Morgan Stanley (MS) 17 Jan 232022 Q4 Earnings call transcript

Good morning. On behalf of Morgan Stanley, I will begin the call with the following disclaimer. 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. notices the statements update. earnings our that non-GAAP to in appear release refer regarding and forward-looking measures Please and strategic

release. the or The made are without notes reported presentation noted. certain be our performance operating This and strategic metrics been our of the these Within as strategic to duplicated non-GAAP against adjusted operating objectives. comparative information view the These of not provide the included reproduced to has were earnings in performance presentation a reconciliations transparent may adjustments or update, consent. adjusted our

now to Officer, Executive the will I turn call Chairman and Gorman. over Chief James

time. Thank led rapid to for pressured and last The joining of and you, persistent of central Thanks capital activity asset raising. we the levels everyone. year backdrop Good operator. us. presented bank The some haven't tightening combined very inflation morning, impact and strategic macro challenges little for seen

year, ROTCE more what declines and supposed Securities. the and firm Institutional resilience did do Morgan it demonstrated including throughout businesses Management Investment our Wealth The in from our with XX%, volatility expenses to of Despite deals. Stanley an stable was on offsetting delivered integration-related

firm the capitalize and on made the growth once the will transformation from evidence become across increasingly challenging even to and environment full durable an notable last This hard ROTCE we is markets When a we rebound, of to contrast stronger in stark we've X% had of position. the XXXX. again

growth acknowledge our first, achieve the details through in contributions Briefly annual COO. as I'd how the year, you CFO full Pruzan discuss made goals many turning now titled and update decade. like Before appropriately next and to to plan I'll to of to Jon delivering strategic the quarter the the through fourth Sharon we walk these

we know, him month, retiring the absolute of Stanley from best. the at Morgan As and end wish you he's this

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We continue these in drive growth. areas to future invest to

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of illustrates business our Please shift turn ongoing and This to Slide X. growth mix. the

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generated, our net I assets, two We before, and as most $XXX the of peers capital said integrating of new billion over all attracted while a and major excess risk-based XX% acquisitions. ROTCE

to moving decade, now the to maximize So, the opportunities Wealth with in Management. growth start let's next

allows migrate can grow On ability are way Slide and advice across our X, channels. to And provides channels, wherever clients with they have any to journey. along clients reflecting across opportunity best-in-class you have of in see wealth leadership we accumulation combination meet the technology. and client best-in-class us positions This to the the for our their we

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seen that our assets In Portion flows of balances, larger to are originated from attract working. billion $XXX assets of were that to a as we've held our advisor-led those the short, relationship. full will a capabilities, stock of advice previously approximately we portion but from plan clients strategy date, To we -- already are away. suite deliver is investor workplace

can business its own asset transformation, and importantly, revenue on encapsulates diversified. base significantly XX, as more XXXX. larger more fee-based together is you Vance. doubled course has related Management has growth the over durable And also the delivered Slide management of this Eaton Investment since strong see fees This with than its business which

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Slide three On our a demonstrated share wallet position. institutional the business leader remains can top you by global a see XX, industry, as in

the actually our more our clearly time, disciplined resources which capital-light of the illustrated consistent usage, dropped to gain relatively We same businesses. by as and RWA surcharge X%. have ability in several demonstrated 'XX 'XX and share defend to from At we've it prudent G-SIB shown

Slide to Let's on capital move XX. strategy our

This is capital regulatory XXX of requirement. have points basis excess We above our intentional.

steady down businesses, decline on and mix. Our our SCB in dividend seen reflective excluding capital bringing strategy in add-on more risk of focused we've a the the has business durable our our

enormous comfortable with positioned. to position be and Our gives us capital prudently we're decision flexibility, our

our future to growth enables XX, excess Slide our us you capital On can in robust for to position and business to shareholders. continue deliver invest see returns

