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Next up, very pleased to have Morgan Stanley. On the company, Dan Simkowitz, Co-President. He's directly responsible for the Institutional Securities Group, but serves on the operating management committee and can really talk about the firm as good as anyone.

Before we begin, I'd be remiss because [indiscernible] me. This discussion may include forward-looking statements, which reflect Morgan Stanley management's current estimates and subject to risks and uncertainties that could cause actual results to differ materially. Morgan Stanley does not undertake to update the forward-looking statements. This discussion, which is copyrighted by Morgan Stanley, may not be duplicated or reproduced without their consent, is not an offer to buy any security.

Yes. Maybe we could start big picture on the current environment. You've been very focused on building the business for the long haul and solving for higher highs and higher lows. Investors are debating where we are across a number of important cycles, capital markets, sponsor activity, AI-related investments, broader economic growth. Just how are you calibrating where you are today and how the firm -- and how is that shaping the way you position the firm?

First of all, thank you. It's a great conference. It's a great time to have the conference and you and Venkat and all the rest were really great partners with you. I certainly felt going into and out of the second quarter, there was a pretty big debate around peak earnings, I think, especially around more capital markets-oriented companies. And so we feel strongly that there are a number of big thematics around the market, which I'll touch on, which all lead us to believe that '26, as an example, is not peak earnings at Morgan Stanley.

Last 4 quarters, we're almost $80 billion in revenue. I think that puts us at least in our TAM, what we do, the largest financial advice firm in the world and sort of across all of our client segments, we see TAM growth and market share growth in every single one. And so in that context, we're not at peak. But I think -- let me talk a little bit about thematics. I'd say the first one is not really a thematic. It's something I'm passionate about. I've talked to you about it in the past. But -- and I ran strategy, I ran MSIM and then I ran capital markets before this. When we look around the world of financial services, we still think the #1 growth opportunity in financial services at scale from here is Morgan Stanley Wealth Management. So even though they're #1, the path forward from here is pretty extraordinary. And I think that's driven by -- at the client level.

If we start at the client value level, we think we're the best in the world in delivering value to the client. At the same time, we've gone from 2.5 million households to over 20 million households. And so via the workplace, we have the client acquisition powerhouse that no one has. And so we not only have the best value once we get the client, our ability has really been transformed. And so that 2.5 million was 2019, transformed so that we can go grab the clients, and we can service them both digitally all the way to the adviser and everything in between. And we still feel with the help of technology, with the help of the brand, with the help of the investment bank and all that goes with it, and I'm sure we'll talk a little bit about SpaceX and a few of these things that we're still in the early innings of monetizing that growth, that move from 2.5 million to 20 million, but also the events of the summer and some of the IPO activity, we're definitely not focused on 20 million. We're focused on much higher in terms of relationships in that context.

And what I would say is to win takes immense focus. So the entirety of the leadership team, and my day job is running ISG, and I guess Andy and I, we have night jobs running strategy. But every day is the leadership team is focused on winning big in wealth management. So that's a comment on our own strategic positioning and where we are in the innings of monetization. I think the second one, I'm sure we'll get into more detail, and others will talk about it in other sessions today. We're still of a view that we're relatively early in the M&A capital markets cycle. So in '22, '23, even parts of '24, you had activity in M&A and IPOs way off the GDP curve. So you have a lot of pent-up demand, pent-up demand at the corporate level, pent-up demand at the private equity level, and I'll go into some more detail, I'm sure, in a second, but you've got confidence at the boardroom and you've got private equity with a monetization backlog that's big and a dry powder that's big.

And then in a market context, and we certainly are from a risk perspective and an advice perspective, we're super focused on macro, super focused on $100 oil, 5% 10-year, $40 billion of debt, a war. But at the reality of getting deals done, credit is in really good shape. Spreads are tight. Equities are close to highs. We are way off that GDP curve, and there is a little bit of call to action around the regulatory environment, which around M&A that could change. So we think we're early to mid-innings on M&A and IPOs. And I think what's hopefully really evident, but I hope it's even more evident by the time I'm done in 34 minutes, and 5 seconds is that, that M&A and IPO cycle cascades down through all of Morgan Stanley.

And I think the third one that I think is big and topical is -- and we'll talk, I think, more about it is AI. We still think we're in relatively early to mid-innings around the AI financing element, which is really just a bridging of the timetable until, in essence, the build is built ahead of all of the revenue, but not the revenue path, and there is a lot of equity and there's a lot of credit finance -- and we're in the middle of that with really high share. But I think, again, that, and Ted answered it on the earnings call, we still think we're also early in middle innings, and you've seen just enormous announcements NVIDIA, Broadcom, Google and then the model players out there in that perspective. So I think in those 3 thematics that are pretty important, I would say, early to middle. And none of them feel really late. And in that context, we don't think we're at peak.

Okay. A lot in there that I want to try to unpack. Maybe first, can we dive a little deeper into the investment banking landscape. You talked about M&As and IPO activity. And just maybe just talk about investment banking pipelines, what you're hearing from strategic and sponsor clients.

Yes. And I'll give you -- I'm going to use some anecdotes to try to make it feel a little alive here. But at the macro sort of statistics level, very, very robust pipelines. They're very robust across product. They're driven by the dynamics I mentioned. Credit is in pretty good shape, GDP growth, 6.7% nominal GDP growth in the United States in the quarter. Real matters. But if you're a corporate, you got to keep up with nominal equity near highs, all of those combine to make the product set at very, very strong investment banking. We were -- we were talking about this a few minutes ago.

So in that construct, we remain very constructive around the investment banking environment, and it can't all get done this quarter. It can't all get done in the fourth quarter. This is an 18- to 24-month cycle because especially -- well, a, you go public and then you got to -- most companies, if they're private equity owned or if they're venture owned, there is a cascade of secondaries or block trades or trading lockup releases that continue. Those are all revenue events for us. But I would say most discretely is M&A, which is if your competitor does an M&A deal, then you're going to react. And so we saw it at Morgan Stanley. When we were doing M&A, others would react to us, we would react to them, but extend that through the entirety of the economy. When someone does something strategic, it causes every boardroom in the ecosystem of that sector to think about strategic activity and then it happens.

And then also when you buy something, the Board often will challenge you, well, what should you get rid of? And so you've got to carry on around M&A and that activity in the context of there being a period where we're way off the trend line where, again, as we've talked about, 18, 24 months, it may even be longer. I just -- my lens at the point I had to cut off the lens as an example. Let me give you a little anecdote also on private equity because it is not easy around these monetizations. And so you can have ups and downs. So we announced, I think it was last week, consolidation (sic) [ Consolidated ] Precision Products. This is a company that Warburg Pincus bought in 2011 for under $1 billion. They sold it last week to GE Aerospace for $12.5 billion. They moved it from fund to fund. They did 7 acquisitions. They recapped it with Berkshire Partners. In the midst of COVID, this -- the price at this price, unthinkable. By the way, GE Aerospace is up 6x in the last 5 years.

So again, the draw of execution there. They had confidence. These guys were real operators on the asset. They had patience, 15 years of patience and then the trade finally comes together at that moment. When I was running capital markets to a degree, I thought PE is all around the buy and the sell. Clearly, if there's 15 years in the middle, there's a lot more than the buy and the sell. We've got this incredible mid-cap U.S. PE business inside of MSIM run by a gentleman named Aaron Sack, and they taught me, they showed me what happens in between. They buy companies from entrepreneurs and families. And it's pretty remarkable what some of these companies can do, but it's not a straight path. And in fact, it's not a straight path. We're seeing that actually in MSIM.

On another fund, we have an infrastructure fund, which has a really strong track record, but they've got 2 European assets. The fund has accrued a lot of unrealized carry, but those assets aren't doing as well. And so you have a couple of hundred million dollars of unrealized carry reversal, which is about $0.05 of EPS because it's just not straightforward, so PE monetization. But I come back to my macro comment, if credit is pretty good and equity prices are there and corporate confidence is pretty high, and there is a lot of dry powder in PE, it may take a couple of years here to clear some of the backlog, but it's there.

And by our count, there are 1,500 private equity companies worth more than $1 billion in the U.S. And the PE partner doesn't get paid until they -- or most of the fund gets monetized. So there will be incentives over time. There will be maybe not as extreme, the Warburg examples in that context, but we're up to -- Leslie is going to kill me for this now. We're up to over 100 private equity sell-side mandates in our pipeline. And so that is at a record level. And so this stuff will come. It just takes time, and you're going to have ups and downs, like I mentioned.

Maybe shifting gears to markets. Second quarter equity results were exceptional, a big debate in terms of investors I talk to, whether it's cyclical, structural, particularly what's going on in Asia. Maybe just talk about the durability of the market's wallet broadly and just maybe what opportunities you see? And also just where are you investing? And where do you see wallet share opportunities across equities and FICC?

Yes. Again, our focus certainly on the investment side around -- and we'll talk, I'm sure, at some point around capital is just to be disciplined and steady investing in the businesses. What I would say, again, on markets, and this one you get challenged even more, but I was getting challenged at -- I was going to see a competitor. At the Morgan Stanley Financials Conference in Europe in the spring of '25, are we at peak markets, as an example, even today, and I'll get to it, we don't think '26 is peak markets, and I'll get into some of the dynamics. What I will say, we certainly don't manage to and invest long term to a single quarter. second quarter of this year was pretty exceptional in markets. And I think it's safe to say 3Q is no 2Q.

