients into the funnel, and we have greater ability to match advisors to the right clients with all the technology that we've put into place. The final point are the capabilities, right? We're able to offer more products, alternatives, different types of solutions, as well as financial advice broadly for different types of individuals at different points in their life cycle that will help. The final point is when you think about this quarter, and you just look alone at the NNA, as we said, just over half is coming from IPOs. You're not going to be able to have that corporate relationship at a much smaller level. That's something that is unique to Morgan Stanley and is really the bread and butter of the integrated firm. Many of these IPO conversations are about having that integrated advice from the top of the house. Operator: We'll take our next question from Erika Najarian with UBS. Ted Pick: Morning, Erika. Erika Najarian: Good morning. On the eye-watering equities numbers, just putting all of this together. Ted, you mentioned that you were in Asia House. You've also mentioned that we're sort of just 10%-15% of the way in terms of this AI super cycle. I'm wondering, sort of given all those dynamics, how durable is some of the activity on the equities trading side that's coming out of Asia? Sharon, we have heard that given the demand for balance sheet in Asia and continued demand in the U.S., that the financing providers have gained some pricing power this quarter. I'm wondering if you sort of could comment both on both the volume, durability, and the pricing power? Ted Pick: I would say there is some pricing leverage. There are also a lot of folks in the ecosystem who have additional capital they can put forward. There is some pricing leverage, though, depending on the type of product and what the client is looking to access as part of the greater portfolio, what they can get from a firm like ours. With respect to the sustainability, some of it is a function of asset prices being where they are and clearly folks thinking there's something that feels like global growth. You'd have to have a view on whether the economy in the U.S., really by extension around the world, continues to grow, that inflation's under control, the geopolitics are sort of kept quiet enough, and that there's the kind of volatility that has folks looking for index versus stock dispersion or selection without being so much volatility. That they want to be risk off because things either feel recessionary or euphoric. Those are all the kind of, Erika, as you know, unknowns that kind of have to play out during the course of the year. There is demand for additional capability. We've got it, and it's just a question of how you want to deploy it, knowing that we're all playing a long game. It helps, by the way, to have the kind of scale and global reach that we have, which is why, not surprisingly, as we talked about for a number of years, as you know, the very top houses are gaining wallet in this environment. Operator: Our next question comes from Gerard Cassidy with RBC. Ted Pick: Morning, Gerard. Gerard Cassidy: Hi, Ted. Thank you for your insightful question on the CapEx. It's been a question I've been asking on other calls, not to suck up to you, but yours was the most insightful, so I think many people appreciate that. On that question, here's another question I have about it. It's very strong. We all know it. Many people are in your camp, myself included. The outlook is good. What are you guys keeping an eye on so that something may change? Because we all know we've had these, nothing to this level, but you think of the dot-com boom, you think of back to the SPACs in 2021, and eventually they both went away. What are you guys keeping an eye on so that if something starts to crack and go the other way, you guys can prepare for it? Ted Pick: We keep our eyes on everything. I think we're just born to think that way. To your excellent point, we do, having those of us that have been around long enough. Do think of prior periods where things could feel like they're getting frothy. We keep a very close eye on that because you've heard us say it now for a whole bunch of quarters, and we really do mean it. Higher highs to demonstrate operating leverage, but higher lows. Higher lows, really important to us so that we can continue to make the case to you and to our shareholders that we deserve a healthy PE multiple. That's got to be a function of durability. It doesn't mean that we can solve for economic cycles or market dislocations, but we can certainly find ways to continue to be doing the durable long-term franchise business with clients. That's part of what's in the elixir here. We got our eyes wide open, and have been really since the beginning of COVID. We've kept our eyes open because it's been the unleashing of a new environment where geopolitics are back in the frame and real interest rates and real cycles and real uncertainties, and that actually means that clients have to take action, and they need advice, and they need to be properly allocated, and we should thrive in that, but we also have to be looking at the risk constantly. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you everyone for participating. You may now disconnect and have a great day.