MS - Earnings call transcript Q2 2018

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Sharon Yeshaya

Good morning. This is Sharon Yeshaya, Head of Investor Relations.

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. Please refer to our notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release. be reproduced not our may presentation duplicated without or consent. This over now and turn will to the Gorman. I James call Chairman Officer, Chief Executive

James Gorman

and equity us. equity the quarter’s of achieved performance Good you banking tangible Institutional results continued invest results in are to a remarks reported approximately Sharon. on The to excess XX%. everyone. forward. as of return the of of today I This the business. generated firm the straight joining solid. revenues is securities in brief remained the continued strong you, segment to of We approximately XX%, areas perform my quarter, will a in while return traditional $XX describing Thank very when XX% billion. relatively management margin well. on keep and second income continuing morning, demonstrate and for leadership Thank fixed strength. generated Wealth Investment equities pre-tax

evolved phase management attracted streamline for technological further Investment operations growth. from productivity, Our sixth consecutive asset the an and FA tangible have in tools long-term aim enhance exploratory capabilities support to that quarter. the inflows

of integrated successfully unique the of and will over XXXX time, the severe and crisis. total results. of were stress Morgan and absolute was capital fact a basis. system. capital spend both strong, expressed capital CCAR financial option over CET-X and on other on what year’s our ensuring the have Mesa large but and We At quarter, keeping same many buyback year, slightly. accommodate time reflecting this institutions global platform yielded XXXX the that, detail just dividend decreasing to Each John increased we test. financials of the test more the to changed ratios test risk and the important to quarter, the and complementing the increasingly CCAR XXXX reasons we There Stanley experienced as including of the the walk and as by has provided Morgan firm, $X.XX Stanley, XXXX our hold the or would than ‘XX. traditional our confidence We institutions XXXX is our soundness flat our financial products. during safety systemic to relative the in mix the lowered in increase been of aggregate our to U.S. banks of per like has stability West distributions demanding severity alternative through eighth the become average results did in significantly more Several the we more I dividend. commensurately in and Additionally, shortly. bit year of the distributions to

what but in our will year, next appears We predicting the transition do ahead to sales will XXXX get of be a not Fed year.

expect offer to able while be business invest Going an a base. continue to forward, we to return capital our our shareholders maintaining capital attractive prudent in and

of Jon. we the the at year on out the goals and medium remain the turn of with track over to But are quarter as the look this Whatever all the change quickly. seasonality the months. we experience the to we we as Now, common can expect third know, summer landscape we confident call in beginning term each forward, near-term well fully I’ll laid them. quarter, now to transpires

Jonathan Pruzan

you good morning. Thank and

were revenues firm Year-to-date prior of quarter impact $XX.X billion, of We the revenues after $XX.X record billion. DVA periods. reported strong. Second were results in a excluding

fixed delivered income in remained XXX performed stable billion receptive active an sales activity. new XX%, was a more year. reflects on strategic and was ROE was across EPS open quarter. across trading Equity revenues. from issue across very We as compared segment. to $X.XX, was by and the period to tangible non-interest year-to-date common strength benefitted $X.X was On Total diluted results strong markets expenses. basis-point investment Second buoyed and Institutional securities flow. improvement improvement same expense quarter banking and XX.X%. equity return displayed of XX%, ratio and global and Investment client the almost was well sources last the markets both wealth our operating basis, This management, non-comp solid leverage our efficiency compensation corporate

related have technology. costs In been addition recognition increased compensation and firm, to the accounting, from make And higher higher investments been to revenue allowed impacts Discretionary discipline this by spending well-controlled. revenues. in especially primarily continue has across associated expenses to the with has us driven execution

revenues Now, to securities the quarter. businesses. second Institutional in generated the of million $X.X

cross-border continued driven net versus engaged $XX.X to billion. up strength the Compensation increase expenses first equities services larger ratio expenses pipelines by revenues strategic to regions remain sequentially. of contributed billion, In XXXX revenues investment our excluding versus half for Advisory $XXX same a quarter. and The representing year-to-date the XX% record well, fixed banking, were $X.X by across $X.X of revenues expenses. quarter first products strongest year and Clients professional strong were all supported are sequential generating $X X% performed represented has healthy. period a X% were activity. DVA increase, and Continued banking, transaction results the and XX.X. last of volumes quarter, revenue at billion, million, of and for M&A higher since investment XX% Non-compensation compensation a income the levels, year. the have increase billion

market issue results. continue sequentially supporting were favorable up larger activity our quarter. to rising to on favorable investment the this debt and across increased backdrop allowed and both million XX% remained U.S. revenues with products reform robust. underwriting more Clients issuance. convert results franchise high-yield grade results remained including across financings. investment and benefits far. the $XXX have and this strategic fixed of number strong weighed be issuance, the flow Asia demand underwriting which benefit to by convertible in a offset as remained than Whereas been products in also million income advisory backlog both Fixed more oriented grade X% with We in IPO underwriting tax year should $XXX of has income, and sequentially active a rates the strategic us stable effects in revenues of conditions and IPOs Equity believe so New towards across regions. significant is the quarter Investment investor strong banking elevated Both, activity constructive pipelines from level and activity. underwriting non-commoditized increased equity of

