Morgan Stanley(MS) - 2025 Q2 - Quarterly Results

Financial Overview The firm reported strong year-over-year growth in net revenues and net income for Q2 2025, driven by Wealth Management and Institutional Securities, despite a sequential decline Consolidated Financial Summary In Q2 2025, the firm reported net revenues of $16.8 billion and net income of $3.5 billion, representing a significant year-over-year increase of 12% and 15% respectively, primarily driven by strong performance in Wealth Management and Institutional Securities Q2 2025 Consolidated Financial Performance (in millions) | Metric | Q2 2025 | Q1 2025 | Q2 2024 | YoY Change | QoQ Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $16,792 | $17,739 | $15,019 | 12% | -5% | | Institutional Securities | $7,643 | $8,983 | $6,982 | 9% | -15% | | Wealth Management | $7,764 | $7,327 | $6,792 | 14% | 6% | | Investment Management | $1,552 | $1,602 | $1,386 | 12% | -3% | | Net Income | $3,539 | $4,315 | $3,076 | 15% | -18% | - The provision for credit losses increased to $196 million, a 158% rise from the prior year's quarter and a 45% increase from the previous quarter, indicating a more cautious outlook on credit risk[5] - Excluding mark-to-market gains/losses on deferred cash-based compensation plans (DCP), a non-GAAP measure, firm net revenues were $16.4 billion for Q2 2025, compared to $15.1 billion in Q2 2024[3] Consolidated Financial Metrics, Ratios and Statistical Data The firm delivered strong shareholder returns with a diluted EPS of $2.13, up 17% year-over-year, while maintaining robust profitability metrics with a Return on Tangible Common Equity (ROTCE) of 18.2% Q2 2025 Key Financial Metrics | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Diluted EPS | $2.13 | $2.60 | $1.82 | | Return on average common equity | 13.9% | 17.4% | 13.0% | | Return on average tangible common equity | 18.2% | 23.0% | 17.5% | | Book value per common share | $61.59 | $60.41 | $56.80 | | Tangible book value per common share | $47.25 | $46.08 | $42.30 | - The effective tax rate for the quarter was 22.7%, compared to 23.5% in the same period last year[6] - Worldwide employee count stood at 80,393 at the end of the quarter, a 2% increase from the prior year but a 1% decrease from the prior quarter[6] Consolidated and U.S. Bank Supplemental Financial Information The consolidated balance sheet expanded, with total assets growing 12% year-over-year to $1.35 trillion, supported by increases in loans, deposits, and long-term debt, alongside strong revenue growth across all geographic regions Consolidated Balance Sheet Highlights (as of June 30, 2025) | Item | Q2 2025 | Q2 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Total Assets | $1,353,870M | $1,212,447M | 12% | | Loans | $267,395M | $237,696M | 12% | | Deposits | $389,377M | $348,890M | 12% | | Common Equity | $98,434M | $91,964M | 7% | - U.S. Bank total assets grew 13% year-over-year to $450.8 billion, with loans increasing by 14% to $252.2 billion[7] - Revenue growth was strong across all regions for the first six months of 2025 compared to 2024: Americas grew 11%, EMEA 20%, and Asia 28%[7] Consolidated Average Common Equity and Regulatory Capital Information The firm maintained a strong capital position, with the Standardized Approach Common Equity Tier 1 (CET1) capital ratio at 15.0% and total average common equity increasing by 8% year-over-year to $97.5 billion Regulatory Capital Ratios (as of June 30, 2025) | Ratio | Standardized Approach | Advanced Approach | | :--- | :--- | :--- | | Common Equity Tier 1 (CET1) | 15.0% | 15.7% | | Tier 1 Capital Ratio | 16.9% | 17.6% | | Supplementary Leverage Ratio | 5.5% | N/A | - Risk-weighted assets (RWA) under the Standardized Approach increased by 11% year-over-year to $523.0 billion[9] Business Segment Performance The firm's business segments demonstrated varied performance, with strong growth in Wealth Management and Investment Management, while Institutional Securities saw mixed results Institutional Securities The Institutional Securities segment reported net revenues of $7.6 billion, a 9% increase year-over-year, driven by strong performance in Equity and Fixed Income trading, despite a 15% decline from the prior quarter and a 5% decrease in investment banking revenues Institutional Securities Revenue Breakdown (Q2 2025, in millions) | Revenue Source | Q2 2025 | Q2 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Investment Banking | $1,540 | $1,619 | -5% | | Equity Trading | $3,721 | $3,018 | 23% | | Fixed Income Trading | $2,180 | $1,999 | 9% | | Total Net Revenues | $7,643 | $6,982 | 9% | - Net income for the segment was $1.6 billion, a 6% increase from the prior year, resulting in a pre-tax margin of 28%[11] Wealth Management Wealth Management continued its strong growth trajectory, with net revenues up 14% year-over-year to $7.8 billion and net income up 21% to $1.7 billion, driven by increased client assets and significant net new asset inflows Income Statement Information, Financial Metrics and Ratios The segment's revenue growth was broad-based, with asset management fees increasing 11% and transactional revenues surging 62% year-over-year, while net interest income also grew by 6%, expanding the pre-tax margin to 28% Wealth Management Revenue Breakdown (Q2 2025, in millions) | Revenue Source | Q2 2025 | Q2 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Asset management | $4,411 | $3,989 | 11% | | Transactional | $1,264 | $782 | 62% | | Net interest income | $1,910 | $1,798 | 6% | | Total Net Revenues | $7,764 | $6,792 | 14% | - The segment achieved a Return on Average Tangible Common Equity of 41%, a significant increase from 35% in the prior-year quarter[14] Financial Information and Statistical Data Operational metrics demonstrated continued momentum, with total client assets increasing 14% year-over-year to $6.5 trillion, attracting $59.2 billion in net new assets, and growing deposits by 12% to $383 billion Wealth Management Key Metrics (as of June 30, 2025) | Metric | Q2 2025 | Q2 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Total client assets | $6,492B | $5,690B | 14% | | Net new assets | $59.2B | $36.4B | 63% | | Deposits | $383B | $343B | 12% | | Fee-based asset flows | $42.8B | $26.0B | 65% | - The self-directed channel showed strong client engagement, with daily average revenue trades (DARTs) up 26% year-over-year to 983,000[15] Investment Management The Investment Management segment delivered strong results, with net revenues of $1.6 billion, up 12% year-over-year, and net income of $245 million, up 48%, driven by higher asset management fees and a significant increase in performance-based income, with total assets under management (AUM) growing 13% to $1.7 trillion Income Statement Information, Financial Metrics and Ratios Segment revenues were boosted by a 168% year-over-year surge in performance-based income, which reached $118 million, while asset management and related fees also grew by 7%, significantly improving the pre-tax margin to 21% Investment Management Revenue Breakdown (Q2 2025, in millions) | Revenue Source | Q2 2025 | Q2 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Asset management and related fees | $1,434 | $1,342 | 7% | | Performance-based income and other | $118 | $44 | 168% | | Total Net Revenues | $1,552 | $1,386 | 12% | - Net income applicable to Morgan Stanley for the segment was $245 million, a 48% increase from $165 million in Q2 2024[17] Financial Information and Statistical Data Total Assets Under Management or Supervision (AUM) reached $1.713 trillion, a 13% increase from the prior year, with long-term net inflows of $10.8 billion driven by Fixed Income and Alternatives, despite total net outflows of $16.5 billion due to Liquidity and Overlay Services AUM and Net Flows (Q2 2025, in billions) | Category | AUM (End of Period) | Net Flows (Quarter) | | :--- | :--- | :--- | | Equity | $327 | $(2.8) | | Fixed Income | $212 | $6.8 | | Alternatives and Solutions | $636 | $6.8 | | Long-Term Total | $1,175 | $10.8 | | Liquidity and Overlay Services | $538 | $(27.3) | | Total AUM/Flows | $1,713 | $(16.5) | - Long-term AUM grew 14% year-over-year to $1.175 trillion, demonstrating strength in core investment strategies[19] Loan Portfolio and Credit The firm's loan portfolio and credit metrics reflect growth in lending commitments across segments and a cautious outlook on credit risk with increased allowances Consolidated Loans and Lending Commitments The firm's total loans and lending commitments grew 14% year-over-year to $452.2 billion, with growth observed across both Institutional Securities and Wealth Management segments, where Wealth Management loans increased 12% to $168.9 billion Loans and Lending