Morgan Stanley (NYSE:MS) Q2 2021 Earnings Conference Call July 15, 2021 8:30 AM ET Company Participants James Gorman - Chairman and Chief Executive Officer Sharon Yeshaya - Chief Financial Officer Jon Pruzan - Chief Operating Officer Conference Call Participants Glenn Schorr - Evercore Brennan Hawken - UBS Steven Chubak - Wolfe Research Bernard Von Gizycki - Deutsche Bank Christian Bolu - Autonomous Mike Mayo - Wells Fargo Securities Ebrahim Poonawala - Bank of America Jeremy Sigee - BNP Paribas Dan Fannon ...

Morgan Stanley (NYSE:MS) Morgan Stanley U.S. Financials, Payments and Commercial Real Estate Conference Call June 14, 2021 8:45 AM ET Company Participants Andy Saperstein - Co-President, Head of Wealth Management Betsy Graseck - Analyst Conference Call Participants Betsy Graseck Thanks for joining us here. I am pleased to have with me Andy Saperstein, Co-President of Morgan Stanley and Head of Morgan Stanley Wealth Management. Andy will start with some slides and then we’re going to move to Q&A, but before ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 Commission File Number 1-11758 Morgan Stanley (Exact name of Registrant as specified in its charter) | --- | --- | --- | --- | |------------------------------------------------------------------------------------------------------------------------------------------------------ ...

Financial Data and Key Metrics Changes - The company generated record revenues of $15.7 billion in Q1 2021, with a return on tangible common equity (ROTCE) of 21.4% and an efficiency ratio of 66% [3][10] - Pre-tax margin was reported at 27.9%, with expectations to exceed 30% as interest rates increase [4] - The provision for credit losses on held-for-investment loans and lending commitments is now presented as a separate line in the income statement [10][11] Business Line Data and Key Metrics Changes - Wealth Management generated approximately $6 billion in revenues, with net new assets of $105 billion, marking the best quarterly flows ever [3][18] - Institutional Securities revenues reached a record $8.6 billion, with fixed income and investment banking revenues also at record levels [5][12] - Investment Management reported pro forma assets under management (AUM) of $1.4 trillion, with pro forma net flows of $53 billion, indicating an annualized organic growth rate of 16% [6][25] Market Data and Key Metrics Changes - The first quarter of 2021 set new records in Asia and Europe for investment banking and fixed income performance, with strong client engagement across regions [12][13] - Equity revenues reached $2.9 billion, the strongest in a decade, driven by elevated global equity market volumes [14] - Fixed income revenues were reported at $3 billion, the highest for a first quarter in a decade, reflecting broad-based performance across products [15] Company Strategy and Development Direction - The company is focused on integrating the acquisitions of E*TRADE and Eaton Vance, which are expected to drive growth in client assets and enhance service offerings [9][23] - The workplace business is seen as a significant growth engine, with a strong pipeline and record participant additions [22] - The company aims to achieve $10 trillion in assets under management, leveraging multiple growth verticals from recent acquisitions [72] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the firm's ability to navigate complex situations, such as the Archegos collapse, and emphasized the importance of risk management [39][41] - The outlook for net interest income (NII) remains positive, driven by loan growth and funding synergies from the E*TRADE acquisition [20][36] - Management highlighted the strong client engagement and market conditions as supportive of continued performance [66] Other Important Information - The company incurred a net loss of $644 million related to the Archegos situation, with an additional loss of $267 million from derisking positions [7][8] - The integration of Eaton Vance is progressing well, with strong momentum in net flows and AUM growth [25][26] Q&A Session Summary Question: How much of the Wealth Management growth was attributable to E*TRADE? - Management indicated that while E*TRADE contributed to growth, the core business also showed significant organic growth, with a target of 4% to 6% annual growth [30][33] Question: What were the learnings from the Archegos situation? - Management noted the importance of transparency and risk management, particularly regarding family office relationships, and emphasized that the incident would not change their view of the prime brokerage business [38][40] Question: What is the outlook for retail trading volumes post-pandemic? - Management expressed optimism about sustaining elevated trading volumes due to strong client engagement, although they acknowledged that market conditions could change [58][60] Question: What initiatives are in place to drive growth from E*TRADE and Eaton Vance? - Management highlighted the focus on deliberate integration, enhancing client experiences, and leveraging data analytics to improve service delivery [69][70]