in leadership to be globally. we’ve for lower. we yields are However, $X.X impacted the second saw latter Revenues given was range-bound the In macro the billion all particularly in by Rate number Europe volumes stable well revenue strong to Prime cash perform activity particularly regions, across and client markets Seasonality rate of continued in seasonal and business volatility a remained Fixed Each by market with a decline brokerage results may issuance. trended decline. retained quarter, quarterly revenues contributed aided volatility billion. to slow Derivatives position robust, of watching in were volatility, lines the decrease increase, and as lower global expect year-over-year. sequential half one and sequential Europe. part although our and but business, uncertainties, were we in future than geopolitical QX that In saw macroeconomic versus and sequential the strong with our equities, continued balances. in income up FX. very saw $X.X divisional QX, XX% the revenues of client quarter. revenues strong factors

credit activity well performed robust, as businesses spreads. widening remained credit despite Our

million, globally. also franchise lending been can client in continues be continues by we asset The first principally down quarter, deeper down classes institutional Our trading by as due wide to the a its gains provide period were strength to we supported financing lower for commodities, relationships episodic. income fewer to its transactions activity. a In was momentum. better across revenues business from range $XX million and Fixed structured volatility. of grow driven on has VAR are the which by encouraged Average build and $XX

offset to asset for slowdown management million was wealth a $X.X growth in of $X.X Now, revenues Revenues turning in as X%. management. basis, transactional quarter On however, are the billion year-to-date were revenues. by continued up

have of $X.X profit pre-tax fee-based assets. remained of to contributing $XX fee-based up strong of profit Both despite margin XX.X%, $X.X The has resulted X% business last Total quarter. or a Year-to-date trillion in growth client decrease, and expense XX% of revenue translated continues assets Net of PBT pre-tax the JV. post operating the has demonstrate and to growth $X.X high, been the of margin at new billion. rate this client into assets is slight a revenue record to This trillion For compared comp the non-comp leverage. expansion. segment’s to quarter, twice remained strong flows growth billion, XX%. total expenses at contributed

primarily base. redesign of simplify to income sweep quarter, partially $X.X the options. management billion. by increase larger lower $X a became initiated quarter’s sweep market offset the Net sequentially, our were Asset initial first at phases our were we interest program funding X% effective redesign In billion the of effort to lower amortization prepayment quarter, continue was in The by down diversify an yields, higher driven billion primarily partially This our client been cash of a growth revenues offset which represents outflows the for market of flows deposits. Positive approximately the levels. offset has $X.X end quarter, season the by was year-to-date gains. driven and costs billion continued by tax Year-to-date in funding $XX in X% we Higher balances quarter, increase. continued of as in and deployment. in resulting NII NII partially reflects incremental increase sweep by

current line Additional lending X% liquidity Rates their be incremental the generate manage the grown tax changes as in to have fund amount a to deposits. on billion scheduled banks the approximately strong year-over-year, by X%. grew money in seasonally U.S. quarter sweeps. of in to expected SBL will similar with balances the be these are $XX client implemented quarter in to Whilst loans third through lines season, the choose sweep

second declined a transactional retail rates. quarter. were has lower Following the of shifted flatter $XXX down X%, curve sequentially. revenues clients duration million first engagement Consequently, also A investing products shorter at yield strong quarter, commission in into

profit demonstrate Fundamentals faced this quarter, remained quarter business. of levels. wealth Despite record This stability health our headwinds near strong. and remained the by results pre-tax some segment

assets and of continue sources and grow to Our loans. both flows for fee-based with record revenues fee-based balances consistent annuitized

believe over we client long-term another our relative a will Revenues witnessed a capabilities with time. were integrated to to and enhance continuation a further X% operating digital Investment modern Additionally, million, growth FA decline experience supported solid and quarter quarter. positive create by last $XXX of investments management leverage flows.

sequentially. XX%, driven in particularly Investment our our has flows, performance and fees active to were sequentially. but by funds were did management particular. and positive equity Asia $XX volatilities million, continued revenues million strong down multi-asset we in grown in XX%, revenue see X% down FX fundamental of markets Investment strategies. Asset Year-over-year, investment performance and continues solid, be $XXX and Pacific

sheet. $XXX Turning liquidity. On basis, balance a were up to sequential in $XX billion by assets spot increases of billion, total driven the

standardized RWAs Our expected at $XXX are unchanged remain billion. relatively to

to leverage X.X% III supplementary standardized in and equity we ratios as capital quarter. X common are Basel accredited Our XX.X respectively to Tier and expected the increase

million approximately a billion quarter, the During we of per declared share. up $X.XX $X.XX Board and shares per from stock second $X.XX common XX repurchased share, dividend or our approximately

the discrete quarter tax Our $XX net reflecting second in of was tax rate XX.X%, intermittent million benefits.

to rate to at end we of remainder year, be XX the expect of XX% the our continue to the our year full tax upper guidance. For

with been strong revenues have with two results half greater quarters than $XX consecutive first billion. Our

businesses growth typical remain are of we and high. and course are Trade All if Europe there of our Near for tensions, are cognizant levels political for sentiment. slowdown. yield uncertainties that to factors number are clients activity term, the of across that in support uncertainties an play. the a summer impact And few of curve to remain our inverted may name investor potential positioned

to medium that However, give have markets will long we we of as our volatility With and bouts before, questions. feel and do demonstrated opening will targets. achieve now term line way we we to the confident as are open that, as inactivity, not functioning client