But if you think about the long-term dynamics, which we think are very much intact, in equities, you still have a lot of equitization still in front of us. And so yes, Asia is doing really well, but the Japanese market came from almost nowhere 5 or 6 years ago. Korea is back. Taiwan is embedded in the technology trade. Greater China is motivated around economic growth. International investors want to be a participant to that. India will have its day and not have its day and back to having its day. And that's before we get to sort of equitization in some other parts of the market. There is policy potential in both Mexico and Brazil, where we have high market share and high margin for equities to get rejuvenated. Middle East war goes away, and we're back on a train in the Middle East around equities.

And again, what we do is, we bring the same technology, the same capabilities, the same research quality into all of these markets to everybody in this room. It's a little weird to talk to all of my clients out here in the room. But that's the mantra, and then we can allocate our resources to the highest sort of ROI to the client and the highest ROI to us. And we can do it in cash form, we can do it in derivative form. In the future, we'll do it in tokenization form as an example. All those are intact. And I'll just bring up one sort of Japan round 2 possibility, but we hired the Finance Minister of Germany to run Germany for us. The German capital market is dramatically smaller than it should be against the economy. That's an optionality around equitization in front of us.

In fixed income, we're big bulls. I think that we talked about it here before around credit asset managers, some of them, the credit side are represented in this room. Credit asset managers are fueling the economy around the world, whether that's energy transition, whether that's AI, whether that's private equity. And if they're fueling it, they want to work with Morgan Stanley. We help originate those assets, we help finance those assets. We help raise the LP money for those assets. So we think that's a secular trend. Risk management and fixed income, we went from 0 to 5 on inflation. We've gone from 0 to 5 on rates. We got commodities going all over the place. We've got currencies going all over the place. So our corporate clients, our private equity clients, our private credit clients, they all want to hedge, and we want to do more of that business, and we restructured the bank in that -- and I use the word bank in 2 ways. We now can put that derivative, put that risk management business inside the bank as an element.

And what I would say is we've got balance sheet and capital in front of us to go invest in these businesses in ISG, IBD, the markets businesses, wealth management lending, well over $400 billion of deposits, but we also have capital capacity. But as you would expect, we're going to be steady and disciplined, not do it all one quarter, but it is in front of us. And so when we think about a little bit of TAM in both equities and fixed income and a little bit of share in fixed income equities, along with the cycle element admittedly, in investment banking, we feel pretty good about the next couple of years. in the ISG business. Again, 3Q is no 2Q and the volume and the vol is a little down in 3Q, certainly, but long term, we feel pretty good about these businesses. And I think ROE in ISG is really in mid-20s ROE. So we're able to deploy a pretty good returns versus our cost of capital.

Makes sense. Before we move on to Wealth Management, maybe just one question that comes up a lot with investors. And I know Ted addressed it on the second quarter earnings call, just around CapEx or AI-related CapEx spend. Just how are you thinking through sizing and the risk of the AI financing opportunity? Just how does Morgan Stanley see opportunities for the business overall?

I mean part of it is we step back and watch what we're doing. We step back and we listen to what our clients are doing around deployment. And so we're very fortunate around this ecosystem. We had Sam Altman come to our Board in May of '22 before ChatGPT was released. We're really good strategic partners with Anthropic, xAI, Gemini, Microsoft. So we get the best of. They are helping us to deploy right now in some size, size dramatically higher than we would have anticipated a year ago. And the ROI on that is pretty extraordinary. And so when we think about it, I'll break it into groups. In research, broadly defined. That could be the research team that helps support you to come with an initiation or a recommendation. That's the research and investment banking, that's the research and investment management. That's the research that sits at the desktop of every sort of frontline client-driven person.

The productivity that we're getting out of that is pretty extraordinary in research alone, number of companies covered, rankings from the buy side, rankings as an example, all going up, but the sort of cost for that not going up in the same context. Financial advisers, too, we've gone from 2.5 million to 20 million. We've gone -- we're now at $8-plus trillion of wealth management and the adviser count is not growing anywhere near those levels. So we're getting ROI off that. We started on an AI path in wealth management productivity in late '22 off of that Board session. So we're getting good ROI there at the research level. We're getting ROI -- we're putting capital to work, and we'll get ROI longer term in cyber. We're getting in customer service. going from 2.5 million households to 20 million households, we're going to be a physical customer service monster and AI already has allowed us to get that really efficient and the ability to deliver customer service back to that instance.

And then we've got a lot of processing at Morgan Stanley and some of it bleeds into research, but operations, accounting, legal, software development, all of that is going to create a system, which we're already seeing, which is the revenue per employee at Morgan Stanley. The ROI is pretty dramatic. And so when you take that and you then take some of what we're seeing, what we're hearing from some of our clients in the asset management business, what we're hearing from some of our corporate clients, there is an immense demand build. So we're big TAM believers on the AI just from our own bottoms-up research, and it's got to get built out. and that CapEx is still early. And it's pretty clear that the credit markets are going to innovate around that. We've been at the center of that. We've got really high market share.

The equity markets will support it. Google or Alphabet and SpaceX raised circa over $150 billion of equity. I think the entirety of the equity spend in AI infrastructure will clearly, by the cycle is over, get to well over $1 trillion of equity, not just credit, as an example. And we're very fortunate because we got lucky. I sat in the same spot in our conference in March, I interviewed Jensen and I presented them the tombstone from the original deal. Again, NVIDIA, $47 million IPO for Morgan Stanley, like mind-boggling in that context. But we're big believers that compute equals intelligence and then intelligence can drive both revenue and expense base in that respect.

And we're in the boardroom with every chip player, NVIDIA, Broadcom, Google, AMD, et cetera, all the hyperscalers, all the LLMs, a whole number of the neoclouds that are being generated, but they're all reacting to demand from enterprises and consumers around the world. And that's the other thing that's incredible is that the tools that we're using at Morgan Stanley to drive that ROI, some of those same tools can be used in emerging market countries where they don't have a landline -- it's in the hand of that. And that's very powerful. You have a lot of safety and governance and competition and open source. All of that is going to require compute, and we're in the middle of that ecosystem, which is a good thing.

Maybe turning to Wealth Management. Last year on this stage, you called Morgan Stanley Wealth Management, the #1 growth opportunity in all of financial services. Did it today, too? It did. Workplace has gotten a lot of attention, given stock plan represented just over half of record 2Q NNA and there's still a pretty big pipeline of large IPOs to come. Maybe just talk to how workplace fits into the wealth management growth engine, what you've learned over the past several years in retaining and deepening those relationships.

Yes. Again, just to put the context of numbers, $60 trillion U.S. wealth management TAM, which we think is going to $100 trillion. And so this is a really big market. If you do that math, we're low double-digit market share, yet we think we've got the best acquisition engine. We think we've got the best service. We've got the ability to deliver all of that from digital to the adviser. So we do think there's a big market share place. But workplace is an incredible powerhouse in that context. And I guess I'm going to use SpaceX a little bit as an example. We talked about it a bit on the call, and Jed and Andy have talked about it since.

But to a degree, the old model is the value that we could provide to a corporate. And it could be an IPO, which I'm going to focus on more, but it also could be existing corporates was in their balance sheet, in their M&A views, their capital markets views -- but now we are a talent adviser. And especially in the growth ecosystem, talent is critical. So we've been engaged, as an example, with SpaceX for several years around how to design the stock plan for their employees, how to educate those employees around financial education, how to get them advice, how to get them over time, liquidity in various forms and both pre-IPO, right before the IPO, after the IPO. And so we're a partner around value to the leadership of that company in one of their most important assets, which is their talent.

And so what you saw in the quarter is -- and we've got a reason to be there. The reason to be there is twofold. We're running the stock plan. And again, this is on the back of Solium acquisition, E*TRADE acquisition and Carta partnership. We have a right to be there in that context, but we also have the right to be there because we're the #1 adviser firm. So we have advisers on the back half. And so you saw that in the NNA discussion in the second quarter. But what's really promising is the flow of capital out of the SpaceX complex in this quarter is still really, really strong. That's the notional dollar amount, but also the flow among the employee base to advisers keeps going up and even in this quarter. So it wasn't finished at that -- and then when we look out around the pipeline, and some of this is around demographics ex founders, the demographics in our pipeline over the next 18 to 24 months, those opportunities aggregate to be multiples of the SpaceX. So this is not a one-time thing. And again, I think -- I'll make this personal for a second.

But for example, my daughter's friend, he's literally a rocket scientist. He's working so hard because having been to Starbase and to Hawthorne and to some of these other companies, the employee base here is running all out. So then they get hit with wealth they couldn't even imagine a couple of years ago. It's complex. And so not only do they want Morgan Stanley to help them, what we're finding is at a younger age than we would have anticipated, they want an adviser to help them because they're busy running hard because Elon and team, this is really intense work at high stakes, obviously, she's launching rockets into space and all the rest. So this is real value. And if we can be a partner.

And again, we can be a partner not just at SpaceX and all these IPOs, but we could also be partner at big aerospace and defense companies who have to compete for the talent with some of these companies. I think that is part of what we're seeing there. So the value equation from Morgan Stanley, we were extremely proud to be one of the 2 lead book runners on the IPO. We are a big equity trading firm to be the sole stabilization, really proud. But our relationship around the employee base is back a couple of years and has for many, many decades with a company like this that -- proving that out in the instance of an IPO, which is pretty intense, where decisions need to be made and it's all becoming real to the employee base, prove the power of workplace, and there's a lot of pipeline behind.