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reduced acquisitions. the of from driven our impact outstanding our much the levels same recent time, by At we've higher the shares

for Taken X% shareholders remain committed and together, demand. return, to whatever last regulatory to we We delivered shareholder ongoing always our business year. the requirements capital is adjusting performance return the a

assets positive XX. net this million years expected see lead Investment of average to demonstrated $XXX trillion assumptions client a reasonable the assets give our confidence in Management, new reasonable will to we us to over with that ahead. on assets Shifting to approximately Combining we've years market three year. state Wealth in Starting generate in the the $XX and future with path how ability trillion $XX last the Slide client across

assets, revenue broader is believe X% happen, Now about currently a points of which what of me firm approximately picture, is generating profit. pretax billion which doing XX% pretax let's consider this $XX delivered and XX of scenario will we're future currently. trillion this at within In I margin, doing XXXX, we're of minute. the In for basis the which with bear what firm $XX within a of

itself of income. $XX create If should billion of over pretax you math put that together, it

As you of can asset see, from that today full wealth the just firm businesses. that the and exceeds management

XX not to if all performance objectives. the up, our our in pull confidence metrics last They These markets you on on account together, it need to months. we of the changed just it what's in the XX reiterates So our going in goals. Slide are longer-term have wrap support

the note, trillion approximately beginning in up over net wealth of within trillion. the added year. last about management. to I to volatility that we've of Again, through quarter, expect by the $X period will there of new we've to year asset an years. funnel by goal outcome Of six by new spoke quarter that to as assets X% three and talked $X approximately we in way X% a months sources, every I'm about demonstrated we've assets That's years sure be earlier three generate But

we and approach Wealth recognizing durability much confidence, do As with a and positions across Securities. XXXX, so Institutional the share of Investment have of quiet our we with market leading our sight Management of line businesses we

regulatory always, are major objectives or As moves to economic, our the in political subject environment.

and constructive a expect track thus delivered we've However, with we proven goals time. far, to over outlook fully achieve our record a

the I to annual and questions. take call discuss delighted results to Sharon, quarter fourth will your now over be the and we'd turn who will

year and Full morning. billion were PBT complex of revenues contributed you, year, good was the $X.X solid billion. fourth and to $XX.X PBT The Thank quarter and $XX.X delivered revenues In billion. firm results. billion, in a $XX.X

paid decade. over performance strategic we off. The have investments made last its a Income had had Wealth and a record strongest have year over Management in decade Fixed the

do. business While it the broadly increased very in and designed impacted challenging performed model to the environment well was a uncertainty, firm by as economic volatility was

were The full year results included integration-related in million $XXX of expenses incurred of the $XXX million fourth quarter. which

associated was these XX.X% The $X.XX with was Excluding impacts, the integration. year ROTCE and for the full and EPS and excluding $X.XX the costs year XX.X% quarter full for respectively.

In ratio the or quarter, severance The largely million through discrete to net benefit $XX related -- benefits efficiency each tax year offset other December XX.X%. a net discrete was and $XXX million expenses of of tax income. action employee full net a

efficiency integration-related ratio Excluding expenses, our full XX.X%. year was

were were offset and prior as compensation investments Lower the development expenses primarily Total related revenues as by on non-compensation marketing by flat business expenses to in to expenses technology lower in increased driven DCP movements year. spend. approximately principally well and higher

this As matter million $XXX included a record-keeping the legal regarding charge quarter. also to year the second a in reminder, firm's related requirement a

As over Cognizant actively opportunities. uncertainty, we of macro the XXXX, we ongoing our the to base. continue environment review evolved course of the expense managed efficiency

integration-related exclude stages from this integration the Vance. the will are We last of results. both our And reported final present be quarter completing in that Eaton we of and expenses measures E*TRADE

the scheduled the integration XXXX. in E*TRADE, relates conclude However, of integration particularly to to back-office it remains final as

of incur will E*TRADE related expect be X/X approximately this across and year. largely expenses X/X Vance. approximately We integration-related to Eaton spread $XXX quarters These related additional evenly expenses to with million to

levels seasonality Now client businesses. Securities the quarter, to $X.X the $XX.X from and quarterly income of fixed revenues equities Overall, of across full record macroeconomic the the in engagement the nine environment. declined XX% reflective the higher the year from and were billion prior revenues first fourth In year, tapered year. Institutional months billion. of seen