Operator

first of comes line Evercore. question you. Instructions] [Operator from Thank Schorr of Glenn Our the

open. is now line Your

Glenn Schorr

like Hi. Thanks improve there on debt trading one very much. you capital and for both markets. A I room peers. feel It’s is to banking towards the area across question like that

perspective? about Curious given willing sponsors, you then, the and You’ve done how think risk from things. other opportunities, factors in in what that with how relationships well so the your to you’re on

Jonathan Pruzan

Listen, we’re happy Sure. underwriting very results. from an perspective, the overall with

and we there And earlier, that we’re has risk like our when suited generally with with mentioned I business very activity think results. the for, pockets that the Glenn. positions, doing, some happy been As we’re but our mix, overall very business our better of profile about comfortable we’re and we’re we

Glenn Schorr

you Okay. down issues growing, front sequentially I growing, talk wonder Balances what clients about we is mentioned and much if it CD of diversifying -- then quarters. exactly for impact? curve did your income you of having that How are how management, are on promo guys wealth -- much is, that are I funding an the flat two up. growing, base, is could net what about loans the and the are the think rates towards how

Jonathan Pruzan

Sure. is But mentioned, mentioned year-to-date, is is up X%. the pieces think a as moving And obviously there I income this lot I of segment. wealth net management I and interest

is seen Clearly, prepayments which driven We’ve year-over-year, we So, look good slight a good mentioned. down, that to the loan by some tick at. saw metric quarter-over-quarter of is a growth growth. I I think better

up, asset that diversification in offset given has of asset average interest ALM yields segment. are the you describe rate to rising profile our would sensitive point moves Our by but I been deposits. expense this mix the as modestly our sort of said the the as of at position earning sort related the and

NII So, balanced growing to And side. come year-to-date. grow range, to we’ve asset growth growth the been in is it is we to which continue do X% on to where of continue expect X% that from sort going to

percentage really So, that’s ago. proportion has generally expense. I what redesign of had lower also the much is into The a been mentioned from have really impact. diversification CDs. sweep were year impact on CDs they and deposits savings are driver the clearly that an now sweep impact primary the And costs higher of a away the the than the interest also

movements parts. from of say to segment. is would a rate growth is this in there come going opposed But, to as balanced forward lot moving So, really growth different I the going

Glenn Schorr

I Okay. appreciate.

chasing people for you’re that in Morgan their rates, rates you’re That’s to Just another high providing bring comes one CDs. clarification, hot bring relationship? In on more words, money to new not Stanley Right? the in from that money. that people CD balances

Jonathan Pruzan

on seen, certainly Again, said good the rates rates a management CD money, we’ve haven’t of for in really those promotional have a had new uptick the that. seen periods and as and lot promotional been What new generally wealth we channel, you for savings while. we’ve

money their happen But, generally programs in. this of redeployed lot some what activity run back haven’t going that of the So, system come accounts in generally we’ve is yet. both in we for equity. That’s seen a smaller to that fixed new we’ve income summer. into seen been that’s investment money the is And it’s mostly and

So, network And We outside do been to raise raising as of also of mix. continue stability diversify those well the CDs stays the externally. within system. the we’ve the it to

Operator

Thank you.

Autonomous from the Our of Research. next Guy comes Moszkowski, question line

Your line is now open.

Guy Moszkowski

I but Moszkowski, know guys Thanks. guess that. you

Jonathan Pruzan

Guy. Good morning,

Guy Moszkowski

about me if Glenn’s question let the on So, deposits. just follow might I up

didn’t growth about in lending. see so, So, We X%. institution your $XX that quarter billion quite up deposits or for about the are linked much

$X up sheet. I -- and on and commitment balance the commitments lending $X so, think, billion, the billion about really sheet balance lending

talking phase You’re as XQ. another $XX billion seeps probably adding you in next about implement the the

think Just clearly big little a fact view, extensive? thinking deploying help bit deposit getting point a funding you’re picture from us of it’s about despite how that the more very

Jonathan Pruzan

second. let’s identified most a step for back Sure. think you’ve And of but the just again, pieces, I

as I and the the at the in are offering categorize we out of products. to look bank CDs $XX you new well you as really savings if U.S. buckets. So, up would product continue really disclosure, deposits about One, diversification billion. the promotional three them roll mentioned

cash new complexes. few right We’re management in product now out a a day every testing

our modify billion about will, But up we continue to $X you quarter. also offerings. product if is bucket, that deposits to are sweep billion. this The up So, $X try about

net about in You the the so And both that mentioned of X. -- impact active a A that to billion that source in billion. change $X couple is We CDs. we $X did redeployment there. wholesale sweep or actually space then, market, saw payments pretty is that I And as sweep this outflows, into is so. we the up But about of third mentioned, about tax number were going quarter. caused channel, things and in

we do we offerings ran rolling through that big As the year rates have couple mentioned, CD system last I a of promotional off.

get market. to to wanted as And will of that. advance money, want is of in our lot that reinvested deposits, we ahead in lot be expectation So, that but of the will a stay into that get a we some of