Maybe you can spend some time on just private markets becoming increasingly important focus across the industry, whether it's private credit, secondaries, infrastructure, bringing alternative investments to wealth clients. Just how does Morgan Stanley differentiate itself in this area? And where do you see the largest opportunities over the next 3 to 5 years?

Well, we're really big. I mean, if you think about it, we're $0.5 trillion of private market assets in Morgan Stanley. That's roughly split half in wealth management and half in asset management. I think in the wealth management side, it makes us maybe one of the largest LPs in the world in the private markets at $0.25 trillion. We think the allocations over time, and we're going to be steady and disciplined will grow. And if our assets grow, which I don't want to give guidance, but our assets are going to grow, we're going to become ever, ever more important. And then in MSIM, we're at about $0.25 trillion. So we're big.

And then certainly, we're big in the ISG business. I mentioned -- my example at the beginning was a Warburg Pincus sell side. I mentioned 100 sells. The largest IPO (sic) [ LBO ] in the market for private equity ever happened was a company called Medline. We led that deal as well. And so if you think about it across ISG and in wealth and in IM, it's a huge fire of business. What I would say is integrated firm, which was on -- I should have said this earlier, Mandell Crawley is going to kill me. But SpaceX is the example of integrated firm. But the other element around integrated firm is the private market ecosystem. And so if you think about credit as an example, we're going to help raise the assets for some of this investment-grade credit that everybody is talking about AI. We're going to help finance it. We're going to help source those assets.

I'm a believer like one of the other probably presenters Apollo, that there's going to be a lot of gray area. Some of it's going to trade. So we're going to trade it in that context. We're also going to do the stock plan for those companies, both their portfolio companies as well as their parent companies. And we're going to go after the assets and the wealth of the principals. And so private markets in one form or another quite important to us. It's a secular growth area versus sort of long-only, let's say, asset management. But I would say, I would distinguish on my credit point earlier, private or public, we don't really care.

To a degree, we're agnostic both as a business matter, but also as an advice matter back to the corporate, we're just going to go out and find the best cost of capital and the best alpha manager or solutions manager and give it -- and provide that solution either to our corporate or private equity client who needs to borrow or to our wealth management client who wants to invest alongside. And we just like the place we are. We're pretty big, and we do it everywhere. I mean, I guess that's one of the differentiated items. We've got it in wealth. We've got it in asset management. We've got it in the fixed income business around financing and innovation on securitizations. We've got in the investment banking business and M&A and IPOs. And there is not many people who can do all of that with the balance that we have. And we're quite clear-eyed and a little agnostic and open architecture, and I think that's pretty cool.

Maybe shift gears to capital. The second quarter earnings call, Ted mentioned there was a lot of demand for capital, both within and with outside the firm. Do you see -- how do you see opportunities for Morgan Stanley to deploy capital across ISG?

Yes. Again, we're always extremely conscious of the macro I mentioned. Again, whether that's fiscal U.S., that's oil, all the rest, recession risk. So we're quite -- I wouldn't use the word conservative, but we're very focused, disciplined and steady around the capital allocation. But what that has enabled us to do is in an environment where we're in excess demand for our services. And so in ISG across the board, whether in -- I wish I understood better my romance languages. It's okay.

Across all of our businesses right now, the demand for our content, the demand for our innovation, the demand, in particular, for our origination in both credit and in equities, the demand for our structuring around either securitization and derivatives and the demand for the capital and balance sheet that, in some cases, goes with that is -- we're in excess demand. And it's a great place to be. And we -- because we're global, -- and because we're multi-asset, because we're agnostic, public and private, we got to look around that client set. We got to look around the world, we got to look around the products and allocate balance sheet and capital incrementally to high ROE.

And because we are in a position of strength, but at the same time being disciplined, we've got a path forward over the next, let's say, 18 or 24 months to steadily at really high ROEs, continue to deploy. And again, it's in equities in various elements. It's in fixed income in various elements. It's in supporting the M&A finance business. It's around wealth management lending to some of that liquidity in some of these companies and to some of these employees at really good ROE levels without preventing us from being a really great dividend grower. So we've got -- we also got the capital to do that, and that's first and foremost. And to be ready if there's opportunities or opportunistic opportunities, I would distinguish between the both, to add on capabilities around our core business. We do really love the core business.

And again, if I come back to that beginning, we think we've got TAM growth. We think we've got market share growth, and we like the box right now that we're in, but there are going to be -- and you saw it around private markets. We bought equities in. You're seeing it in some of the things that we're doing mostly organically around digital assets. You're seeing it at the income statement level around adding some investment bankers in the United States. you're seeing it around deployment of AI so that we can get -- and we get a return right away. All of that sort of capital strength that we talk about is allowing us to be really careful but to deploy in the client businesses around the sort of framework of the business dynamics that we have today.

Interesting. We got about 3 minutes remaining. I mean, you gave us a very kind of constructive outlook for the next, call it, 2 years across all 3 of your integrated businesses. if there's 1 or 2 things when we sit down 2 years from now that kind of derail this kind of thesis, what do you think it would be?

Well, again, what we're seeing right now is a little volume lower and a little volatility lower because I think people are re-underwriting and as I would think is appropriate, re-underwriting where is that CapEx question around AI, who are winners and losers? I think they -- there's a little fiscal battle going on probably around the world. There's a war assessment that's going on. There's a political assessment going on. I think all of those create some aggregation where you just need to be careful -- and in that carefulness, could you have elements where something tips over to recession because recession is the real thing that can both drag down activity for an extended period of time. And it probably doesn't cancel activity, but it could elongate activity not measured in quarters, but measured in years. And so we're always keeping an eye out there.

But I've said this internally, I think I said it externally, our #1 focus is complacency, right? We are doing really well, but we do not want to be complacent. And so we want to be complacent on risk. We don't want to be complacent on capital allocation. We don't want to be complacent around our talent. And we're helping SpaceX and others with their talent. We got to also worry about our own talent. We don't want to be complacent around technology and the deployment of that, both the safety of that, cyber, et cetera, but also are we keeping up and we have our eyes open and we're trying to be aware of what's going on around us.

And we have to be like intense around complacency around our clients because back to the environment, the next 18 or 24 months, we think is going to be pretty busy, but busy is not good enough at Morgan Stanley right now. Everybody in the elevators, when I ask them, how are you doing? I'm so busy. Yes, are you productive? Are you going to the right opportunity? Because in this industry, the next 18, 24 months, there's going to be a lot of busy, and we're focused on where can we drive out complacency and all the things I mentioned, that is -- that's a big, big focus for us.

Great. On that note, please join me in thanking Dan for his time today.

Thank you.

Good morning. Welcome to Morgan Stanley's Second Quarter 2026 Earnings Call. On behalf of Morgan Stanley, I will begin the call with the following information and disclaimers. This call is being recorded.

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.

Morgan Stanley does not undertake to update the forward-looking statements in this discussion. Please refer to our notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release. This presentation may not be duplicated or reproduced without our consent.

I will now turn the call over to Chairman and Chief Executive Officer, Ted Pick.

Good morning. Thank you for joining us. In the second quarter, Morgan Stanley again delivered top line and bottom line record results, with revenues exceeding $21 billion and EPS of $3.46, marking an exceptional first half for 2026.

The $42 billion of revenue, $690 million in EPS and a 27% return on tangible. Across wealth and investment management, Total client assets stand at $10 trillion, fulfilling a Morgan Stanley strategic milestone. Our client acquisition funnel will continue to drive wealth management's super performance. And with the passage of time, we seek to grow stand-alone wealth assets from the current $8 trillion to $10 trillion.

Buoyed by active markets, our results reflect multiple years of disciplined investment and consistent execution, positioning the integrated firm to deliver strong results. Our advice-based businesses are working well together across our leading global investment bank and scaled wealth and asset management franchises to deliver industry-leading growth.

In Institutional Securities, our deep client relationships, global footprint and connectivity across businesses drove a record top line quarter of $11 billion. Dialogue with clients remains high and strategic activity has momentum. In investment banking, Morgan Stanley led Landmark IPOs in the quarter while helping unlock broader client pipelines. As institutional clients sought access to global markets, our equities franchise provided client solutions around the world, resulting in an exceptional $6.3 billion quarter.

With institutional activity strong and IPO markets to open, Morgan Stanley connected the integrated firm to translate institutional strength into client value through our adviser-led and eTrade channels. Wealth Management added a record $148 billion in organic net new assets. driven by large IPOs of late-stage private workplace clients. Growth led by workplace relationships reflects a cornerstone of our client acquisition funnel.

Our ability to serve clients across the private to public continuum continues to attract assets to a world-class platform, delivering unique products, solutions and advice. Investor Management also grew in the quarter with AUM now reaching $2 trillion. This business remains a diversified source of strength with Parametric as an important differentiator of the integrated firm.

The 4 pillars of Morgan Stanley, strategy, culture, financial strength and growth remain central to how we run the firm. Financial strength is top of mind. Over the last 10 quarters, we've accreted $18 billion of CET1 capital and now have a capital cushion that is at least 300 basis points with continuing stress test validation of our durable business model.

This excess capital affords Morgan Stanley, the strategic flexibility to continue to support clients globally invest in our businesses and return capital to our shareholders. This quarter, we delivered on all 3 of those priorities, including announcing a 15% increase in our quarterly dividend to $1.15 per share.

