Morgan Stanley's first quarter of 2024 had strong results with $15 billion in revenue, a 71% efficiency ratio, $2.02 in earnings per share, and a 20% return on tangible equity. This was due to their clear and consistent strategy of serving as a trusted advisor to clients. Wealth management saw increased activity and higher adjusted margins, with net new assets growing by $95 billion. Investment management also had positive long-term flows, and total client assets grew to $7 trillion, moving towards their goal of $10 trillion.

The company has regained its leadership position in equity capital markets and has seen momentum in investment banking. They are focused on managing resources and being judicious with capital. The wealth management business has had record revenues and strong metrics, and the company has been focused on client onboarding and monitoring for some time. The company is committed to being world class in this area and has been investing time, effort, and money into it. These costs are reflected in the expense run rate.

The first quarter of 2024 aligns with the goals outlined in the January strategy deck, with strong backlogs and momentum in every part of the firm. Revenue was $15.1 billion, EPS was $2.02, and ROTCE was 19.7%. The firm's model is working as intended, with durable revenues and a focus on managing the full income statement. The efficiency ratio was 71%, showing the firm's operating leverage and efforts to consolidate expenses. Institutional securities revenues were up 3% from the previous year.

The first quarter revenues for the integrated firm were strong, showcasing the benefits of cross divisional collaboration and their global reach. Investment banking revenues were up 16%, with increases in equity and fixed income underwriting offsetting a decline in advisory. The firm regained its leadership position in equity underwriting and saw growth in fixed income underwriting. Looking ahead, they expect the business to continue to grow and are focused on expanding their reach through new hires. In the equity division, revenues were up 4% from the previous year.

The results of the franchise were positively impacted by strong performance in derivatives and cash, as well as the scale of the prime brokerage business. Japan saw particularly strong results, and the partnership with MUFG is expected to continue to support growth. Fixed income revenues declined slightly compared to last year's strong results, but were partially offset by demand for corporate solutions. Wealth Management also delivered strong results, with record revenues driven by asset management fees and improved sentiment in both retail and institutional investors. Net interest income remained consistent.

The company's pre-tax profit was $1.8 billion, with a margin of 26.3%. The margin was impacted by DCP and FDIC special assessment. Net new assets for the quarter were $95 billion, with strong contributions from various channels. Fee-based flows were $26 billion, with notable strength from the migration of assets to fee-based accounts. Asset Management revenues were up 13% year-over-year due to higher market levels and strong fee-based flows. Transactional revenues were up 9% excluding DCP. The company saw record activity in structured products and investments in their platform allowed for increased client demand. Bank lending balances and total deposits were relatively stable quarter-over-quarter.

In the first quarter, net interest income remained consistent with previous guidance due to a moderate increase in average deposit cost and reinvestments at higher market rates. The deposit mix will continue to drive NII in the second quarter. The company is on track to reach $10 trillion in client assets and is focused on deepening relationships and achieving sustainable profits. Investment Management saw a 7% increase in revenues, driven by higher asset management revenues and strong long-term net flows. Demand for alternative and solutions products was robust, and there was global interest in active fixed income strategies. The company's global diversified platform resulted in gains in U.S. private equity and private credit, offsetting lower accrued carried interest in Asia private equity and real estate.

The company is seeing the benefits of their investments in customization, private credit, and global distribution. Their Parametric business has helped them integrate their firm and attract demand from their wealth management clients. Their balance sheet shows strong assets and a commitment to returning capital to shareholders. The company expects their tax rate to remain stable and their franchise is strategically positioned for growth. The call is now open for questions, and the first question is about a sensitive subject related to the company's wealth management.

The speaker, Sharon Yeshaya, responds to a question about the impact of non-U.S. wealth on the company's growth. She states that there are no strategic changes to the business and they are confident in their ability to grow and deepen relationships with clients. She also mentions that the international business is small. The next question is directed to Ted Pick, who is asked about the resilience of investment banking trends and the appetite for corporate engagement in various activities. Ted responds by stating that the pipeline is growing across sectors and on a cross border basis, but there is still some regulatory risk involved.

The speaker discusses the current state of the financial market, noting that there is increased activity from both financial sponsors and corporations looking to improve or expand their business models. This is driven by factors such as the effects of COVID, supply chain issues, and geopolitical concerns. The speaker predicts that there will be a multiyear M&A cycle and highlights various types of offerings that have been successful recently. They also mention that there is a bottoming out of NII and a decrease in concern over a significant decline in NII.

The speaker discusses the current state of the market and how it compares to previous years. They mention that there has been some volatility but it is not due to significant changes in client behavior. They also mention progress in reducing expenses and optimizing the expense base, particularly through integrating acquisitions. They note that there have been write-offs in space, but overall expenses are trending down.