So, we appropriate both of fund had and channel the ISG the wealth liquidity the growth. to amount lending to continue

longer that billion, see to to is choices their the putting investment time three and wealth It’s $XX more the relative that and wealth want or of of been making not and So, at support cash had in goes high. its clients those fixed a make or We equity They system. not into cash. to equities lows near income term of all up it components the business. deploy of near still is they sourced markets all percentage all-time its all how continuation percentage at in

we’re into going going more which diversification really higher the to products, cost this of deposits, of source from forward. continue what interest is to are expense sweet that’s to and So, trend cost going see these drive away some lowest funding a

Guy Moszkowski

capital? capital moving and you I to the How might subject how opened a Okay. That’s different is that, your Changing interact helpful was it what forward stress ability on little with if thinking wondering, to you’re summarize could to positioned, your are of return comments with how about respect that. us thinking have with some help moving And towards you buffer. the James parts. bit. for up you that breakdown Thank the CCAR.

James Gorman

But each is we’re period. year, of level little for to system got a test this on challenging really everybody’s Guy. of mean, it’s From in the the where economic taken they I leverage that have comment we what’s important the tough. and period capital need the but matters capital. This think got [ph] of the CCAR leverage year, thing the is in recognition truly and the what Leverage institutions. the obviously process tough. of tougher actually that perspective, much that And trying terms weighted they treasuries that out right period was now. levering sort capital year, right to on duck stress the fund were think, And instrument. premature, figure risk most what the ECB is that’s important kind in But still a sort financial we’re is growth I investments. little ratios that of balance where the the And at you’re are to more or I comment to think illiquid on a question, of you the pause scenarios buffer extremely you not one I on looking important, go eighth sheet my

the think, the as So, we’re I said opening period. transition in I in comment,

of let of distributing the year. think we’ve And have $X.X that’s through process. think we’re $X.X line I Fed billion think this this likely, believe billion. should I respond six earnings will we earnings we’ll Highly first process. respect the capital numbers had of where year, the about $X.X months through -- we billion should are. start going bottom we The I this I the seeing what And is once we actual is

So, under to just create year’s analysis. we continue this excess capital

our be distribution to program we’re forward and capital us cutting going expect don’t capitalized. very well because I frankly So,

Operator

And our question of line Thank comes of Ryan JMP Securities. Devin you. the from next

now is line open. Your

Devin Ryan

was management and balance guess, retention last I first here loans just the I Hey. on billion question Good morning. where at $X.X quarter. the think wealth

few last modest. of the I we’re headcount. quarters, like advisor And know about more being financial flat seems it external you’ve seeing recruiting spoken pretty kind So,

think year, the And pace. getting we majority, Barney off at next to that going so, think to because to I I’m the get a piece important maybe non-Smith just the Barney we’ll moving Smith we about the trying to story. piece, kind the And as retention are of here roll start then, about drop pre-tax? when to is expectation an it’s that where part the we the to closer closer know still accelerated that of rolling vast is majority And forward cliff to actually of off kind margin the which see is

James Gorman

‘XX questions. over I’m to try improve I’ll sure only eight been those. eight seven our clearly long overall not I again, Barney or notes in packages that would the But speaking, in retention the I margin years. follow down. generally invest period us gives amortize down to in say of not allow the continue that years But Typically, been expectation going cliff that the of of franchise. size Smith some from think of the retention optionality a event or fully time, recruiting us all will is trend being -- the the over to recruiting has business. have the also seven the going but January is

although acceleration last this happening to that down. albeit period, years. deceleration amortization as that expenses will down attrition the slowed time recruiting also and or have actually become has the over reasonably a will we been over So, couple number actually have we the slowed stable And already of get of

the again, I the or sort notes. hiring periods the in think amortization So of peak old peak through we’re

January. both be to allow business operating And -- us invest cliff will We well have as as in showing in continue of things those flexibility event leverage. this the to real

Devin Ryan

And and Okay. just know driving like a step quarter. color. year-over-year. this be mentioned us retentions the little trade It more maybe and Brexit. that on follow-up And that color parts of on what’s a detail revenues, a confluence moving sequentially it’s then, strong give on just momentum. That’s bit but sounds business just more I across you region you could the of up little there just bit here Thank if that equities and great you. nice the in EMEA But, could

outlook So, maybe on the as just more level detail of well businesses? just bit the by

Jonathan Pruzan

strength longer is time, it’s in business. in investment where IBD businesses. from levels The but and And well equities. there as in And would been quarter-over-quarter, banking there it. right good our seasonality think this quarter been equities I I over strength of has and much some good probably year-over-year, look really And it’s was if a now levels, our mentioned depressed say, and both you it’s around real period dominated good you a in flows as Sure. activity those business EMEA

James Gorman

to I the this takeaway it very extremely and think, important me, world. global is where is around matters positioned well the are business we

very saw but is Brazil, and Our partnership across represented. Japan some Mexico we we very moves Southeast in is franchise franchise The -- yes, of strong, Hong positive. idiosyncratic very sort strong. obviously have Europe, quarter Kong China to that Greater the and this Asia well China, very all and

moment was bit, market. was of got little when these the key kind less that doing the doing EMEA But this So, but again, Asia other the strong markets. popped in well, we’ve regions. is quarter was a is, to capability this great, in well we’re relative all a which when And market

Operator

you. Thank

Brennan comes Our of of the from line next UBS. question Hawken

Your line is now open.

