Morgan Stanley Q3 2024 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Steven Chubak - Wolfe Research - Analyst : Hi, good morning.

Question: Steven Chubak - Wolfe Research - Analyst : Ted, hey Sharon, how are you both doing? So wanted to start off with just a question on op leverage. You noted that the management team has been very focused on driving more efficiency. We're definitely seeing now on the ISG side 75% incremental margins. Even in wealth, you're delivering 35% incremental margins. Just wanted to gauge the sustainability of some of those higher marginal margins just given some of the efforts you cited on the efficiency side while continuing to invest for growth.

Question: Steven Chubak - Wolfe Research - Analyst : No. Thanks for all that perspective, Sharon. And maybe just for a quick follow-up on the wealth business. The KPIs were quite strong across the board, clearly reflects a very strong momentum in the third quarter, especially in September. Just wanted to better understand what -- if there were any idiosyncratic factors that maybe drove some of that strength. Inevitably, when you see that type of momentum, it begs the question as to how durable or sustainable some of those KPIs might be and especially focused on just the growth in sweep deposits, which was certainly a nice surprise.

Question: Ebrahim Poonawala - BofA Global Research - Analyst : Hey good morning, Ted. I guess maybe just first question on capital priorities. Just talk to us in terms of how you're thinking about the capital ratio today in context of we are still waiting for the Basel III proposal. But more importantly, I think the history of the last 10 years has been excellent capital allocation, organic or inorganic. As you're looking at the world created, where are you deploying capital? Where are the best investment opportunities? Is it in market? Is it in wealth? Is it in international? Would love to get your perspective. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 16, 2024 / 12:30PM, MS.N - Q3 2024 Morgan Stanley Earnings Call

Question: Ebrahim Poonawala - BofA Global Research - Analyst : Got it. And one quick follow-up for you, Sharon, on sweep deposits, NII, all that good stuff. Just as we think about rate clients kind of maybe serving a bigger event for clients to reallocate how they invest, is the NII, give or take, close to a bottom because of a certain level of sort of -- I think you've talked in the past about cash balances that clients have maintained. Are we close to that? And if we get QT maybe before the end of the year, could those deposit balances potentially have one less headwind and as a result, grow looking into next year despite rate cuts?

Question: Glenn Schorr - EVERCORE ISI - Analyst : Hello, there. Okay. So with RWA up 10%, I had assumed that it was trading, and client led with PB balances at record highs. And it comes with a bar that's actually down a little bit. So I'm curious, do you think that ebbs and flows with just the environment? Or is there some of the -- your capital plan continue to feed this great client franchise across markets? And I'll just ask the follow-up with it because I think it goes together better. With all of that, wealth and -- wealth hasn't -- now that you've made a lot of investments, wealth doesn't need a lot more capital infusion, if you will. Based on how you're going about your capital plan, do you envision any material shifts in literally business mix? We've gotten all very accustomed and used to a big percentage of this company being asset and wealth management. Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 16, 2024 / 12:30PM, MS.N - Q3 2024 Morgan Stanley Earnings Call

Question: Devin Ryan - JMP Securities - Analyst : Hey good morning, Ted and Sharon. First question on NII and wealth. Obviously, a lot goes into that. But it would be great if you could maybe speak to some of the second order impacts of lower interest rates that we should be thinking about and maybe some that are a little bit less obvious like changes in margin utilization or securities lending or securities-based loans or even customer engagement with certain types of products or really anything else I'm missing there. Just love to kind of get some more flavor around the implications and how you guys are thinking about the second order impacts on NII as you look out over the next year or so. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 16, 2024 / 12:30PM, MS.N - Q3 2024 Morgan Stanley Earnings Call

Question: Devin Ryan - JMP Securities - Analyst : Okay, great. Thanks, Sharon. And then just want to come back to the really nice quarter you put up in net new assets in wealth. And you touched on a notable contribution from new clients in adviser led. And so I'm just curious if there's anything else you can highlight that supported that momentum with new clients, specifically, whether it's new products or if there's programs internally that you're running to support that because it sounds like it was a catalyst. I'm just curious if that could continue.

Question: Dan Fannon - Jefferies - Analyst : Hey good morning. I was hoping you could expand upon some of the strength of activity outside the US. Some of the events you cited seem country specific, but can you talk to how you see the rest of the world participating and what you guys have said will be REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 16, 2024 / 12:30PM, MS.N - Q3 2024 Morgan Stanley Earnings Call in investment Banking recovery? And certainly, we know the US is focused in terms of the potential cap market recovery, but curious as how you think about the broader base outside the US.

