Morgan Stanley (MS) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Solid Earnings and Operating Leverage: The firm reported $15 billion in revenue, $1.82 in EPS, and a 17.5% return on tangible equity in Q2, showcasing strong operating leverage.
• Growth in Institutional Securities: Revenues in institutional securities rose by 50% year-over-year, with a notable 70% increase in fixed income underwriting.
• Wealth Management Success: Wealth management margins reached 27%, with total client assets growing to $7.2 trillion, aiming for over $10 trillion.
• Dividend Increase: Announced a dividend increase for the third consecutive year to $0.925, reflecting the growth of durable earnings.
• Capital Build and Flexibility: Built $1.5 billion of capital in the quarter, ending with a CET1 ratio of 15.2%, providing flexibility for future growth and stock buybacks.

Pessimistic Highlights

• Navigating Uncertainty: The firm is navigating uncertainties around forward rate paths, geopolitics, and the US political cycle.
• Challenges in Wealth Management Flows: Noted headwinds from seasonal tax payments and increased spending among high net worth clients, impacting net new assets and flows.

Company Outlook

• Investment Banking Rebound: Anticipates a multi-year rebound in investment banking, driven by tempering inflation, normalization of rates, and broadening market activity.
• Wealth Management Strategy: Focuses on asset aggregation and delivering strong advice, with a strategy predicated on gathering assets and meeting clients' lending needs.
• NII Inflection Expected: Net interest income is expected to inflect higher in the next year, driven by stabilization in sweep deposits, repricing of the investment portfolio, and lending growth.

Q & A Highlights

• Q: Can you provide more details on the NII outlook and the impact of the advisory deposit rate changes? (Glenn Schorr, Evercore)

  A: The changes will happen in Q3, impacting a small portion of sweep balances in the adviser-led channel. The impact will be largely offset by the repricing of the investment portfolio. (Sharon Yeshaya)

• Q: How confident are you in achieving the 30% pretax margin target for Wealth Management? (Ebrahim Poonawala, Bank of America)

  A: High confidence in reaching the 30% margin over time, driven by strong asset management fees, potential for increased transactional revenues, and inflection in NII. (Ted Pick)

• Q: What gives you confidence in an investment banking rebound? (Mike Mayo, Wells Fargo)

  A: Seeing early signs of activity pick-up, including in convertibles and M&A, driven by tempering inflation and normalization of rates. Expect a multi-year cycle of increased corporate finance activity. (Ted Pick)

• Q: Can you provide more color on Wealth Management flows in Q2? (Dan Fannon, Jefferies)

  A: Broad-based sourcing of assets, with increased spending by higher net worth clients. Emphasized the ecosystem's power, including workplace accounts and advice-based channels. (Sharon Yeshaya)

• Q: What's the outlook for sales and trading businesses in the current market backdrop? (Saul Martinez, HSBC)

  A: Aim to grow share durably, focusing on core client base and global footprint. Equities remain a strong area, with opportunities in fixed income driven by market uncertainties and corporate catalyst activity. (Ted Pick)