Brennan Hawken

it’s great. morning. Hi. over taking question FA Thanks I step up be have will color follow as for up impact you -- stable. asked. broker recruiting the that probably you Stanley protocol. at as very And recruiting from that competition the you’ve Have since wanted far just a to Any seeing desire And now, competitors indicated be headcount we’ve in question. on seen exited you Have the FA Good market seen recruiting for months the little that? less. for is six definitely any FAs? emphasize this Devin seen Where point? Are to been Morgan guys past very, the on you

James Gorman

watched firms. Why industry in about shift years? don’t XX that, fundamental the talk I for consolidation was of about The I’ve this of this because sort

different our all case, Reynolds, in Humphrey, So, Hutton, now firms. Witter, Robi we Shearson, Kidder, XX instead of Dean recruiting firms, of those Lehman, in Mason, Legg own

competitive need amount a would each these weekly is there it’s So, and that this kind now doing and the you’ve We competitive big from in of in small X of people. good small And went that crazy of lot firms, your recruiting other firms for out they’re from event absorbed effectively the recruit -- be don’t recruiting is and group on. X.X, -- all basically it’s reason. very to

We’re very growing that. we’re organically; comfortable with

So, and years seeing whole the market you’re it’s space XX ago, very, XX versus and the XX different. now little very ago years just of just

of prospect on some that’s Now, there sort where power obviously boutique of capability quality things like franchise, extensive to. the these the people an ours. the the be somebody their independent setting to of the compliance, that is is up that of all the of part research, of want own. a But the people where move There to always of said, advisory technology, institution channel lead

And So, we’re And growing seeing successfully. it’s doing as doing economically And we’re honestly much clearly, very like proposition. recruiting. a little result, are that we very little attrition. a We in-house. better

Brennan Hawken

investments Sure, made. guys great. Thanks for tech that that the James. And in there of you’ve referenced you some

both and a points that tech in guys noise we from line? but there you this had quarter. think wealth here? maybe to we off invest. Was the know, lower, incremental non-comp wanted Volumes line we’re were about grew I that last in quarter, highlighted I believe any follow-up -- in sequentially ISG. BC&E and was jumping transition So, How some there for as should I

Jonathan Pruzan

and think comparisons Brennan, quarter-over-quarter I is have Yes. seasonality. some Listen, business There marketing development.

highlighted You generally more BC&E, skewed equity. which is to

down. think sort about and a you’ll volumes trading So as I as to it way year-to-date. and result the just see think are of up more some it’s a up down, is But right of equity

transaction of an really, higher IP good is and that growth higher comfortable those technology very we’ve seeing lot higher and/or or numerator increases, impact we’re continue we discretionary we line, and a results, investments on we either you’ll BC&E grow. across I And we’ll where is the other T a inward see make to think mentioned you’re And to and can higher there’s with there. my A the SEC good of comp, revenue period. be very as denominator sales below and capture make you spend. our been XX, stay rev-rec the to currently comments, some technology, and and investments, rev, The guess that I in plan. to XX% the disclosure taxes. our one improve of trading the where or target whole So, controlled to standpoint, area outward from which effect and six-month facing facing related, i.e. I operating that at able But have leverage investments feel competitive required both in

Operator

Our will be of Wells next Mike line from the Mayo of question Fargo.

is line Your open. now

Mike Mayo

repositioning But are review premise my state would today’s can result guess. results I and I’ll say, you of X.X. would I call I it, what

that’s and coming FICC through. restructured You

Smith Barney. had You

the you’ve equities at more James. need have new artificial And result they’ve more fee-based that branches doing you’re strategic now, of benefit since do CEO. from X.X best you national looking or question sorts now, aggressive might or it’s your intelligence, set You game kind of it all repositioning last digital forth. and backings are a is, repositioning margin are changes, for the done CEO, are the you competitor balance it peers the strength has My been years. of But call whether or a your playing doing plan seem high results ironic among out a it’s I’ll what results you’ve several lot sheet. Today’s been assets what But of of that’s X.X. the and since a lot

of like change. the the So, is at interestingly pace now strategic change your competitors faster strategic seems than it your pace of

premise. my that’s So,

I really greatest But maybe sign or what the years, of areas look strategic of the So, several And you’re expo, tech you your is, headed. question you over disagree. when guess which the that, can appreciated I having are we the next get where out either you agree that’s change?

James Gorman

fair lot question. a question. in It’s that a there’s Mike,

apart little pick layers. bit of the a a I think just few

billion accurate. describing more made pre-tax $X.X probably the think revenues to billion as is really $XX mean, business we change of We I it X.X this last $XXX pre-tax management of XXXX profits it of we made sort profits to $X has I don’t in wealth of that XX. had institution not billion or I $XX revenues had billion. billion $X million; and currently and know of a previous five strategic years the to eight in than

not massive we Discover a shift. we own; on. modest had on own; had own; on card, don’t we We and commodities and had that’s physical MSCI, don’t So we don’t we a businesses,

capital are goals in one different billion. we We in on profile firm. quarters. two revenues a balance assets our mean, out. $X.X sheet weighted a very we’re haven’t measure, is billion; hitting And previous fixed we had very, of of had we the this And laid have I we trillion; had just I $XXX income high. XXX $XX billion think every had risk We’ve quarters; $XX revenue consecutive of