Question: Dan Fannon - Jefferies - Analyst : Great. That's helpful. And then just as a follow up, within investment management, longer brainstorm inflows, certainly a positive. But if we look at the backdrop, markets are up significantly year to date. Revenues have moved modestly but still have expenses. So as you think about the asset mix that's coming in the door that's skewed more towards lower fee, whether that's within parametric or fixed income, how do you expect or how do you plan on improving the overall profitability of that segment as you think about the longer-term trends that are putting more pressure on fees?

Question: Brennan Hawken - UBS Equities - Analyst : Hey Ted, good morning. All right. So I'm willing to risk the wrath of Sharon here and ask a question on NII. And I totally appreciate it's just a part of the wealth business, right? So totally get that. But I thought it was really encouraging to see the end-of-period deposit costs tick down pretty decently quarter over quarter. So maybe is that driven by the fact that you've seen a lot of those deposits shift into like the higher cost and therefore, higher beta products? And so would that be sustainable? And then when we're thinking about a combination of that de facto higher beta, the potential for reinvestment tailwinds in the securities book and loan growth, is it too optimistic to think that NII could grow next year?

Question: Brennan Hawken - UBS Equities - Analyst : Okay. Totally. That's helpful. Thanks, Sharon. And then for the follow-up, maybe shifting gears a little bit. You spoke to sponsor engagement. We've seen some sponsors actually start to hit the IPO market. Given your strength in ECM and the strong franchise you have there, what are you seeing on the IPO pipeline front? And how should we be thinking about that outlook into next year?

Question: Christian Bolu - Autonomous Research - Analyst : Morning, Ted and Sharon. On wealth management, really nice to see solid loan growth in the last two quarters. Just thinking a little bit looking forward here as rates come down, kind of how are you thinking about maybe longer-term growth? Do you think loan growth can maybe reaccelerate back to pre-COVID levels where we were seeing 20%-plus growth per year? Or is that business more mature today with less growth upside?

Question: Christian Bolu - Autonomous Research - Analyst : Okay. Very helpful. Thanks. Maybe one more on deposits, wealth management and deposit again. I appreciate this is maybe a smaller issue now and (technical difficulty) way. But how are you thinking about just the philosophy around deposit pricing within wealth management, given some of the SEC scrutiny? And then maybe any data you can provide around how much of the sweep cash is in the advisory-related assets?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Hi, Ted. Hi, Sharon. In your prepared remarks, you guys talked about your prime brokerage revenues were historical -- above historical averages as clients' balances reach new peaks. Can you share with us how much of that is driven by just existing clients or also you're expanding your client base where you're growing that as well? Can you compare the two areas of driving these numbers?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Very helpful. Thank you. And then just as a quick follow-up, I always appreciate your guys' insights and others that really don't have big exposures to credit. And so you mentioned that you had charge-offs of $100 million in commercial real estate and corporate loans. Can you give us any color, again, you're not a big lender like a JPMorgan or a Bank of America, so insights from folks like you, I think, are very helpful. Any color here?

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : Hi there. Good morning. Earlier, you talked about your tech efforts. And so, Ted, as you think about AI, is Morgan Stanley a leader or a close follower, you wait for others to do it? And then more specifically, what's going on with your partnership with OpenAI? I see a quote here from Morgan Stanley. OpenAI is perhaps the best example to date of empowering Morgan Stanley with the marriage of human device and technology. I think you're unique in using OpenAI. So any color you can provide would be great.

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : You say it's the first chapter of what just -- I know this is looking forward, but what could be some other chapters as it relates to AI?

Question: Saul Martinez - HSBC - Analyst : Good morning. You've had a pretty sustained, good fee-based asset flows for some time now. Maybe this quarter was a little bit outside. And Sharon, you mentioned the trends of adviser-led brokerage moving to fee-based, clients diversifying to alternatives and fixed income instruments or fixed income. Can you just comment on the extent to which you think these dynamics have legs where we are in terms of these dynamics occurring, given the strength in asset prices and equities and rates coming down and what that might mean for your flow expectations and for fee rates?

Question: Saul Martinez - HSBC - Analyst : Okay, that's helpful. Thanks a lot.