Financial Data and Key Metrics Changes - Morgan Stanley reported $48 billion in revenues and $11 billion in net income for the last year, indicating a strong financial performance and validating the firm's strategic transformation over the past decade [10][11] - The European business generated $6.4 billion in revenue, accounting for 14% of the firm's total revenues, highlighting its significance within the global franchise [11] Business Line Data and Key Metrics Changes - The investment banking segment is the mainstay of Morgan Stanley's European business, with significant contributions to overall performance [11] - The firm has seen growth in its asset management business in Europe, which represented 40% of gross inflows, demonstrating strong demand for its products [13] Market Data and Key Metrics Changes - The UK is expected to recover from the pandemic slower than the EU, with GDP dropping 10% in 2020 compared to 7% in Europe and 3.5% in the U.S. [8] - Asia, particularly China, is experiencing a sharp recovery with GDP growth expected to reach 9% in 2021, driven by effective pandemic management and capital formation [30][31] Company Strategy and Development Direction - Morgan Stanley is committed to its European operations and has made investments in talent and infrastructure across the continent, particularly in Frankfurt and Paris [17][18] - The firm aims to capture growth opportunities in Asia, focusing on wealth and asset management, as demand for these services is expected to outpace Europe and the U.S. [34][52] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the EU's ongoing transformation and integration, particularly with the pandemic recovery fund symbolizing a commitment to future growth [19][24] - The firm anticipates a vibrant UK economy post-Brexit, with London remaining a key hub for global capital markets [18][19] Other Important Information - The Capital Markets Union is seen as crucial for enhancing the efficiency of capital deployment in Europe, with a need for a unified regulatory framework [27][28] - Morgan Stanley's partnership with MUFG in Japan is highlighted as a strategic advantage, leveraging strengths in a market with significant savings and investment opportunities [42][45] Q&A Session Summary Question: How does Morgan Stanley compare with global peers in terms of strengths and opportunities? - Morgan Stanley differentiates itself through a global network with no significant gaps, strong brand trust, and a culture that fosters collaboration across its investment banking divisions [54][55] Question: What is the outlook on SPAC activity? - Management views SPACs as a new asset class that will remain, though they acknowledge current market exuberance and emphasize the importance of quality management for successful SPACs [65]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 2020 Commission File Number 1-11758 Morgan Stanley (Exact name of Registrant as specified in its charter) | --- | --- | --- | --- | |-----------------------------------------------------------------------------------------|------------------------------------------------------------------------ ...

Financial Data and Key Metrics Changes - Morgan Stanley generated record revenues of $48 billion in 2020, up from $34 billion in the period from 2010 to 2014, reflecting a significant increase in performance [4][6] - The firm reported a Return on Tangible Common Equity (ROTCE) of 15.4% for the full year and 18.7% for the fourth quarter, with earnings per share (EPS) of $6.58 for the year and $1.92 for the fourth quarter [18][19] - The efficiency ratio improved to 70%, down from 73% in the previous year, indicating better cost management [19][15] Business Line Data and Key Metrics Changes - Institutional Securities achieved record revenues of $26 billion, a 25% increase from the previous best year, with significant contributions from Asia [19][21] - Wealth Management revenues were $5.7 billion in the fourth quarter, with a full-year margin of 24.2%, reflecting strong client engagement and activity [24][25] - Investment Management reported revenues of $1.1 billion in the fourth quarter, with total assets under management (AUM) reaching a record high of $781 billion [30][29] Market Data and Key Metrics Changes - The firm saw over $200 billion in net new assets for the year, representing 6% of beginning period assets on a pro forma basis, indicating strong market demand [11][26] - The investment banking pipeline remains healthy, with robust activity in equity issuance and M&A, particularly in healthcare and technology sectors [20][44] - Fixed income sales and trading revenues increased 59% to $8.8 billion for the year, reflecting heightened client activity amid market volatility [21][22] Company Strategy and Development Direction - Morgan Stanley's strategy focuses on growth through acquisitions, including E*TRADE and Eaton Vance, to enhance its wealth management capabilities and reach younger demographics [6][7] - The company aims to achieve a long-term ROTCE exceeding 17% and maintain an efficiency ratio below 70% while investing in growth [17][15] - The firm is positioned to capitalize on market opportunities and expand its client base through integrated services across its business segments [8][9] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the economic recovery and market activity, driven by fiscal stimulus and vaccine distribution [44][43] - The firm anticipates continued strong performance in 2021, supported by a healthy pipeline and increased client engagement [31][46] - Management highlighted the importance of maintaining expense discipline while pursuing growth opportunities through strategic investments [15][17] Other Important Information - The firm announced a $10 billion share buyback program for 2021, reflecting confidence in its financial position and commitment to returning capital to shareholders [4][15] - Integration costs related to the E*TRADE acquisition are expected to be around $800 million over three years, with significant synergies anticipated [29][14] Q&A Session Summary Question: What is driving the net new asset growth in the wealth business? - Management noted that the growth is due to capturing a greater share of existing clients and expanding the client base, with E*TRADE contributing significantly to this growth [33][34] Question: What is the outlook for the industry wallet in trading? - Management indicated that while it is difficult to predict, there is optimism for continued market activity and share gains, particularly in fixed income and equity markets [42][44] Question: What is the plan for integrating the stock plan platforms? - Management confirmed that the sales teams have been integrated and that they will converge the platforms over time, with expectations of continued growth in corporate relationships [38][39] Question: How does the firm prioritize buybacks versus dividends? - Management emphasized a balanced approach, considering investments in the business, dividends, and share buybacks, with a focus on maintaining a strong capital position [51][55] Question: What are the expectations for organic growth in the wealth management business? - Management expressed caution about projecting growth rates but indicated that the firm is in a growth phase and expects to maintain higher growth levels than in the past [50][49]