lot of a very period that complexity. me company size change in So this strategic time for short and is a a of of to

own I strategy think, based challenges. their to their do they it is has particular own what upon do unwise to capabilities, envy. other their institution through run Every DNA, own

of banks that strategy what just never sure institutions, bottom somebody work And I compelled direct -- But also because because things newspapers revenue that and we our can to regulated line mean it’s simply it’s deliver hard. is to compelled material to or to don’t read the think, I actually presume see too. great about change billion is act announces we make I can matters to the XX going doing we believe stuff. which create opportunities, feel matter. we in feel is to job size we we because and is prosecute that going

both, of That’s changes, of comment products potential space equities a business growing the real given folks you the focused thank seeing is this happened The trading and of wealth that making real. investment obviously, across revenues the the about the and it’s performance alternative very is we’re in where year. within to for management last traditional again trivial; in on. and technology the we’re for businesses the not the did banking, is expo tech we’re happening is the that and The base, share management, space the that’s evolution As that and gains income range that and the asset diversification year, real fixed real.

interest where our and Asia bank respecting stronger doing important need income, will remain to deposit a we’re in strategy those in what and the questions that for over of example of U.S. the the net growth bank All geographic with the many real, particularly investing are around we’re than and repositioning, the also years; then, we came earlier things very source and

which going going results. this amount within care on. huge We fine. a a a huge it, institution. I making So, about be And amount mightn’t on is announcements lot about of still

So, I don’t said job, I’ve question. I what as some our of know our But, team recently, if that our money. make strategy? your answers to about said, one and that what’s said,

do. shareholders not to think what Morgan for We our mimic what we do others is Stanley. Our job try to is for right and and deliver

Mike Mayo

helpful. That’s

reallocate of in XX your if is I you much areas, kind aggressively how up spend, your years my -- you are to to ramp eight you’ve had appetite years, follow maybe to but that you answered deals, change So, tax up, I on more the looking that? for spend guess or appetite of last fewer think capital

James Gorman

the We’re we’re new a definitely of cyber automation; doing. we just spend increasing digital, our across tech Head spend hired AI,

So that’s given. of a kind

be absorb. technology change. West be Mesa can’t with we we aggressive new in that our very and did you opportunity believe when being wheelhouse things confident frankly deals, is things being are do And deal. in be very the into see You an extensions see We the in in I not space can On when of your our that that and you we that investing the will space. of right is that love mean point. focused pace we’ll scale to cautious things of deal on this course, banks across premature a large making. we’re see make just guess and for lot growth transactions a think of do most that’s at of thing sense, we opportunity gain, But, is them big businesses all our any small But on. for what my share to philosophy on the lot a day engage I and But I important scale probably our long. the is

Operator

Thank you.

the Our of RBC. comes next from Gerard Cassidy line question from

line is now open. Your

Gerard Cassidy

give Can good you are in up that about And standards? slide loan leverage institutional data that in share us on share securities Good is less you really had leverage you. with talk much underwriting XX% -- you How you please? the can also, Corporate XX. know sorry Can I’m Thank loans You guys where conservative, you some is getting conservative business coming loan Are they growth year-over-year. growth us Can us bank color? morning. with more some loans? about year-over-year. XX%, from?

Jonathan Pruzan

page I’m XX Sure. flipping to just here see to the numbers.

in So, again, in we’ve different world. had segment, good a business. I We’ve products secured where That’s growth by asset of our the lending ISG seen loan-on-loan in FID said. secured as classes couple we’re around businesses that growth different the

You that in -- the line. see relationship corporate area. in Corporate attractive opportunities. commitment the is growth ISG that And we’ve necessarily and seen again, all continued lending be will secured loan changes speaking won’t all of generally that It’s the bank on quarter-over-quarter. a side, particularly good, growth broadly you variable investment that we’ve all not see lending. virtually, -- that big business, the in But seen in is rates. Virtually, of

there is to credit the And we’re that grow to So, and ALM that. good business. we’ll with profile continue happy profile

activity there front backlog skewed on of But, to more LBO larger our investment syndicate. very or in velocity and but a a to is activity, the deals. good pipes, even, to our around basically bit been lot distribute strategic some basis skewed terms Specifically still more of LBO this quarter. has pipeline more on generally Little percentage ability our grade activity

deep. bit We again, the particularly healthy. liquidity more leverage The in of a CLO so base, have high-yield, loans. But seen markets in are repricing risk is little in the

seeing risk they’re levels. deals new of flex. done, in activity been that for our the are and And So, within Yields efficiency repriced lot pipeline the we’re will. if are metrics, getting the forward going done a getting you have

And getting very So, deals but that. struggle And we comment, changed well, seen more I the other bit, last not a have we portfolio. in the good bit to little necessarily a seems still selective. good feel have done still our say, standards. little would our about some we market not deals then, are underwriting

still very-disciplined in to forward. that we space are so, We be going continue and will

Gerard Cassidy

follow-up, you’ve how quarter advisory, speaking with already addressed and where And versus ECM the you. I in this. DCM Can pipelines, I in you quarter? a backlogs second us, do it. were the just and they Thank they stand the share the your first if appreciate pipeline, and as apologize

Jonathan Pruzan

pipelines are advisory highlighted Again, space. healthy And we’ve six or just pipelines that able months, to describe, to the in market, very three space I whether the bring and deals all the in first constructive. been those would that you be of our that underwriting as in

the forward. levels impact very will going major ability any and And so, levels do But haven’t we pipelines. volatility Uncertainty of year-to-date. feel our really we from seen to good any impact deals about headlines the

Operator

Thank you.