During the last 10 quarters, we have sharpened the effectiveness and connectivity of the integrated firm's core mission, which is to be the preeminent adviser to clients as they raise, manage and allocate capital. We have a 15-year record of successfully integrating acquisitions, and we are as a discipline, constantly evaluating potential inorganic opportunities to expand and attract to geographies, bolt on new capabilities, add new client relationships.

As we've learned through hard fought integration success, strategic rationale and cultural fit, continue to be threshold criteria for any inorganic opportunity even before we consider transaction terms. So the bar must remain high. The very good news is that we are well placed across 2 major businesses, Global Investment Banking and Markets and U.S.-dominated wealth and asset management, where the core addressable markets in the current environment are growing at nominal GDP plus and where we continue to realize wild share gains.

The integrated firm approach underscores that the organic growth opportunities right in front of us are compelling and deserve the first dollar of reinvestment. As I wrote in our March shareholder letter, 2 defining themes have come into sharper focus over the course of 2026.

The first is the accelerating adoption of artificial intelligence, not only by consumers, but more importantly, across the enterprise or its potential for enhanced efficiencies and productivity is only beginning to be realized. The second is the return of geopolitics as a defining force in the global economy. As renewed competition among nation states and regional powers is reshaping supply chains, capital allocation and economic prospects across our client universe.

These are the known unknowns that will continue to shape the environment in which we and our clients operate. They demand disciplined execution and the agility to adapt as conditions evolve. We continue to be well minded to proceed alongside our clients with the right combination of optimism and vigilance.

Morgan Stanley enters the second half of 2026, operating from a position of strength. Our clients, retail and institutional are seeking advice on how to respond to complicated global markets and are interested in new products and innovation.

Our role as financier, underwriter, allocator is to offer our clients market access and trusted advice globally. Morgan Stanley's first half performance demonstrates our business model's operating leverage when markets are receptive and clients take action with a clear and consistent strategy to raise, manage and allocate capital for our clients, we continue to be intensely focused on delivering higher highs and importantly, higher lows for our shareholders through the economic cycle. Thank you, and Sharon will now take us through the quarter in greater detail. Over to you, Sharon.

Thank you, and good morning. In the second quarter, the firm produced record revenues of $21.3 billion and record EPS, ex-DVA of $3.46. Our ROTCE was 26.6%. Institutional and retail client engagement remained strong throughout the quarter, and the integrated firm consistently delivered trusted advice and market access responding to ongoing client demand. The firm's year-to-date efficiency ratio was 65%.

Top line growth and disciplined execution drove operating leverage through the first half, more than offsetting higher execution-related costs and continued strategic investments across the firm. Higher technology-driven spend relates to investments to support our infrastructure, AI-enabled efficiencies and ongoing business growth.

Now to the businesses. Momentum in Institutional Securities continued in the second quarter an remained highly engaged. The segment delivered record revenues of $11 billion and record pretax profit of $4.3 billion. Results were driven by our leading Equities franchise and supported by investment banking.

Our long-standing global footprint and our investments in talent, technology and research positions us well to advise clients. That strength was evident in every region contributing to the year-over-year revenue growth.

Investment Banking revenues were $2.4 billion. The 58% increase from the prior year reflected strength across products as momentum built across capital raising and strategic activity. Advisory revenues increased year-over-year to $798 million on higher completed activity. Revenues remain diversified across sectors, including top contributions from industrial, technology and health care.

Equity underwriting revenues were strong at $851 million. The significant increase versus the prior year was supported by a robust IPO market and strong follow-on and convertible activity. Fixed income underwriting revenues were a record $788 million, driven by bond issuance across noninvestment-grade and investment-grade companies.

Issuers took advantage of favorable spread environment and an increase in strategic activity supported results. The investment banking outlook is constructive and pipelines are healthy.

Client dialogue is broad-based across sectors. And while year-to-date activity has been led by the Americas, global activity is building. Large corporates are executing on their strategic objectives and the need for solutions and capital continues to grow and sponsor monetization is selectively gaining momentum.

Turning to equities. Our franchise delivered an exceptional quarter with revenues reaching a record of $6.3 billion, driven by increases across all products and regions. Asia was strong with the breadth of activity extending across the region. Active markets and technology trends serve as tailwinds and our multiyear investments in our global franchise allowed us to prosecute greater levels of client engagement.

Prime Brokerage revenues rose versus the prior year, driven by higher average client balances and strong activity in Asia. Cash results were strong, led by active client engagement and higher market volumes in the Americas compared to the prior year. Results in derivatives were also very strong versus the comparative period. Investments in technology centered on building scale and dynamic risk management tools are paying off. The business was well positioned to capture global activity.

Fixed income revenues were $2.5 billion, demonstrating balance across products. The cumulative growth of our secured lending business and trading discipline resulted in solid performance. Macro results were roughly flat versus the prior year.

Resilience in rates offset declines in foreign exchange, where volatility traded near historic lows. Micro results increased year-over-year, driven by strong performance in credit corporates, on the back of improved inventory management and robust primary issuance.

Additionally, the cumulative growth of lending balances and securitized products further contributed to results. Commodities results improved versus the prior year, supported by higher client activity and structured transactions. Activity moderated sequentially following an exceptionally strong first quarter that benefited from energy market volatility. Other revenues reflected a loss of $152 million, largely driven by mark-to-market losses on corporate loans held for sale, inclusive of hedges.

Turning to Wealth Management. The business generated a record of $8.9 billion in revenues and total client assets stand at $8 trillion. The execution of our strategy, particularly our sustained investments in our client acquisition funnel allowed us to reach more clients and deepen existing relationships. We remain the industry leader with record net new assets of $148 billion and strong fee-based flows of $39 billion.

Our financial advisers, our culture of continued innovation, our ability to provide unique capabilities and products are the foundation of our business. Together, they underpin a scaled, differentiated platform with $3 trillion in fee-based assets.

Further, the connectivity of our integrated firm sets us apart positioning us to deliver for our clients. Revenues of $8.9 billion and pretax profit of $2.7 billion, were both a record, supported by rising asset levels and robust retail engagement.

The pretax margin was 30.5%, a reflection of the scale of our business and the intentional strategic investments for our future. Asset management revenues were $5.3 billion, driven by expanding markets and the cumulative impact of strong fee-based flows. Transactional revenues were $1.2 billion, up 20% year-over-year, excluding the prior year's positive impact from DCP.

Results reflect highly engaged retail clients across both adviser-led and self-directed channels. Loan growth remained strong in the second quarter with balances growing $9 billion. In a quarter with tax obligations, we saw an increase against lending of equity portfolios.

Sequentially, deposits grew to $436 billion and net interest income increased to $2.3 billion. NII outperformed on higher-than-expected sweep balances and strong loan growth. For the third quarter, we expect a modest sequential increase in NII.

Lastly, net new assets were a record of $148 billion. Stock plan IPO flows represented just over half of the overall NNA this quarter, more than offsetting seasonal taxes illustrating the strength of the workplace channel as a strong contributor to the top of the funnel.

With strong capital markets, the power of our client acquisition funnel is becoming increasingly evident. Workplace brings relationships and assets onto the platform, and we are well positioned to support these new relationships.

Our investments are extending our runway for growth. We continue to deliver advice and solutions to new and existing relationships, supporting the build in our fee-based assets. We are investing from a position of strength and believe these capabilities set us apart.

Turning to Investment Management. AUM now stands at a record $2 trillion. Long-term net inflows were $7.7 billion for the quarter, driven by ongoing demand for alternatives and solutions, including Parametric as well as our fixed income strategies. Parametric remains a key differentiator with over $760 billion in AUM today, continued education initiatives and ongoing client demand have supported financial adviser adoption across our suite of Parametric custom solutions.

Revenues of $1.6 billion increased 6% compared to the prior year. Results reflect higher asset management and related fees, driven by higher average AUM. Performance-based income and other revenues were $130 million. The current quarter primarily reflects net mark-to-market gains in our private funds. As we look ahead, our ongoing investments in technology, distribution and product innovation position our diversified franchise to better serve our global client base.

Turning to the balance sheet. Consistent performance has generated strong capital accretion and strengthened the firm's financial position. Total spot assets grew to $1.7 trillion and standardized RWAs grew to $590 billion, supporting increased client activity.

We repurchased $1.5 billion of common stock, and our standardized CET1 ratio ended the quarter at 14.8%. Reflecting the strength of our capital position, we announced a quarterly dividend increase of $0.15, bringing the quarterly dividend per share to $1.15.

While the Fed's most recent stress test does not impact our current capital requirements, it serves as further recognition of the durability of our business model. Our quarterly tax rate was 23.1%. We continue to expect our annual tax rate to be between 22% and 23%, which similar to prior years, will exhibit some quarterly volatility. We entered the second half of the year with $10 trillion of total client assets across Wealth and Investment Management. Together with a strong capital position and a building backlogs the integrated firm is well positioned to provide advice and to support clients in an increasingly complex environment.

With that, we will now open the line up to questions.

[Operator Instructions] We'll take our first question from Ebrahim Poonawala with Bank of America.

Maybe just obviously very strong quarter. Two questions, both on Wealth. One, maybe talk to us in terms of, are we at peak flows as far as workplace channel is concerned, when we look at the NNA growth, both the environment when we think about IPO activity, driving the flows, combined with the actions you all have taken as part of this integrated firm? Or can we do better?

Just kind of what inning are we in, in terms of growth tied to the workplace channel and just overall NNA growth as you look out over the next year and over the medium term?