in more year. banking Weaker year, by banking completion best announced for line broader backdrop. record second was the Banking billion reflecting Underwriting Investment were of Advisory in transactions. persisted, with the XX% result, delivered the full challenged, supported strategic challenging part $X.X from the results its previously Investment prior down market. the revenues

volumes quality market levels was quarter. constructive first to while Full in following equity Debt activity volumes year global dropped higher unseen issuance, market to years. the to contracted And last was the the XX periods. limited receptive

completed year. market quarter decreased Lower prior XX% $X.X on revenues and billion M&A of weighed Fourth from underwriting volumes the results.

quarters, as to As we and engagement advice dialogue environment. difficult have high client remains navigate prior highlighted in the seek clients

we clarity windows economic ahead, confidence undertake Greater opportunity. take looking should expect strategic to lead issuers to these of to increased of transactions. And advantage

and representing me, in market full by full activities. excuse $XX leader Equity -- prior revenues year X% $XX.X a were declined billion making strong of business. over this from year another year equity trading lower us year the billion, record Revenues driven global primarily

the quarter, the were from revenues were volumes. declined asset average levels $X.X by Revenues prior client lower deleveraging. brokerage as markets year levels lower in driven record balances and billion reflecting Prime and lower than equity

results market year's Cash results the declined slightly on lower client navigated mark-to-market activity versus across this business benefited as well. Last quarter. investment on an markdown fourth also a regions. increased a gain volatility Derivative quarter the from

conditions on and a full volatile market over Fixed and benefited income while the macro billion the for were of tightening commodities. financial decade. $X year divergence The energy revenues revenues highest in in Fed's guidance the clients engaged markets and between expectations the drove

expectations was in and expectations rates secondary engagement active tightened, increase an foreign and in Strength benefited moderated, micro exchange. $X.X performance supported client clients client as markets Quarterly by activity. from tempered and inflation as for spreads revenues inflation billion. higher were driving Macro credit in repositioned

income significantly These Results held in substantially and in commodities by hedges. on gas and were revenues offset $XXX $XXX primarily million for power and net of lower interest of Other the reflected down losses loans loan and mark-to-market included businesses. million. corporate losses were sale revenues fees

Turning Management. to Wealth

record billion Management record and Wealth the PBT resulting profit of For of $X.X $XX.X XX%. pretax full a margin a produced in year, revenues billion, of

margin of $XXX million, XX.X%. was expenses PBT integration-related Excluding the

impacts corresponding plans of mark-to-market decrease This Full million as deferred of compensation $XXX in negatively by to impacts year expenses. a referred $XXX our full reflect DCP. with million revenues our compensation year results cash-based

have As our timing expense financial vesting and on the DCP explained impact compensation is the deferred mark-to-market and between and there a hedges supplement. recognition the economic typically we gains included in difference historically, over now the The of revenue period. losses the expense is the of

billion. were management period the annual $X.X were quarter, rate and revenues quarter the a million, the PBT were in margin Fourth Total Including of margin assets. XX.X%. expenses billion represent billion asset billion trillion. and new growth was of $XX X.X% assets were assets beginning the $XX in Fee-based revenues flows year integration-related XX.X%. was record $X.X $XXX $X.X Net PBT client of a of

of with increased revenues income products. offset new transactions decline were by retail $XXX Transactional channels. and levels year. was impact net lower quarter revenues new related Fourth in the fewer of assets from to $XX fourth across prior contributions opportunities, fixed XX% quarter DCP, by engagement were The billion Including driven partially transactional the the overall issuance million. declined

or in for in slowed unchanged or XX% and -- XX% Bank and The billion. $XXX grew consecutive by sequentially. second growth lending year largely the lending year XX% quarter was stand billion of the at balances or $XX the pace

mortgages downs to to due rate the grow this tailored While in was continue and lending pay higher loans environment. slowly, offset interest by securities-based

