Release Date: October 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Morgan Stanley (MS, Financial) delivered strong revenues of $15.4 billion and a net income of $3 billion, reflecting top-line growth across its businesses.
- The firm achieved $200 billion of organic growth in client assets through the first nine months, with total client assets reaching $7.6 trillion.
- Investment banking revenues increased to $1.5 billion, driven by strength in debt underwriting and a pickup in advisory revenues.
- Wealth management produced record revenue of $7.3 billion, highlighting strong operating leverage and client engagement.
- Morgan Stanley (MS) continues to invest in growth, with strategic investments in technology and infrastructure to support long-term expansion.
Negative Points
- Advisory and equity underwriting markets remain below historical averages, impacting institutional securities revenues.
- Fixed income revenues were offset by weaker results in commodities compared to the prior year.
- Net interest income is expected to be modestly down in the fourth quarter due to lower rate expectations.
- The firm experienced $100 million in net charge-offs in commercial real estate and corporate loans.
- There is ongoing uncertainty regarding the broader macroeconomic environment, which could impact future performance.
Q & A Highlights
Q: Can you discuss the sustainability of the higher incremental margins in ISG and wealth management given your focus on efficiency and growth investments?
A: Sharon Yeshaya, CFO, explained that the focus is on long-term efficiency rather than short-term gains. They are reviewing a two- to three-year outlook to identify efficiencies and consolidate investments. For example, occupancy costs have been optimized to allow for growth investments, and professional services spending has been reduced following integration efforts. The aim is to self-fund growth investments while maintaining a strong infrastructure.
Q: What factors contributed to the strong KPIs in the wealth management business, and how sustainable are they?
A: Sharon Yeshaya noted that the strong KPIs were driven by a combination of factors, including increased client engagement and advice-based asset growth. There were no specific idiosyncratic factors, but rather a general improvement in market conditions and client activity. The growth in sweep deposits was particularly encouraging, reflecting stabilization as the Fed began cutting rates.
Q: How are you thinking about capital allocation given the current capital ratio and potential Basel III changes?
A: CEO Edward Pick stated that with a CET1 ratio of 15.1% and a buffer of 160 basis points, Morgan Stanley is well-positioned to operate effectively. The priority is to maintain the dividend, invest in growth across wealth management, investment management, and the investment bank, and continue opportunistic buybacks. The firm is prepared to adapt to Basel III changes while maintaining financial strength.
Q: What are the second-order impacts of lower interest rates on NII and wealth management?
A: Sharon Yeshaya highlighted that loan growth, particularly in mortgages and securities-based lending, is expected to increase as rates decline. The stabilization of sweep deposits is also encouraging. However, the overall impact on NII will depend on future Fed rate decisions, and the firm will reassess its position as the rate environment evolves.
Q: Can you elaborate on the strength of activity outside the US and its impact on the investment banking recovery?
A: Edward Pick emphasized the importance of a global presence, with significant investments in Europe and Asia. The firm is well-positioned to capture opportunities as cross-border M&A and local IPOs increase. Year-over-year revenue growth in EMEA and Asia reflects the benefits of having a strong local presence in these regions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