Sure. Why don't I take that, Ibrahim, I think it's a great testament to the investments that we've made over the course of many years. always talked about the workplace channel. We've talked about the fact, I think I said it in the last call that IPOs can serve as a form of where we get NNA and the top of the funnel.

Why don't I take a step back and just remind you that we have about 70% of the top 100 unicorns by market cap in terms of our workplace pipeline. So we've spent a lot of time thinking about how do we service some of these companies at the very early stages. We've talked about private. We've talked about how we support a different private companies, think about equities then, and all of the investments that we've made.

So that gives you sort of the framework of really some of the top of the funnel are other places in workplace, right? There are 401(k)s, there's relationships with eTrade, their savings products, et cetera. Now as you go through the funnel, we've talked about increased from the IPO pipeline. And that should help as you think about different companies coming to market and again, providing that with different opportunities.

Of course, that will ebb and flow. We've seen that. We've had different quarters where you have different movements in NNA that comes through these IPOs or might come through large integrated firm relationships, and we've talked about that, too.

And what we're focused on now is really making sure that what we're doing is retaining those clients. We're providing them with advice, so we often talk about, well, where are the dollars of investments going? They're going into product capabilities. They're going into creating our referral models. They're going into products like Lead IQ that will allow us to match individuals with advisers. And our goal is to be their principal financial adviser.

Again, you might have differences in where people decide to spend their money, their relationships -- but we're -- this is a long game, and it's been a long game, and we will continue to invest in the long game. And what you see this quarter, and you've seen in the most recent quarters is really the activity in all of this playing out as we think about the longer-term top and then that migration of those flows into fee-based and path to advice.

That's helpful. And just talking about the dollar spend towards investments, talk about when we think about the Wealth Management pretax margin pretty strong 30.5%. I guess the average shareholder of Morgan Stanley would think that this pretax margin is probably drifting into the low-30s or even the mid-30s over the medium term.

One, is that a reasonable assumption? Appreciating, you've not changed your strategic targets? And second, around maybe the investments that you're making how much of -- what percentage of those investments, if you can frame it that way, will lead to a more productive business looking out the next few years?

Yes. We're pretty disciplined, as you know, about not moving the targets during the course of the year, which is why we go through the discipline of the annual strategy deck and we're comfortable with the way it's been laid out. And in periods where things are very busy, and there's a considerable amount of activity, you're going to see greater PBT, and you might also see greater margin. .

It's going to move around. The reality is that 30 is a benchmark now we've hit a number of times but it's not a number we're solving for. What we're solving for is a lot of what Sharon just talked about, which is to continue to drive further PBT gains. If over time, it's clear that the margin hurdle is not enough, and we want to take it up. we'll do that.

But that's something we're going to want to give a real consideration to in light of the ongoing investment we're going to make to continue to take wallet. It's not that we're just taking advantage of an open TAM. It's that we are actually gaining wallet in each of these spaces as assets migrate their way through the funnel. So that's something that would be addressed at the end of the year. But as you see, we've now surpassed the 30 a couple of times, so it's something we will keep an eye on.

We'll take our next question from Glenn Schorr with Evercore.

Maybe start out with a follow-up on the NNA. Maybe we could drill down a little bit. Maybe you could talk a little bit about new versus existing clients? And then on the piece that comes from workplace and IPOs, I think it's instructive for the future given that you have such a big position with the unicorns and there's a big IPO pipeline.

I'm curious to see when the recognition comes in, meaning does everything come in on the IPO? Or is there a vesting schedule? And then curious what went into adviser-led versus self-directed. Is it all self-directed and then we build towards adviser led. Just looking for a little more color because I expect a lot more of the same.

Sure. Let me try and take that and I wrote some of your questions down. So if I missed something, apologies. But overall, I'd say that it's a mix, right? So there are new accounts. There are existing clients that may have already had accounts and that can be both on the workplace side and on the individual side.

I mean on the adviser led that already exists within advisor-led but also those clients that might come in through workplace might already have existing accounts. So it would be a little difficult to exactly tell you where that is. The point is that for those that might not yet have the advice-based relationship, we're working on that referral model.

And that's something that can begin as early as the financial education spot, and it can also begin -- like I said, we have examples with 401(k) and new 401(k) assets that come in is not necessarily an IPO-specific workplace where we're really giving people that ability to better understand where they could use advice. So there's a lot to unpack just on those pieces, but I'd say those are contributions.

Now as you move forward through -- you asked the question, I think, also about vesting schedules and when I -- it does depend. I will not suggest that all IPOs are exactly the same. You -- it comes through a -- when you actually receive it, will be a function of the vesting schedule and there might be different IPOs that you might -- if it's over the course of a quarter that you would have it, then you might have to wait a couple of days.

It's not necessarily instantaneous. But in this particular case, we spoke, there were large IPOs, more than 1 that took place over the quarter, and that's largely what you're seeing here as reflected in our numbers. Now the way to think about it on the forward, the last point that I would make is that you're going to see different flows from different parts of the capital structure.

That is worth noting. And here, in this particular case, these are really employee flows. That's a positive as you think about the employees that we're going to have more relationships. We're currently at 20 million relationships. Do you remember when those numbers Glenn, it's not that long ago, we were talking about 10. We were talking about 12. We're talking about 14, and those are big numbers. We have 20 million touch points, and that's a lot of people and a lot of business to potentially prosecute over time.

That's big. Ted, maybe a quick follow-up on your comments on always looking for bolt-ons you put up great returns on a really high capital base. And I guess my question is, do you keep this capital base this high for a reason, meaning while times are good and you're still putting up incredible returns, why not run the optionality? Or are there other reasons why you're hanging on to all this excess capital.

Well, I like your answer to the question, actually, Glenn, because I think that the the pillar of financial strength of this firm is something that we have put some substance behind an accreting $18 billion of CET1 over the last 10 quarters.

That is no small matter. Part of that was during a period where we didn't know where the regulator would come out, and hopefully, we're in the last innings of that. You're right, we have -- depending on how you measure it, 300 to 350 basis points of excess CET1 capital depending on which test, which period and all that, and we have a real SLR capacity, too.

So the question becomes, is there demand for that capital. And I can tell you that there is a lot of demand for that capital inside the 4 walls of our global firm. and clients wish us to do more, too. And that demand is coming from the investment banking client set.

It's coming from the fixed income client set, in credit, and in macro, it's certainly coming from our equities client base in prime brokerage and in derivatives. It's coming from our wealth management client base. It is a long list of folks who would like to get more of our capital. But we are quite ruthless about how we are playing this game, which is to not squeeze out every quarter. We like the idea of there being a reasonable buffer.

We like the idea of being able to, therefore, play through the cycle. We have been putting capital out to clients part of the upside of the last number of quarters is even with that, we've accreted additional capital, which then allows for more capital to be put forward on a running basis.

We look at these ratios very closely. We like where we are. What I would say as a -- as a matter of discipline per the comments I made, Glenn, is, on the 1 hand, we believe strongly as a senior management team, that the next dollar of assets should go straight into feeding the integrated firm and fulfilling the mission of the strategy, which is to raise manage and allocate capital not to wander and to do that for our most durable important clients, whether they be individuals or institutions, that is the plan and demonstrably in this environment where clients are active.

And clearly, there's some power of pricing extraction, we are doing that, and we will continue to do that. Full stop. It is the case that there are attractive geographies, new capabilities, new relationships that could be bolted on inorganically. And as you know, our firm very well, we've done the long life of 15 years of successful acquisitions, both from the post-crisis period all the way through equities last year.

It's a lot of work. It's a lot of work to get it right. We think we're pretty good at it, but we have real humility around it. But are we seeing opportunities come across the transom that are interesting? We are. Are we potentially looking at stuff that could bolt on to the strategy? We are. But I would tell you right now, the bias continues to be to go organic. Now you can do both.

You could -- because of the capital surplus, we could continue to expand organically and build something on. That is certainly achievable when you're 300-plus over and with the kind of SLR capacity that we have. But what I would tell you is we are very much focused in as a disciplined matter, reviewing candidates for bolt-on.

Again, if they get us closer to clients, add clients, add some adjacent capabilities, expanding the geographies we like. But I think the most likely case, Glenn, over the next term with markets as active as they are and clients looking to access our capacity is that we will continue to thoughtfully and prudently put out capital to those clients.

And we will see where the capital buffers go. But they also have to be contextualized against a much larger market cap. So yes, the buffers are nice, and they're important and they think they are -- we believe it's a differentiator with shareholders and with folks like you, which is very important. But to underscore, there is demand, both from clients and from some of the folks running businesses that they'd love to get more -- get some more of that firepower out to clients because clearly, we're in a moment of operating leverage.

We'll take our next question from Mike Mayo with Wells Fargo Securities.

Ted, so it's about a year ago when you said we were approaching the moment of Wow, W-O-W. And I guess we're there. I'm not sure, and I was looking for some context around this CapEx AI-driven super cycle. And you had spoken about this going over the course of several years. Can you put any numbers around this?

I mean we see press reports of trillions and trillions of that? And how much has been raised, and how much do you expect to be raised or some meat on the bones, if you could.

Well, Mike, it's an excellent and important question. The short answer is it's really early. And I'm not sure we all together now because of the known unknown element of this. So that would be my short answer.