X% billion Management among deposits to Total offering our driven savings for rose our sequentially by continued clients. Wealth demand $XXX

with to success environment. expanded in We provide needed market their advisers varied to strategy have choice our tools seen with clients offer

also Further, of in quarter. outflows pace moderated the the sweep

As a options clients' attractive from needs. a result, mix, meet sourced we base Management have with Wealth and largely client our pricing our to deposit favorable

environment, XX interest growth over by prior the an of deposit XX% year increase driven billion and quarter. efficient income from the the $X.X mix was the the Net strong in The months. benefits increased was last rate lending

not the year with we NII an Looking is intrinsic ahead, entered base higher believe deposit We value. that with do attractive peaked.

is realized. of the anticipate last of of two forward we assuming X% growth first curve quarter the NII expect we quarters, the in While approximately expansion from moderate continued the to the pace sequentially,

of declining The the which to also and impacted $X.X carried led reported challenging backdrop Management accrued several -- trillion. $X.X AUM, full private Investment lower declined to funds. our prior of year interest year. Also in market our from billion, XX% revenues

Fourth fixed challenging by as as strategies portfolios reflecting demand billion well market $X.X and of and the credit. net the quarter solutions, for driven revenues were situation income, particularly outflows offset customized in public special partially parametric were billion. $X by Long-term our equities alternatives quarter and backdrop, private

Fourth the higher quarter and AUM, offset billion, liquidity management on average revenues. asset $X.X lower partially were related back by of declining fees

quarter, a on annual recognized As the increase versus fourth in third an are the reminder, fees quarter. largely basis, which drove the performance

though gain our in us the broad-based parametric Quarterly and million. year. $XX to alternatives income, We The fixed having from other performance-based we prior customization portfolio, income and through diversification were revenues than gains alternatives private the saw perform well lower cycle. positions

We continue our and continued premier capabilities distribution to global growth to to leverage invest in this client business meet demand. support global future

Total of assets balance Turning management our billion resources. reflective RWAs to $X.X of spot sheet. Standardized $XXX trillion. to were billion, by $X the declined sequentially prudent

Our from the up standardized was basis XX ratio points prior CETX quarter. XX.X%,

strong Solid CETX earnings, lower to contributed by partially gains RWAs capital ratio. in our and OCIs offset actions

continue execute in we stock buyback repurchased We common our the to and of billion approximately quarter. program, $X.X

tax full tax and realization by The year the tax resolution driven of certain rate of benefits. matters certain the was XX.X% historic

rate quarterly some We expect volatility. will approximately tax which be exhibit our XXXX to XX%,

ability firm's of business the evolving The our demonstrate in environment. results model to perform an

of year we opportunities look growth remain in XXXX, into ahead. the While there we as are, ahead course, uncertainties the

and trillion $X.X Investment balance. assets combined us across of Our provides Wealth Management

asset us positions scale the to capture when our Importantly, opportunity recover. well markets the

still we've seen early levels encouraged year, engagement far. while client the in Finally, we very by so of the are

line open now to questions. the will we that, With

to go with first Evercore Schorr Glenn [Operator Instructions] We'll ISI.

all the too. slides, appreciate I

with you One, points I questions, guess. Two basis served the big Okay. of buffer XXX the CETX picture requirements, well. excess James, big

I'm at? spot something game or how you that You've also keeping to more that you it's a weighting on Basel just but results? is your excess final dilutive buffer temporary plan of curious you III sitting Or that big lot that -- that on curious of returns. resting I'm balance want buybacks, on end is buffer And just for got picture capital.

