The operator of Morgan Stanley's earnings call introduces the disclaimer and reminds listeners that the call is being recorded. The CEO, Ted Pick, then begins the presentation by discussing the company's transformation over the past 15 years, highlighting their business mix, scale, profitability, and returns. He also mentions the challenges the company faced during this time, such as the acquisition and integration of Smith Barney, the reset of the investment bank, and surviving the near triple credit downgrade and euro crisis.

In the years 2015 to '19, Morgan Stanley focused on resizing their fixed income business and becoming the top institutional equities provider. They also acquired Solium, expanding their presence in the corporate stock plan space. In 2020 to '22, they made significant acquisitions in wealth and investment management, leading to increased client assets and high returns. Despite challenges in 2023, Morgan Stanley's business model generated consistent results, with revenues of $54 billion and a solid return on equity. The firm's focus on durable businesses and integrated investment banking has led to higher and more stable profitability. All of their actions over the past 15 years have been within their core strategic footprint.

The company's main focus is on being a trusted advisor to clients and helping them manage their capital. In the past decade, they have seen significant growth in revenue and client assets, with a goal of reaching $10 trillion in total assets. The company's wealth management business has been successful in attracting new assets and retaining client relationships, with a goal of achieving 30% margins. However, due to macroeconomic factors and investments for growth, margins may consolidate in the mid-20s range in the near term. The company's wealth platform is strengthened by its investment management capabilities.

Morgan Stanley's wealth and investment management business is well-positioned for growth in areas such as customization, private markets, and value add credit. The Institutional Securities Group is a top global investment bank and has advised on trillions of dollars in transactions. The company's global presence is a key advantage and they expect to see growth in corporate finance activity. The combination of their wealth and investment management platform with their institutional franchise creates a powerful integrated firm.

Morgan Stanley's ability to efficiently source new client opportunities and deliver solutions is stronger than ever. They have a strong corporate franchise that covers a broad range of client needs, from advising on strategy to providing wealth management solutions. They can serve a diverse range of clients, from individuals to institutions. The firm continues to invest in delivering investment and client solutions, and their integrated investment bank is core to their success. The firm's success relies on their human capital and maintaining a partnership culture, with the executive chairman and co-presidents prioritizing the delivery of the integrated firm to clients. Their shared experience and understanding of the firm's transformation gives them insight into the future.

The leadership at Morgan Stanley, led by James, has intentionally focused on mobility and integration to drive client opportunities across the business. The long tenure of key leaders, along with strategic hires and acquisitions, has helped maintain a strong learning culture and commitment to serving clients. The firm is also supported by a world-class technology and infrastructure organization, and a team of 80,000 talented individuals who are committed to excellence and responsible management of capital.

The company is focused on four main areas: performance, integration, culture, and financial capital. Their capital position is strong and they are confident in their ability to meet regulatory requirements. They believe the finalization of Basel III Endgame will have a positive outcome. They are committed to their dividend and have grown it significantly over the years. They have four firmwide goals and a strong management team to help them achieve them. They are confident in their strategy and value proposition. The company is entering the year with a positive outlook, but there are potential risks related to geopolitical conflicts.

The paragraph discusses two potential risks for the year 2024: geopolitical uncertainty and a potential economic downturn. Despite these risks, the company remains optimistic about their performance due to their global business and growth opportunities. The company also plans to continue executing their strategy and delivering for shareholders. The paragraph concludes by introducing the speaker who will discuss the company's fourth quarter and annual results.

In 2023, the firm had revenues of $54.1 billion and a fourth quarter revenue of $12.9 billion. The full year ROTCE was 12.8% and EPS was $5.18, and for the fourth quarter ROTCE was 8.4% and EPS was $0.85. The full year efficiency ratio was 77.2%. The results were impacted by notable items, including a FDIC special assessment charge and a legal settlement. The integration of E*TRADE also affected expenses. The Institutional securities division had full year revenues of $23.1 billion and quarterly revenues of $4.9 billion, with lower investment banking results due to a weak environment.

In the third and fourth quarters of the year, Morgan Stanley saw an increase in revenues, primarily driven by fixed income underwriting and supported by event-driven activity. Advisory and equity underwriting revenues remained flat. As the year progresses, the company is well positioned to take advantage of opportunities, but there are potential risks related to consumer confidence and geopolitical factors. The CEO and boardroom optimism is growing, leading to a strong advisory and IPO pipeline. The integrated investment bank is well positioned to capitalize on the recovering market. For the full year, equity revenues were lower due to market uncertainty. Prime brokerage revenues were solid, while cash results declined due to lower volumes in Asia. Derivative results were up due to business growth.