My longer answer though, looking to try to give you some meat on the bone would be that AI CapEx expectations continue to move up. The forecast for 2026 on data center CapEx that was taken late last year around November of '25 was that $575 billion would be spent this year and it's coming in at about $850 billion. And that for 2027, the view was it would be around $700 billion, and now it's projected at $1.3 trillion.

And 2028 could be at $1.2 trillion, our excellent research team, led by Kate Huberty, would observe that each major tech cycle has produced a tenfold increase in compute capacity. -- applied to AI that would suggest a progression from roughly the last transformation, I think we'd agree was cloud, roughly $1 trillion of cloud compute, x10 is $10 trillion of AI compute.

So if you think about the numbers I rolled out before, the $575 million feels like $850 million, the $700 million feels like $1.2 trillion for next year and then maybe $1.2 trillion after that. you're basically looking at us being around 10% to 15% of the way through the investment cycle. And it's totally reasonable to say that there are going to be periods when technology or capital investment is ahead of adoption or that the fight for primacy and a piece of this chain will deliver poor allocated investment outcomes that we know, and that there will be technology and power bottlenecks and constraints.

But I think we'd agree, Mike, that the market for intelligence for the digital meets human loop for real productivity enhancement is absolutely here. And so the question becomes is $10 trillion right? And how long to get there and how big is that number? And the answer there is it's a really large number, right?

Global GDP is $120 trillion. As you know, S&P is $67 trillion. I looked this morning, Will share $75 trillion. But $10 trillion spent over 10 years in the search for additional intelligence which could bring an additional boost to aggregate productivity value. It's on the 1 hand, hard to imagine, but on the other hand, it could be imagined. That's something like $10 trillion spent over many years.

Now our role, as you know, is to raise manage and allocate capital as adviser finance your allocator. What does Morgan Stanley have? We have global reach. We have sector specialty. We anticipate what's next through that advice. We have structural expertise. We have knowledge of private and public markets. We can match sources and uses of capital.

We can steward the wealth creation. We also act as a principle to Sharon's earlier point with 20 million wealth clients given the size and scale of the business. But again, Mike, it's early and the numbers I just took a stab at could be dramatically altered by chip innovation, nation state involvement, supply chain, geography, long list.

So 1 has to have a few million all of this, but you asked a direct question. And there's my humble attempt.

All right. Well, if you're going to do a doctoral dissertation I guess that's your thesis. So -- and I appreciate that. Your role -- the industry's role -- and let's just say the $10 trillion right just for how much involvement would you have in raising capital? Is it like 10%, 20%, 50%. These copies will have cash. They don't always need to raise debt or equity. What's your percentage role in capital raising, let's just use the $10 trillion number just as a an example?

Well, some of that capital is going to be raised point-to-point between players in the ecosystem. Obviously, that's not the best outcome for firms like ours. We want to intermediate that. It is clear that structuring capability and creativity around how to think about planning that kind of CapEx over many period -- many years in a given period, means that there's got to be a real trusted relationship between the private placement or public underwriter. .

So I think the answer is that some of it can just be done naturally through cash flow generation of the leading hyperscalers, but some of it is going to have to be with fresh capital, whether it be debt or equity, and a bunch of it is going to have to be done very creatively to access the right investor base.

So on that one, I would say we're really early. What we do know is that the capital is available. The aggregate capital between all the players in the private and sort of semi-public sector that can put this to work over the course of many years is there.

So this is a question of how does this race play out between the various wood bees? Where is the need inside the chain? What geography is actually needing the capital at what period of time, which helps therefore to have a global business able to allocate outside the U.S. So on that one, I'd say I wouldn't attach a percentage to it, but I would say it's going to be meaningful.

We'll take our next question from Chris McGratty with KBW.

I guess more on the -- my question on the IV pipeline. I think you talked about great levels here. I wonder how if you could contextualize it today versus historical periods, biases geographically, untapped potential and also unpack the sponsor comment.

So I think it's a great question. And when we look at our numbers, we're not yet at the levels that we've seen historically in different areas in terms of what's actually been announced or been completed. So there's clearly more to go there. .

Wha was most interesting, I think, when we reflected in the quarter and we reflected on the pipeline, was that we are seeing a broadening out. I like the fact that you asked the question directly about geographies because it was a theme that came up, i.e., we've seen it in the Americas. But when you look ahead, there's pipeline in Asia, there's pipeline abroad.

And so that does give you a lens that there is a broadening out of the themes that we're seeing across that kind of need for capital, as Ted just mentioned. The second piece that I would mention is specifically, this began as a cycle really around debt, and we saw a lot of issuance both investment grade and then we saw the non-IG space, and now we're seeing the equity side.

And the dual tracking of the equity and the strategic side from the advisory, it's really been strategic I mentioned and I think others have also mentioned, we have not yet seen that complete cycle from the sponsors yet. And so with an IPO track and then the potential for sponsors, there is more there and that pipeline is building.

Yes. What I would add to this is, if you ask, as you know, the classic M&A banker, what do they want? They want a certain element of execution certainty for their clients. And dating back to -- we had financial repression which cleared capital calculations because the effective rate of interest was 0.

So the M&A environment was a little weird. Then we had massive in some cases, overregulation of potential merger opportunities. So folks didn't want to get caught in a band, not getting sort of a result. Then we had the pandemic.

Then we had rates skyrocket on the inflation burst and now we're in a period where really the -- all things being equal, the environment is not perfect because clearly, there's some geopolitical noise.

But the urgency in our view, is twofold, and it gets to the 2 themes of the letter. The first is AI. It doesn't necessarily mean bigger is better, but you sure heck better think about it because you're going to spend several points running on making sure you are more efficient and then over time that your firm is more productive that you're actually able to realize that effectiveness premium that size and scale can get you.

So that's clearly ever and present as a consideration. The second is this -- I don't want to call it drag cycle, I'll call it a normalization of regulation cycle where we're right now in an environment where folks in the administration and amongst the regulator want to approve reasonable, rational, well-considered transactions that are to the greater good of the economy.

And now you put that against the backdrop which is the economy is in great shape. There is barely talk of the R word. The consumer certainly at the spending, higher end is in very good shape. And there is the reality of some supply chain fracturing or re-globalization which means you have to -- if you're a global company, reconsider where you make the product and how you distribute it to put it simply.

In that respect, if you put that all together, both as a temporal matter, architectural matter and is a pent-up matter, where M&A volumes against current market cap are still at multiyear lows, you put that against an IPO environment where it's not fun to go public, and became effectively the exit trade for financial sponsors, but now again, led by some interesting thinking by the SEC to help bring some incentive for companies to go public again.

You put that all together, I think it is a very favorable backdrop for M&A and for equity capital raising via IPO as growth story. Last comment I'd make is attaching to Sharon on sponsors. The sponsors are finding that the -- in this environment, publicly traded companies are doing quite well if they're priced appropriately and receiving the right kind of treatment.

So the IPO exit opportunity is real. They're also finding that asset values and the environment that we're in now has put some of the better product in a place where they can achieve something that feels like their marks are better and they want to trade and raise that capital. They've got to raise capital to pay their own partners to go out and raise the next fund and keep the thing going, especially amongst the public company set.

So there is, I think, a reasonably healthy competition that is taking place as between sponsors and strategic buyers. My last comment would be that the sponsors institutionalized a well-developed, publicly traded are now global players. So they compete in markets like Japan and France and the U.K. and throughout Asia.

So I'm really quite bullish, assuming the economy and the backdrop continues to be favorable that in this period of regulatory normalization and given the pent-up element of this thing, that we are going to see continued M&A activity with good companies looking to get better by adding or purifying.

That's great context. And I guess, if I could ask a follow-up. The question of sustainability and trading is coming up a lot and I think the industry continues to hit higher highs. Can you just speak to the mix of the trading business between finance intermediation, where you see that going? Obviously, wins that you're getting to make the higher the highs, higher? Any color on the trade and sustainability?

Sure. Again, I go back to the point in the language that I just used, even talking about the IBD activity is that you are seeing a broadening out of activity. So you used to talk about, and I'll just take Asia as an example, when you just talk about Asia, you talked just about China. .

And then it became China and Japan and then a little bit of India. And now you're talking about India, you're talking about Japan, you're talking about China, you're talking about Korea, you're talking about Taiwan. And so certain geographies are no longer a monolith. And the access that clients want this is a broad client activity story.

Like I said at the beginning, it's retail and institutional, and you're seeing those clients look for ways to gain access, U.S.-based clients, for example, to gain access more broadly. But what's important is not just the sustainability of activity. I would note that for us, there's also the investments that we've been making in order to capture various parts of the share. For example, we've talked about derivatives, the investments we've made there in the equities business, et cetera.

Yes. I mean I will put an exclamation point on that. For a lot of our investors and for -- a bunch in your community, the view is that there were a U.S. play, right? And that has made a lot of sense in the context of the compounding and growth of the wealth management business and some of the core growth opportunities in the U.S. economy.

But we're also in Asia House, very much in Asia House. As you know, we're 25% owned by MUFG dating back to the financial crisis, the interaction with our partners is more intense than it's ever been. We launched 2.0 about 1.5 years ago, which brings together not just research and equity content but foreign exchange, and that has turned out to be a win-win.

And there's lots more that we're looking to do together. And as Sharon points out, we have a thriving business in Taiwan. We have a thriving business in Korea. We obviously have this gateway Hong Kong effort into China and in Hong Kong itself, which is the entire equities, fixed income, commodities and importantly, investment banking chain.