Commitments by Segment (as of June 30, 2025, in billions) | Segment | Total Loans | Lending Commitments | Total | | :--- | :--- | :--- | :--- | | Institutional Securities | $98.4 | $165.4 | $263.8 | | Wealth Management | $168.9 | $19.5 | $188.4 | | Consolidated Total | $267.3 | $184.9 | $452.2 | - Within Institutional Securities, secured lending facilities saw the largest year-over-year growth, increasing 29% to $62.4 billion[21] - In Wealth Management, securities-based lending grew 14% year-over-year to $99.8 billion, representing the largest component of the segment's loan book[21] Allowance for Credit Losses (ACL) As of June 30, 2025, the total Allowance for Credit Losses (ACL) for loans and lending commitments stood at $2.061 billion, with a quarterly provision of $196 million primarily reflecting reserves against corporate and real estate loans ACL by Loan Type (as of June 30, 2025, in millions) | Loan Type (Held For Investment) | Gross Loans | ACL | ACL % | | :--- | :--- | :--- | :--- | | Corporate | $7,685 | $271 | 3.5% | | Secured lending facilities | $58,468 | $175 | 0.3% | | Commercial and residential real estate | $8,168 | $398 | 4.9% | | Wealth Management - HFI | $169,349 | $406 | 0.2% | | Total HFI Loans | $246,921 | $1,271 | 0.5% | - The total ACL for lending commitments was $790 million, with a quarterly provision of $58 million[23] Supplemental Information This section provides essential context for the financial report, including definitions of non-GAAP measures, performance metrics, detailed quantitative calculations, and a legal notice Definition of U.S. GAAP to Non-GAAP Measures This section defines the non-GAAP financial measures used in the report, which management believes provide greater transparency into the firm's operating performance, including tangible common equity, return on tangible common equity (ROTCE), and results excluding the impact of Deferred Cash-based Compensation (DCP) plans - Non-GAAP measures are used to provide an alternate means of assessing financial condition and operating results[25] - Tangible common equity is defined as common shareholders' equity less goodwill and intangible assets[25] - Adjustments for DCP are made to net revenues and compensation expenses to allow for better comparability of period-to-period underlying performance, particularly in the Wealth Management segment[25] Definitions of Performance Metrics and Terms This section provides explicit definitions for the various performance metrics and financial terms referenced throughout the financial supplement, clarifying the calculation and components of key indicators such as pre-tax margin, liquidity resources, risk-weighted assets (RWAs), and client assets - The Firm expense efficiency ratio is defined as total non-interest expenses as a percentage of net revenues[27] - Net new assets in Wealth Management represent client asset inflows less outflows, excluding market performance and fees[30] - Trading VaR represents the potential unrealized loss in portfolio value that would be exceeded with a 5% frequency over a one-day period[27] Supplemental Quantitative Details and Calculations This section provides detailed reconciliations and calculations that support the figures presented elsewhere in the report, including specific adjustments for DCP on net revenues and compensation, a breakdown of non-compensation expenses, and the allowance for credit losses rollforward Firmwide DCP Impact Reconciliation (Q2 2025, in millions) | Item | As Reported (GAAP) | DCP Adjustment | Adjusted (Non-GAAP) | | :--- | :--- | :--- | :--- | | Net Revenues | $16,792 | $(377) | $16,415 | | Compensation Expense | $7,190 | $(371) | $6,819 | Allowance for Credit Losses Rollforward (Q2 2025, in millions) | Item | Loans | Lending Commitments | Total | | :--- | :--- | :--- | :--- | | Beginning Balance | $1,133 | $718 | $1,851 | | Net Charge Offs | $(19) | $0 | $(19) | | Provision | $138 | $58 | $196 | | Ending Balance | $1,271 | $790 | $2,061 | Legal Notice This is a standard legal notice stating that the financial supplement contains financial and business-related information that should be read in conjunction with the firm's official second quarter earnings press release issued on July 16, 2025 - The information in this supplement should be read in conjunction with the Firm's second quarter earnings press release issued July 16, 2025[46]