Fixed income revenues for the full year were $7.7 billion, declining from the previous year due to lower client activity in foreign exchange and commodities. Quarterly revenues were $1.4 billion, with macro performance down compared to the previous fourth quarter. Wealth management's revenues for the full year were $26.3 billion and the pretax profit was $6.5 billion, with a PBT margin of 24.9%. The rise in interest rates and other expenses impacted the margin, but total client assets reached a new high of $5.1 trillion and fee-based flows were $109 billion. Fourth quarter revenues were $6.6 billion, with a reported PBT margin of 21.5%.

In the fourth quarter, notable expenses negatively affected the margin by over 400 basis points. Asset management revenues increased by $200 million, with strong fee-based flows of $42 billion. Net new assets for the year were $282 billion, driven by the advisor led channel. Transactional revenues increased slightly, excluding the impact of DCP. Bank lending balances remained flat and total deposits increased by 2%. Net interest income was $1.9 billion, with a decrease due to the mix of average deposits and blended deposit cost. The deposit mix will continue to drive net interest income in the first quarter of 2024.

The company expects NII to remain stable in the first quarter and is focused on expanding relationships, migrating assets to advice, and deepening existing client relationships. They have seen success in the workplace channel and are offering clients new investment opportunities. As they continue to optimize their integration, they expect to see greater scale benefits from their investments. Investment management reported full year results of $5.4 billion with AUM increasing to $1.5 trillion. There were net outflows of approximately $7 billion due to headwinds in certain active equity growth strategies.

The demand for customized portfolios in both equity and fixed income strategies is increasing, with net inflows of over $5 billion in the fourth quarter. Asset management and related fees increased slightly, while quarterly performance-based income and other revenues were $61 million. The company's standardized RWAs increased by $13 billion, but they ended the year with a strong CET1 ratio of 15.2%. They also bought back $1.3 billion of common stock and expect the 2024 tax rate to be approximately 23%. Despite challenges in the past year, the company ended the year on a positive note.

The company has successfully completed its E*TRADE integration and now has $6.6 trillion in client assets. They are optimistic about the future and are focused on driving towards their performance goals. The operator then opens the line for questions from analysts. One analyst asks about the potential for margin growth in wealth management, to which the company responds that they are seeing growth in fee-based assets and a migration towards the advice-based channel. They are educating their clients and expect to see continued growth in this area.

The speaker discusses the potential for growth in their company's margin due to the large percentage of cash equivalents held by clients that could be invested in fee-based assets. They also mention their competitive position in the market and a healthy recruiting pipeline for the first quarter. Additionally, they note that they are seeing new clients from Morgan Stanley in their M&A data.

Ted Pick, the new CEO of Morgan Stanley, is optimistic about the firm's growth opportunities in the current environment. He believes that the reorientation of cash equivalents by wealth clients into the markets will benefit both the wealth channel and the investment bank. He also notes that the investment bank has seen a slowdown in IPOs and M&A activity in the past decade, but expects this to pick up in the future.

The company is experiencing early cycle activity in its highest margin products in the investment bank, which is expected to benefit from a soft landing in the economy. The integrated firm is expected to bring additional growth opportunities as the two segments work together. The company has a big business in Europe and Asia, and if economic conditions in those regions improve, there could be increased activity. The wealth segment is expected to have a mid-20s margin due to the conversion to an advice-based model. There are three channels - self-directed, workplace, and advice - which will contribute to this margin.

The speaker discusses the company's strategic update and outlines the transformation it has undergone in the past 15 years. They also mention the objectives for the next three to five years, including attracting new clients and corporate relationships, growing the asset management line, and investing in new opportunities for scale and growth.

The speaker is discussing the company's strategy for the next few years, including the role of mergers and acquisitions and potential growth in different areas of the business. They emphasize that there will not be a change in strategy despite a change in leadership, and mention that they are open to considering potential acquisitions.

The speaker believes that the organization should focus on organic growth and efficiency rather than making large strategic investments. They also mention the need to work on the income statement and identify inefficiencies. They are confident in achieving their strategic goals while also investing in the current portfolio. The speaker then addresses a question about incremental margins and comp leverage in a lower rate backdrop, stating that NII will be a drag but there will be improved momentum from other areas. The Street is modeling flat comp dollars and increased revenues, and the speaker explains that this growth is coming from more compensable areas.