And we also have a wealth business that is doing quite well. and is having a substantial year-over-year growth. So just to echo what -- and then we actually have a superb business in India. So I think what Sharon and I would sort of gear you to a bit regionally, is this is not a new effort for us. We've had some edge in this region for a long time. We all have the miles to prove it. and we're going to continue to invest in our clients and our people in the region broadly.

We'll take 1 question, and then we'll move to the next person in the queue. Please rejoin the queue for additional questions. Our next question comes from Steven Chubak with Wolfe Research.

So I wanted to double-click into some of the comments you made Sharon around workplace, but specifically focusing on the competitive landscape. The M&A strength showcase, certainly highlights our leading position the benefits of the Cardo partnership. There was some press coverage this quarter, just highlighting efforts by smaller RIAs, employing more aggressive pricing to compete for some of that business. .

I was hoping you could speak to how the competitive landscape is evolving in workplace and the steps that you're taking just to widen your competitive mode, maybe sustain some of those higher client conversion rates that you've delivered historically?

Sure. Thank you for the question. It's always been a competitive business. But when we thought about the ecosystem, we've constantly been thinking about being able to offer more capabilities, more options and a greater lens of investment. So for us, it starts really with the corporates, with the corporate coverage.

You have the integrated firm to help you begin to build those corporate relationships. So if we think of the very top of the funnel, is how do you have that corporate relationship and there are multiple sides, and there's a full effort behind that.

So it's not just the wealth business, there's an integrated firm effort, and there's also the investment banking side. And then if you keep going and drilling down, you are now thinking about, well, what kind of financial advice and financial wellness can you offer to the clients with no disrespect to smaller institutions, they will not have that type of breast.

And then now you then bring those clients into the funnel, and we have a greater ability to match advisers to the right clients. all the technology that we've put into place. And the final point are the capabilities right? So we're able to offer more products, alternatives, different types of solutions as well as financial advice broadly for different types of individuals at different points in their life cycle that will help.

The final point is when you think about this quarter and you just look alone at the NNA, as we said, just over half is coming from IPOs, you're not going to be able to have that corporate relationship at a much smaller level. That's something that is unique to Morgan Stanley and is really the bread and butter of the integrated firm. And many of these IPO conversations are about having that integrated advice from the top of the house.

We'll take our next question from Erika Najarian with UBS.

On the Iowa uttering equities numbers, just putting all of this together, Ted, you mentioned that you were in Asia house -- you've also mentioned that we're sort of just 10% to 15% of the way in terms of this AI super cycle. I'm wondering sort of given all those dynamics. How durable is some of the activity on the equities trading side that's coming out of Asia. And Sharon, we have heard that given the demand for balance sheet in Asia and continued demand in the U.S. that the financing providers have gained some pricing power this quarter. And I'm wondering if you sort of could comment both on both the volume durability and the pricing power?

I would say there is some pricing leverage, but there are also a lot of folks in the ecosystem who have additional capital they can put forward. So there is some pricing leverage, though, depending on the type of product and what the client is looking to access as part of the greater portfolio, what they can get from a firm like ours.

With respect to the sustainability of this, I mean, some of it is a function of asset prices being where they are. And clearly, folks thinking there's something that feels like global growth. So you'd have to have a view on whether the economy in the U.S., but then really by extension around the world continues to grow.

The inflation is under control, the geopolitics are on sort of kept quiet enough and that there's the kind of volatility that has folks looking for index versus stock dispersion or selection without being there so much volatility that they want to be risk off is because things either feel recessionary euphoric.

So those are all the kind of, Erika, as you know, unknowns that kind of have to play out during the course of the year. But there is demand for additional capability we've got it. And it's just a question of how you want to deploy it, knowing that we're all playing a long game.

It helps, by the way, to have the kind of scale and global reach that we have, which is why not surprisingly, as we talked about for a number of years, as you know, the very top houses are gaining wallet in this environment.

Our next question comes from Gerard Cassidy with RBC.

I can. Insightful question on the CapEx. It's been a question I've been asking on other calls and not to suck up to you, but yours was the most insightful. So I think many people appreciate that. On that question, here's it another way, a question I have about it. It's very strong. We all know it.

Many people are in your camp myself included. The outlook is good. What are you guys keeping an eye on so that something may change? Because we all know we've had these nothing to this level, but you think of the dot-com boom, you think of back to the specs in '21 and eventually, they both went away. What are you guys keeping an eye on so that if someone starts to crack and go the other way you guys can prepare for it?

We keep our eyes on everything. I think we're just born to think that way. And to your excellent point, we do having those of us that have been around long enough, do think of prior periods where things could feel like they're getting a frothy -- so we keep a very close eye on that because you've heard us say now for a whole bunch of quarters, and we really do mean it. higher highs to demonstrate operating leverage, but higher lows higher low is really important to us so that we can continue to make the case to you and to our shareholders that we deserve a healthy PE multiple.

And that's got to be a function of durability. It doesn't mean that we can solve for economic cycles or market dislocations, but we can certainly find ways to continue to be doing the durable long-term franchise business with clients. So that's part of the -- that's part of what's in the elixir here.

But we got our eyes wide open and have been really since the beginning of COVID. We've kept our eyes open because it's been the unleashing of a new environment where geopolitics are back in the frame and real interest rates in real cycles and real uncertainties.

And that actually means that clients have to take action and they need advice and they need to be properly allocated and we should thrive in that, but we also have to be looking at the risk constantly.

Ladies and gentlemen, this concludes today's conference call. Thank you, everyone, for participating. You may now disconnect, and have a great day.

Okay, everybody. Thank you so much for joining us. And I want to just say I am so delighted to welcome Ted Pick, Chairman and CEO of Morgan Stanley back to the stage. Ted, it is an honor to be with you this afternoon to discuss your vision for the outlook for Morgan Stanley. Thanks so much for joining us.

The honor is mine, Betsy, the honor is mine. You started this 17 years ago, and here we are. So I appreciate you inviting me, and thanks, everyone, for joining us today. It will be fun.

All right. Great. Let's go. Let's kick off by talking about growth. I hear that with the Integrated Firm, we might be having an incremental level of growth versus without the Integrated Firm?

Well, I think that it's a pretty good time to be in the capital markets business. We're seeing in both of the businesses we're in, the Securities business, which is Investment Banking. And sorry, I turned my chair too much and one of my major shareholders is going to get like the side look. So I'm going to adjust now. And now I'm going to do the straight up look.

Do you want to swap with me?

I'm [indiscernible] between Betsy and Steve Wharton. So I'm going to do that.

We can swap Steve, Ted?

No, no, we're all good. We'll give each other look occasionally. But we're in these 2 major businesses where the TAMs are growing by 1 to 2x nominal GDP. We're in the Securities business, which is Investment Banking and Markets, and we're in the Wealth and Asset Management business. And to be in those 2 businesses and those 2 businesses exclusively makes life a lot more simple for us. We have a mantra around our core strategy, which is the first of our 4 pillars, which is we raise, manage and allocate capital, and both those businesses are trust businesses. And they're both really working, again, at the -- probably the higher end of the 1 to 2x GDP level. And the idea of the 2 businesses working together is this notion of the integrated firm, which we've been talking about for many years, but really put into motion over the last 2.5 years. And it's exciting to see it's in the bloodstream across the partnership. If I look at the Institutional Securities business, that first business, the Investment Banking and Markets business, we are in a moment when the life cycle of traditional investment banking business is actually coming to the fore, okay? We talked about this for years leading into the pandemic and then coming out of the pandemic and then there was the kind of the stack bubble and rates roofing and then it got quiet again. And now it's really happening. We're in an environment with real cost of capital, the challenges and opportunities associated with AI, the geopolitical reality. And the question becomes, well, what's Morgan Stanley's edge in all of that? And I think our edge is content, is content. I mean, 15 years ago, you and I were mired in the worst of this sort of this MiFID idea, which was sort of going to separate advice and research away from execution altogether. And Yes, that's a long time ago, but I see Katy here. She was covering Apple, and now she runs our Global Research department, amongst other things. And Betsy, you and I were together, and that continuity and delivery of content really matters. It really matters because when you have something that you don't know when it's going to come, it's sort of almost like the [ leniness ] thing where history, nothing happens and all of a sudden, a lot of history happens in a short period of time. We're in that moment with respect to the AI transformation effect. So we need to have the delivery of content in place. And I see it inside of the Investment Banking flywheel proper, where we are an advisor on lead transactions. We're, of course, seeing it in the mega IPOs that are beginning this week. We're seeing it also in the activation of the dormant sponsor community where there are the better part of $1,400 billion companies. You can discount that as you wish, but there are a whole bunch of private companies, well more than 1,000 that need to be harvested. You see it in the reality of strategics competing against that because, of course, these same sponsors have $1.3 trillion of dry powder. So there's a lot of core investment banking activity, which is accelerated by this AI phenomenon, which begins with the content that we delivered. What's most exciting today is that if I look at our markets business, once upon a time, better part of 15 years ago, coming out of the financial crisis, we came up with a 9-box paradigm in equities where we had cash equities, prime brokerage and derivatives. And the cash equities business was meant to be a barbell. Now we go all these years later. There are very few firms that on a global basis, whether you're in Hong Kong or in Paris or New York, you can actually prosecute enormous flow for market makers and hedge funds and the like. And we're one of very few. And then at the other end of the barbell, of course, you have the delivery of advice and high touch. Then you have the offering of leverage and financing relationships. That's prime brokerage proper. That's at an all-time high for us. And then the key is the derivatives product. The derivatives product is one that's really been invigorated over the last several years on the back of this content, which allows us to find asset managers, connect them with you to corporates who want to talk about ideas across asset classes. That involves a heck of a lot of organization, intuition. Time is the enemy. So when do you have the CEO, when do you have the asset manager. By the way, they're also now wealth clients. It's a super interesting time to leverage off of content, the integrated firm and this AI phenomenon to produce real outcomes inside of one box, which happens to be the derivatives box across the world.