it's Sure. capital going on. right is of to Glenn, now, things because the think question, critical. There whole sort few firm strategy strategic it's are and a I pivotal great the a positioning of

mix Firstly, been the of our reduce to business. we in our have CCAR trough change to peak in able in because

just we've that taken in. obviously, lean because market time, environment can And any more heats a the Secondly, reduced in CETX. maybe of point we've up reverse prudent at we RWAs, which

looks I whatever beginning Thirdly, some at until half new the have it's to will the to although of banks fruition the year, like in don't expect coming capital Basel finally XXXX. are we first of the that the rules be implement III point required

capital years, to So time prudent a it I'd where that business, while be frame, long a excess where particularly have of sitting an I in X.X there's long don't to in position environment there put pretty have year time think when places a in a we some rather this just is see let work. and obvious capital -- we've kind we still alone it's

billion last back dividend We last think best. I XX% Now year we assume the that We billion it on We mean, distributions. fair $XX that said, bought to dividend was the doubled did our and year. we're year. before. -- capital I moving $X the it's we're going to continue increased Obviously,

of number triggered could down quarter. but like environment than be XX%. business XX.X%. this bother a we all, that the We a to little higher actually at me and driven will wouldn't drop that That I by We opportunities. -- easily But

potentially, act clarity. do be aggressively, a and we that regulatory to we've position in always change have and outlook into in the more can when great we we will So, coming proven

other is happy. is I appreciate big that. so Everybody Wealth is great. growing One Management picture

asset I your or and equities it now, you've and think wealth even whether from management historically platform. very be considered equity-centric dominant been

there curious general, to you that any Morgan thinking in we material rates, income about much a firm income and way out in be profitability? see do lots Stanley defensive a with as without think much overall disadvantages more too or risk. of towards you're earned fixed So If appetite shift shift a more There's if to stance. these possible higher it's risk clients good

banking, listen, fixed is XX%; XX; mean, of I income share equities, XX. our

share years So a X%. obviously, the I fixed way, it income the few was By call ago, grows.

as a phenomenal pool grew just job. the has as income, its you're not faster if head well pool under the in in going to So grows faster But Sam the done in do equities. arithmetically, if fixed Kellie-Smith team

me FX I lot. correspondent-driven the a global banks whole shop. never commercial businesses FX trading, bother that HSBCs the EM trading the of never had, doesn't to be rates and tried have That macro the mean, had some Citis. We've we've

business don't different. big so the We have and we're transaction going in said, have commodities services, done what is credit FX. just have model macro And impressive. in the as Hallik Jakob not as really Jay to team much in a that's under That

So I'm totally fine with that. And bonds don't we clearly muni we have underwriting, sell cetera. the have fixed product. It's to income not like et we don't and clients, our

We just we're share think And our I have others, to the really well bothered way, at one was the fast. as we relative wouldn't product. given It's back Glenn. happy not quarter, by see equities arithmetically, I this franchise. that positioned, at all. to number the core I'm By was grow

Poonawala We'll America. take our next question from with Ebrahim Bank of

for XX% first Sharon, just efficiency up I the ratio about on guess following XXXX. maybe question,

at needs even Would love years? sustainably could that XX% ratio. the we and below it firm over what to happen your a businesses to in couple target, get XX% think sub-XX% from are about of Is efficient to terms from to this both sense the the next it hear And it of strategic kind that journey the means. with the more are Or mix? in something and growing, we which changes timing a a up As of of line standpoint time? see to XX% efficiency what

Sure.

side. So you about, the we years, we've expense below, look back revenue of right? XX%, to couple two we both if of side pieces obviously you the if there been and it, -- below and there's to were are the So are periods where last time think

across of I more as dollars that we put think will to to scale those more and that be each work we businesses, gain continue the efficient.

the seen As I those all cyber have highlighted, my lot of the where is we've about side of remarks, on of the we've acquired that side. couple noted of dollars integrations platforms both we think that technology prepared just resiliency the the been and also as in I and from a that last broader over investing we years.

help. leverage, think environment it I Institutional operating you particularly certainly think as a that. will drive help will Securities about tremendous timing, revenue different business, the the through which to obviously, about as I So there's and And think

of a go the strong each Management way Now operating right? leverage, to achieve each the XX% constructive the Investment if also also you our very through business. seen from you exhibit market Management as We're margins businesses, If environment, those have Wealth relate margin to of on businesses the you we've business. target

So of discipline sure continued and our environment we investments the say expense it's going around turns balance in we I'd both, both base and just that think how that about then the making a have revenue right as forward.