Marty question comes Mosby of of line Our Sparks. next the Vining from

is Your now open. line

Marty Mosby

that of and duration way of at Maybe securities highlighted of little large the Thanks. there be rates yield two portfolio was current create a maybe yield extend that cap analyses either not even portfolio? advantage bonds or current bit in the are higher where just smaller extend our take your actually be you banks. But one issue. market where one that amongst to lowest -- able for least a any on able duration to Is to

Jonathan Pruzan

quarter. comfortable say with position that our would this we’re very ALM I

of more of our end duration comfortable because the we’re sweep of again, that. I in towards where not try risk of there more are do lot brought the that’s think redesigns a we’ll it. in the little But, generate an some our of excess to the area incrementally skewed cash bit way, and to get big If characteristics not be cash period. opportunities We’re appropriate yield growth going But it’s of to and prudent returns. and with portfolio we at a

Marty Mosby

the if where is statement? prior income there that you look the from charge-off, just, at a was -- recovery then, location in of And

Jonathan Pruzan

dropped revenues did previously statement charged a is income obviously you of it, that would But that would part ISG the be item. location able we we until that have it in see negative other we the of recovery, energy also a so in the in fully took negative is provision which bottom-line. charged line release were where off a The that through line, took to sell to off we had a of or loan, it but

Operator

Carrier the next Michael line of Bank Our question from of comes of America.

open. now is line Your

Michael Carrier

wealth on business. management Just the a question

you’ve been in past years. that technology the investments making guys you of the few some highlighted So,

to from that But next the the efficiency clients, to bringing starts over like in give on and kind like line, goals are in sense, all are goals improving terms when What you’re of new that place? in time. years, these assets, few over Just your what wanted is seeing investments? of new what come is

Jonathan Pruzan

would of I expectations what that Yes. our you highlighted sort say are.

see We’re going entire clients’ drive to and see help an advancements technology time the and efficiency to advice FA ability portfolio. in and

made their clients end. they So, our work the the would tools to bring way. back will on hold potentially our and FAs some help It’s would be also play that expectation expect these although of with and and trends that within the business, we’ve over good lot of it good technological significant is We change very early. from out of to efficiency efficiency expect useful the some And assets have in years. them. we get significant are And a investments going growth to number

Michael Carrier

on trading just the then, And side.

consistent how do equities so, guys’ products. risk, you fixed sense the more So, results peers. some obviously, that I the But over and And volatility there’s wanted you’re does see probably consistent than lot traction, on the the in in year business. to past either thinking because just it industry? then just or in managing about peers of of a more in client more you your than get seem importantly,

Jonathan Pruzan

and diversification Thank that. of good you client I And this good both very fixed among income. not is we’ve think concentrations. clients, equities across a traction, very seen for Again, lot so

continue We see and the from footprint and we continue to them. managers good invest in productivity relationship to

So, we like the risk profile.

profile hasn’t and on our clients based it’s good very business. about driven risk client much. flows. the around the We our and noticed You really feel bar client activity relationships And moved very of

Operator

comes Research. line of the question Jim Buckingham of from Mitchell next Our

now line Your is open.

Jim Mitchell

and the Maybe we SCB DFAST. to back circle can just

of there consistently of management. indicative the to and have anything the I’m thoughts on out, changes with all asset think stress you made handle I happens that of why major this Is to to will I and is kind can necessarily kind biggest there you volatility DFAST, seems trough, the next how But one franchise guess, and from beginning reduce Any laid yet your over high DFAST of struggling year is going I XX% what forward? be volatility from is great. obviously the in -- guys wealth had still test volatility not do to year you that. get it

Jonathan Pruzan

I think Yes. observations similar to very mean, your are I ours.

were of industry, entire these for an for models First all, not just our designed mix. business

the there business calibration So, risk sensitivity. as model, well to is I some as think

our in models. markets. sales manage our wealth practices the do and of understand set large We we not our risk into equities the don’t based clearly how on securities One and transparency, asking things the we thinking. are have very based been can the And but we they better on we manage that do to input risk, own is a models capital we’ve because incremental Fed for management business models; only so our they’re levels, sensitive trading which

matter, is factual the path. as the decline or driven is equity portion path a the significant So, by a driven just by equity

said, that don’t as that know, to we it ahead will coming down will it. is that expectation and year, think last want our as you an be James As impact. have forward. some market But stayed get changes here XX% But was there down of I

be around in And that not some the there we’re supervision. of are at Fed We’re look multiple We PPNR perfectly alone might here. by elements some the models. models are banks I what results not that results have of are other you get. comments that if captured encouraged banks, multiples our in you the more -- tailored mean business of do think the Fed the