The company is currently making important decisions about where to invest their resources and how to optimize their expenses. They are focusing on both cutting costs and making strategic investments in areas such as marketing, professional services, and technology. There has been a shift in the company's focus from capital efficiency to generating earnings growth and momentum. They are also being careful and strategic about making investments in top talent.

The leadership team is focused on generating operating leverage and keeping the income statement tight. They have set a goal of achieving a 30% efficiency ratio and are making progress towards this goal. This quarter, they saw progress in all three parts of the framework to reach this goal: migration to advice, solutions and products offered, and the benefits of scale. This was demonstrated by the strong fee-based flows of $26 billion from brokerage accounts.

The company is seeing encouraging signs in their business, with a 2-year peak in conversion and interest in structured products. They are also gaining the benefits of scale and operating leverage. However, there is still room for improvement and they are balancing investment in the business with building sustainable revenues. When it comes to NII, the Wealth Management NII has remained stable, but the firm-wide NII has declined for the fourth quarter in a row. This is due to various factors such as the products being booked and the funding sources used for trading revenue.

The speaker explains that the company focuses on wealth management NII driven by business concepts rather than specific trades. They clarify that there is no particular trend causing declines in institutional NII. When asked about the disconnect between client assets and revenues in wealth management, the speaker explains that assets can come from various places and may have different fees associated with them. The company's goal is to grow the funnel and see a movement towards advice, but even within the fee-based channel, clients may have different preferences for investment products.

The company's focus is on building sustainable revenue over time by bringing in clients, participants, and assets. The brokerage and advice-based accounts have seen growth, with record high asset management revenues. The outlook for the industry's capital markets is positive, with backlogs increasing and a slow but steady march back. The company is seeing interest in recent IPOs and a need for cross-border M&A advice. There is growing consensus that this trend is for real.

The financial sponsor community has products that are ready to come out either through a public offering or being sold in the private markets. There will be competition between financial sponsors and corporations for these assets in order to create value for their shareholders. The U.S. economy's growth and weaker markets in China and Europe make people want more exposure to the U.S. Japan is also a market where clients are both buyers and sellers of assets. The speaker is optimistic about the next few years and believes that global reach is important for investment banks. In terms of wealth, the percentage of client cash has decreased from 22% to around 20% and the revenue opportunity will increase as the cash is eventually redeployed.

The speaker clarifies that the decrease in cash levels is due to the rise in equity markets, and mentions that the current cash levels are still higher than pre-COVID levels. The speaker also discusses the success of their family office offering and its contribution to their flows, highlighting the benefits of offering integrated solutions to clients. They also mention that there may be fluctuations in flows through these channels.

The company's sales channels for its offering are diverse, with different sales cycles. This includes workplace, advice-based relationships, and stock plans. The company also has a successful business called Fund Services that caters to alternative asset managers. They have developed a product that gives the feel of an institutional product for ultra-high net worth clients. This helps the company compete in the competitive high net worth space and retain funds in-house.

The speaker discusses how Morgan Stanley is expanding its equities division and working with the wealth management team to deliver better services for clients. They then address a question about the growth of the trading industry and the opportunities for Morgan Stanley to increase its market share. They mention the integration of corporate coverage and the various solutions and financing options that could contribute to wallet share growth. Private credit and financing for different assets are also highlighted as potential areas for growth.

Ted Pick, an executive at Morgan Stanley, explains that the company is focused on opportunities in the credit market, particularly in financing for mergers and acquisitions. They are also expanding their capabilities in prime brokerage and derivatives. The company's strong relationships with financial sponsors and integrated firm capabilities make them a partner of choice. When asked about the debt capital markets outlook, Sharon Yeshaya, another executive at Morgan Stanley, acknowledges that there may have been some pull forward in deals, but the market has been open for the past two years. The pipeline for debt underwriting is strong, with interconnectivity between debt, M&A, and equity underwriting.

The speaker does not believe that the current state of the investment market, specifically in the IG sector, can be compared to the recent lack of activity in M&A and equity. They also acknowledge the competition from private credit and believe that there is room for both traditional investment banks and private credit in the market. The outlook for the capital markets is positive and there is talk of the 10-year moving even higher.

Ted Pick is asked about the potential impact of higher interest rates on the optimistic outlook he presented. He explains that it depends on whether the rates are a result of sustained growth or a tough landing, but overall he believes the US economy is strong and there is plenty of potential for growth. He also mentions the importance of factoring in the cost of capital and how companies and financial sponsors will adapt to the changing economic environment.

The company is preparing for a multiyear cycle and is excited about their model that they are working on with both institutional and wealth management clients. The conference call has now ended.

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