Sharon Yeshaya and Steven Chubak discuss the impact of different line items on comp ratio and net interest income (NII). Yeshaya explains that comp ratio will change as FAs are compensated based on fee-based revenues, but NII is expected to remain in line with the fourth quarter. Yeshaya also mentions factors that could contribute to growth in asset management, such as scale and market dynamics. Chubak asks about sensitivity to lower rates, and Yeshaya acknowledges that the asset side is still sensitive to the short end despite the majority of deposits being in premium savings.

Sharon Yeshaya is asked about the expected trajectory of NII as the Fed begins easing and whether there is any interest in extending duration to lock in higher yields. She explains that the answer depends on the stability of deposits and the pace of interest rate cuts, and that so far they have seen stability in deposits. The next question is about the pace of rate cuts and how that will impact NII. The next question is from Devin Ryan about investment banking and the potential return of sponsors, who have been less active due to high interest rates and current valuations.

The speaker discusses the need for full normalization in investment banking and mentions that the pipeline for investments is more diversified than in previous years. They also mention that sponsors are slowly coming back and that the equity IPO market is gaining momentum. The speaker then addresses a question about how the new management style will affect the company, and the speaker responds by saying that the new and previous management styles are similar.

The CEO's positive attitude has had a positive impact on the organization and has been contagious throughout the firm. The firm is now focused on bringing the different parts of the organization closer together and is determined to not experience another downturn like in 2008. The firm's goal is to achieve consistent and durable results, as shown in their strategic deck.

In paragraph 26, the speaker discusses the company's plans to reach their financial targets in a sustainable way and the importance of consistency and durability in achieving this. They also mention the company's integrated approach and differentiation in their two channels, and the potential for growth in their trading businesses.

In response to losing market share to the top two competitors, Morgan Stanley has focused on maintaining a strong capital position and prioritizing the durability of the dividend. However, the company remains agile in allocating capital to different areas of the business based on market conditions and client needs. There are no plans to withdraw from the investment bank, and the goal is to achieve operating leverage and holistic returns in both the wealth and investment management and insured securities businesses.

The speaker discusses the firm's focus on the durability of capital usage and serving clients over a long period of time. They are excited about the upcoming investment banking-led cycle and the potential for the integrated investment bank to work together across different divisions for client solutions. They also mention having excess capital and the ability to weather any potential changes in Basel III regulations. The speaker emphasizes the importance of maintaining a real capital cushion for shareholders. The questioner asks about Wealth Management margins, and the speaker mentions that higher revenues will drive margins over time, but notes that while revenues have increased by 50%, margins have compressed compared to 2019.

Sharon Yeshaya and Ted Pick discuss the factors that give them confidence in driving meaningful operating leverage in the future. They mention the conversion of assets, net new assets coming in, and assets migrating as key drivers of revenue growth. They also mention the goal of having a sustainable $1 trillion of assets coming through both wealth and investment management, which will earn fees and see an expansion in margin and benefits of scale. They also mention their investments in workplace and new channels as evidence of progress towards their goals. Additionally, they mention the importance of hitting the $10 trillion number, allowing for some latency in assets held away and assets working their way through workplace.

Ted Pick, the new leader of the wealth business, discusses the company's long-term targets. He explains that they want to achieve 30% margins and $10 trillion in assets, and that they will continue to grow assets because the market is huge. The company is also considering further growth beyond these targets.

The company's goal is to reach a 30% pretax margin for client assets and a 20% return on capital. They believe they can achieve this through a combination of factors, such as new assets, increased transaction activity, and improved economic conditions. The investment bank, which has more capital and risk, should have margins above 30%. The team is focused on being good stewards of capital and achieving these targets, even in a normalized environment. The ultimate goal is to continue growing client assets, potentially reaching 10 trillion in the future.

The speaker explains that the firm has set specific goals for wealth, efficiency, and ROTCE, but acknowledges that it will take time and favorable economic conditions to achieve them. The speaker also addresses a question about his experience in the wealth management sector, stating that it is a business he is familiar with and that the integration of Smith Barney has been beneficial for the firm overall. The speaker also mentions the history of the firm's merger in 1997 and how it has not negatively affected the investment bank.

The speaker discusses the success of their wealth management business, which includes self-directed, traditional advisory, and workplace channels. They believe this business will be the engine for future growth and may consider expanding internationally. They also highlight the strong culture and lack of friction between leadership in different areas of the business.

The speaker, a shareholder and custodian of Morgan Stanley, believes that the company's focus on growing both its wealth and asset management and investment banking businesses will lead to success. They are confident in the potential for the wealth and asset management business to grow to $10 trillion in assets, and also see potential for the investment bank to continue picking up high-quality clients and generating operating leverage. The conference call is now concluded.

This summary was generated with AI and may contain some inaccuracies.