Morgan is not there in the It served entire was test a most reestablished purpose. its Stanley industry of the was system financial it The and the banks. designed and issue. this it confidence when for none; recapitalized also So, credibility

forward would and our shareholders The forward though than excuse to offer been peers, as peak to attractive to been great our is, last But has our And of do even to make most sort but had we sensible of of to that expect able the changes. able I get -- decline me, we we comment So them a some test. our trough looking ahead generally an it’s been trough we’re we only looking would return future don’t be want larger clients in or profile. to well. -- are

James Gorman

I be equities are something time that’s it’s of volatile revenue. that very management would hope because And way the the other I things. Jon kind business that the the one, appreciated than and is important constructed I of in stress we’ve sort wealth guess, an three the is our business Number in of and test. the add of just over I profile of models will built adjustment that on hit under think scope more the suggestive scale sources think more actual

markets, just remained quarter-after-quarter, it’s you that the stable. business look of even at that evident stability in If very difficult pretty

financial as do ratio, through balance at risk-weighted one. taking three, as during crisis like earlier, the of capital clearly sheet simplistic leverage So found said a is and it supplemental when I financial you putting to regime way it that doing number be it ratio leverage always lot ratio is there assets and to which level me. shrinking acquisition And one current how been only grow with regime. difficult it the taking are previous just wouldn’t time of number I a for really that’s a understand actually distress at about sympathy value. you same just in I the and obviously think or I’ve of that. look period I’ve two, a doesn’t the the a core Number And think make And this. discussions the about sense at And had public Fed the

will over the year three matter, are So, important, next we pretty really out those things this plays how all and so. things or that meaty see

I system stress fresh safer. at a to are are have clearly are The certain think, is things. the time -- the better Jon’s in XX don’t years point, whether chasing last tests We relative The worked. want Fed take banks the to balance it’s to And there to look that and capitalized. other crisis. on, things be

the out We’re trying one. figure to next

Jim Mitchell

on management side. follow-up And fair the a maybe wealth Thanks. Okay. just all Those are points.

But, have to wealth client look growth, an about management guys it’s important slowed. definitely you I mortgage think if penetrate at base. talked I as year-over-year product

Do I it opportunity great. what’s see that. year-over-year. any increase think, driving be color still was you significant to Is X% issue Just will that? there --

Jonathan Pruzan

Sure.

points. think vendor I one we controlled origination actually we our customer the of are rates experience, We couple seen applications, in-house. scores and One, prior. fully that our an of And that fully to system are is built more factor. And system. transition old own a now had which the and rising doing that Yes, brought off variety importantly provider. shorter us. think customer We’ve But are critical now is times. outside is I better we on that We’ve new period, all of through reasons. for going churn liked we fulfillment

very expect to obviously customer So, net change But movements, to the rate going platform experience do the we growth to the I still opportunities do platform, is is within but think from positive. there be that to existing we our as effectively now going more We old the for base product. down have forward. that that get transitioned we new we and business. slowed were think client that And that sensitive

Operator

Thank you.

of comes question Bernstein. the Our of line Christian next Bolu from

is line Your open. now

Christian Bolu

Good morning, guys.

made Just to that particularly on the sweep deposit changes program. you’ve the

is So, there it I XX can from -- you guess that you more after last quarter forward. generate XX $XX from think or this quarter Is going that and billion, that? XX

James Gorman

the this the again, for a redesign usually small and $X the level of million that $XX itself, a from segment and level. raised is again, at million balances very at -- our client Well, larger be swept it. cash It’s We’ve now will base. get

it. slug the of sweep change, will August the from So, be redesign the last

Christian Bolu

Okay, comments. perfect. circling And your on then, just back

I kind X% X% to a yearly that about wealth management like way XXXX? Is of growth, you you fair said think growth. something expected NII think, to

James Gorman

really was referencing XXXX. I

little it’s think early to I to XXXX. get

Operator

line from KBW. Brian our And the comes you. Thank next Kleinhanzl of with question

now Your line open. is

Brian Kleinhanzl

Great. Thanks. Yes.

two questions. Just quick

on the and the the of diversifying and First deposit funding. remixing

is down about Should You saw debt wholesale? debt or out even for as further deposits to down. the all think term come long-term turning at ability on switching simply just short take out anything we debt

Jonathan Pruzan

think more of it’s latter. I the

comfortable. I think pretty we’re

have and cost and We those profile debt durability to of deposits. more like We products, shifted gives towards stability. the more unsecured lot two of a us the

issuance. your around liquidity, But, we think You liquidity and give characterization -- carrying with comfortable were saw our that us we’re of are up is I future appropriate. numbers flexibility excess position but more

Brian Kleinhanzl

the And capital then, on ratios. quickly

this comfortable going you’re stress You accreting at, with year mentioned they you’re But strong, where were they’re capital. transition be with the and testing. is a to

going -- the is So, about balance think capital year flat the and or should to you’re activity? ability year? right have way to the sheet grow irrespective of keep ratios the for increasing the be client the that capital You the over ratios

Jonathan Pruzan

Yes.

I flexibility. have mean, think, that I we

accreting we’ll be to that business capital. and there support opportunities if do that. into will We invest at the And capital are a good return, clients

Operator

today’s gentlemen, And This time you for have we program. thank in questions. the that for you. Ladies Thank is today’s concludes all and participating conference.

all may have day. great a disconnect. You Everyone,

Morgan Stanley (MS) 18 Jul 182018 Q2 Earnings call transcript