the as that extremely prudent think over nine we've environment. about especially So been with base the we and last disciplined months we've seen this of type

do how to But power uncertain guess Fed activity around is activity highly out. if hikes, investment were are just majority of before hearing drive we we banking the in clients? the of banks terms up? IB in picking to central M&A, more that market market have returning activity question just and the Like the you what rebound shakes a enough DCM? a obviously lot I Or to confidence with ECM, see a Got for rate it. the separate need And done the

we realize. I I to basically isn't -- about changed don't think the Banking Investment Why that what's itself the What's pipeline anything to movement pipeline from the start from James if is changed. Sure. has if that and say add? pipeline,

more company outlook cause policy are their me, in to a the CEOs something -- that peak with think own also then on And that, boardrooms economic will hinges in both the excuse that valuation clarity confidence or economic outlook, what when that actually allows that just inflation, certainty. and pivot, price about conversations we and outlook have having our those own

from it, would think move see are that and realized through the stage. expect Those announced stage pipeline the into the you as we things to

So forward. laid should volatility economy that also in the you clarity a the more macro environment then that there and help out reduction move is where on

highly their am underwriting the inorganic I Yes, and set on I've and I in doing bet CEO's both. And part that ways, Sharon two I deal And will growth say that, in and and right. I only I've that tricky they the confident Fed would drive to your once fact. timing. year pauses, is up. go inorganic. would And got this think is strategy done when activity activity organic the businesses, job been long do time, you've about a stayed

got cautious, in really if particularly will we're the timing, that's early CEOs, to what change. seeing. is and their market behooves you've it sometimes, relatively And ignore careers a those little be but volatile, That to

go to Brennan next We'll UBS. with Hawken

like just And forward of next wish out. Pruzan luck, his Jon chapter best looking watching play to to

color assume for maybe decline? give around beyond Thanks. curve? So Sharon, the more expectations expectations will double deposit balances hear in certainly on you sort for a decline to out, sweep it's could you playing would on think NII. Do click I curve peaked. dynamics? little hear and continue bit do you you not to encouraging underlying that based forward that? it's forward But the love What to that What's of your

Sure.

we there, liability look obviously why So, in and Brennan? you that, And if performed a let's we when asset we outperform step back outperformed on at the quarter, -- side. take the side, just we did we say, think and about the fourth

a little unpack liability it we if two So into the side, take of pieces. bit I

As you deposit and the about pricing. mix it's about also obviously highlighted,

the we of moderation mix -- out from seen to go that need the CDPs. outflows have will play in that seen account we in take deposit But we that is is into something that where of So those guidance. think what here, we'll we Obviously, first about what out. pace when quarter the we've a

outperformance did point the pricing. the that we excuse exit, see exit an in we quarter we first actual the benefit that -- a into quarter, take and first liability of take on And when second that The well. quarter, obviously, pricing, as is, that's fourth me, the

Fed basis well disciplined quarter us fourth fourth will hiking over being XXX able quarter the then the pricing over the first. So, in have to serve points and the

Qs equivalent of they the see self-directed wealth different then barely at quarter-over-quarter. and Wealth about new up And were we that. if for client can clearly assets Thanks in Okay. Basically, trends, client workplace a the net and the look assets that asset were question. certainly total -- were -- Management, tailwind up I exposure think, in to saw given of their Was anything a we was happening there? because growthy that more what and probably client would bit the be more that Was unusual to there stocks. assets. more exposure markets the weak, little the a there'd but

and see the Actually you broader different highlighted broadly No. channels. what where you underlying correct exposure, of terms those in exposure the of is

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with Wolfe Chubak go to We'll Research. Steven next

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question our Matt take last with We'll from Deutsche Bank. O'Connor

you're I was specifically a the flows Management, wondering more thinking the there both Investment about liquidity the if and and outlook bit about the term? how you could talk within long-term in long

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this concludes Ladies time. everyone, this at today's for questions you, conference further participating. no call. Thank are There and gentlemen,

disconnect. now You may