And if I go to the last piece of the ISG, our Institutional Securities business, I talked about our fixed income business, that has been reimagined into a business where we are a financier, a leading lender to sophisticated corporates sponsors that really want to know that we have some game intellectual capital about optimizing their capital structure, and we're a leading player with some of these alt managers, as you know, in that space. We've also continued to invest over the many years in commodities, and that's, of course, paying off today. And through some of the hard work that we did internally, we were able to -- in this moment where there's a bit of a regulatory normalization, we've been able to reset some of our derivatives businesses that were sitting in the Securities business into the bank. And that is something that dates all the way back to the GFC and it's something that puts us pari passu with others in the fixed income space like us. So in totality, when you look at Investment banking proper, the Equities business, the 9 boxes sort of on fire now and the Fixed Income business, I think it's fair to say that the Securities business, Investment Banking and Markets across the integrated firm is really humming right now. So that's the ISG story.

Near term, very strong.

Markets are obviously always the key variable when pencils down and there's -- you have an exogenous event. We've seen those. There's a period of time where pencils go down or it becomes very hard to manage -- for clients to manage risk and then have us work with them on that. Putting those periods aside, I think what we're seeing today, Betsy, is that the investment bank, again, Investment Banking plus markets is operating at a higher plane of performance. Now the goal here as a management team, understanding there is cyclicality in this business to the extent that you believe in economic cycles is this notion of higher highs and higher lows. That's very important to us. It's not so much that we can sort of on the blowoff stage, print the biggest numbers, but we have to have demonstrated operating leverage. That's why these last quarters have been so important, but that we're set up with enough of a durable franchise inside of the advice giving, inside of the lending, such that, again, we're going for the highest earnings multiple we can muster through the cycle that there will be higher lows when activities are quieter.

Excellent. Let's switch to...

What do you think?

Yes. No, it sounds like a good plan to me. And it sounds like one that you have articulated before and are now executing on that higher high, it seems like.

That's the idea.

Okay. How about -- let's shift to Wealth and Investment Management, where the question in the room is you're doing great with over $9 trillion in combined client assets.

Right.

So how are you thinking about that as you are just hairs breath away from the $10 trillion goal?

Right. So that's a bogey that we've had, as you say, the -- on our strategic objectives list that we would have $10 trillion across Wealth and Investment Management, $10 trillion plus. I think we are now at a stage where we can talk about $10 trillion in Wealth alone. okay? Now obviously, that is a function of market levels at a given point. But just the way the momentum continues to work its way through the funnel, that $9 trillion between the 2 businesses, $7 trillion and change and $2 trillion, I think I can imagine a world where in the fullness of time, we get to $10 trillion in the Wealth business alone, and we keep going. And that is a function of the success of the sort of the ingenious framework around the funnel. To remind people, the funnel really is the self-directed platform, i.e., E*TRADE, our Workplace product and then, of course, the 15,000 financial advisers. And if I had to pick 1 of the 3 pieces of the funnel to call out here, it would be Workplace. So Workplace we have seen $100 billion of new flows, we call them reinvestment flows go from E*TRADE or Workplace to the Financial Advisor last year alone. We've seen $400 billion move from E*TRADE or Workplace to Financial Advisor since 2020. That continues, okay? So the -- it's not just the net new assets that are coming into the funnel every quarter against an ever bigger denominator, but there's also just the reinvestment effect inside the funnel. And that's very exciting. And so the question is, what are we going to do with the funnel to sort of amplify the effect? And I think of one example would be that we go back in time and the other would be we go forward in time. The back in time is effectively -- and it's sort of relevant given what's happening this week in the IPO market is this notion of private companies. So in the Workplace space, as you know, we bank over 50% of the S&P. I was involved in a bake-off very recently for a large cap company. So it would be a takeaway of a public company. We'll see if we win. We hope we win, getting a lot of attention top of house. By the way, those existing public companies have $500 billion of unvested securities sitting in employee accounts. It's another 500 that we can naturally get after. But on the private company score, we're already banking 9 of the 10 unicorns. These are companies that we've been banking from the time that we hooked up in joint venture form with Carta to get a hold of their cap table. So we are already migrating with these companies as they go on the path to becoming public. And given that companies are staying public 2 or 3x longer, but in fact, are showing again, IPOs are back. and they are coming back in all kinds of shapes and sizes, it's a heck of a good thing to already be inside of the clothing of the company through the Workplace channel. So that's incredibly exciting. That links to the private asset space overall, our ability to market make and sit between the issuer and the investor. That was the raison d'être of the bolt-on equities transaction that we completed a couple of quarters ago, and the early returns on that are very positive, where we will not only have your full E*TRADE plus Workplace plus Financial Advisor kit for public securities, but we'll also be able to do so for private securities in a way that fits the advisory model.

Then on the forward, say, okay, well, what's on the forward? The forward, and my guess is we'll talk about it later, is sort of digital assets that we are starting to think smart about digital assets. And that is important. Of course, even through the ups and downs, wealth continues to be generally underallocated to alts. So if you step back from all, I say holy smokes, you got the funnel regular way, but you're talking about privates, digital assets, alts and then AI enablement, there's a heck of a lot going on that will not only broaden but also deepen the funnel.

Okay. And that's all targeted towards Wealth that you just discussed.

Yes.

What about Investment Management?

Well, the IM business is a stable business where we have pockets of real strength in homegrown alts product in fixed income, in real assets, in liquidity. And then there's a gem inside of IM, which is this parametric machine, which has become the leading player in the tax optimization market. And that is really important to this notion of the integrated firm because it's not always going to be the case that every single part of the firm can work together all the time on an integrated firm basis because you need some church and state. But the reality is parametric is a perfect example of where IM can connect with our Wealth business and our Securities and Banking business. So it's been a huge winner, and it's exciting to see that become a vibrant part of the Investment Management business, which overall, we retain a lot of option value on. And given kind of how some of the names in the space have traded over the last 6, 12 months kind of come back to earth, there is a land of opportunity if we decided to go down the inorganic track.

Well, so let's talk first about how you are investing for all that growth that you just outlined. Are we at a spot where investments are moving higher or not?

I think that's a really important question, Betsy, because we needed to demonstrate operating leverage through this cycle. We needed to demonstrate that we could drive revenues at 1 to 2x GDP and that there'd be operating leverage that would be visible on the bottom line, which would adhere to this notion of a 70% efficiency ratio or better, which, of course, is just the reciprocal, one minus the margin, right? So that we would be able to, as an enterprise, generate 30% margins when things were good or even better at the enterprise level. And that's the notion of higher highs, and we've done that. And that's important for folks to see even as we carry excess capital. The question then becomes what about at the segment level? And I think at the segment level, when things are really working and ISG is doing its job of managing its capital allocation and banking the right clients and opportunities, and we're properly running our markets business, there should be manifestly operating leverage inside of the Securities business. There should be, there has to be, and there has been and there continues to be. Then the question becomes in the Wealth business, what are you really solving for? And I think what you're really solving for is to continue to drive net new assets into the funnel that they are fee-based flows. They are high-quality durable flows. They may be transaction-based in the early cycle, but as appropriate, they may migrate to the Advisor or they may migrate from somewhere else in the funnel to get to the Advisor. -- really important. And that the funnel becomes something that is friendly in a technology-forward context, which is why it's so important that we can be fluent on what we're doing in privates because obviously, there's some innovation associated with bringing transparency to the privates market and making it something that is user-friendly for the high net worth individual to have an allocation to. Same goes for alts. Same goes for digital assets. We're also looking to continue to expand the pie and draw in deposits and grow the thing. So I recall some years ago, as our owners do, that we were traveling in that segment well, in the low 20s margins. And then we went through a period where it was mid-20s margin. Then we went through a period where it was mid- to high and then high and then high to 30. And the moon and the stars aligned, and we hit 30 last quarter. Seasonality, great. I would think that the plan that we wish to pursue here for the next period is one where we're not going to manage to the margin, but to give a sense of the divisional outcome, that we'll be bouncing around that 30% number, okay? When there's seasonality, it's tax season. By definition, that means there's distraction because folks are focused on making the nut through the IRS, less activity with the FA to generate new P&L, but then you move to other seasons. I think that the bouncing around 30 idea is a nice breathe enough that you can invest in the businesses we're talking about, especially in AI-enabled businesses that we're going to talk about, but also hold some accountability to the overall firm efficiency target. And then with the fullness of time, because we want to outperform, right? You want to outdeliver over time. When the time comes, then we can revisit whether the range is higher. But this idea of bouncing around 30 feels right to me as a calibration of prosecuting the business, generating sufficient operating leverage at the firm level, but also not scrimping on the necessary investments we want to make around alts, around tax optimization strategies in parametric, around digital assets, around privates and around AI.

So one -- before we get to digital assets and AI, I do want to just ask about white space for growth in the 3 fleets, ISG, Wealth and Investment Management. When you -- you have talked about for many decades, white space is driving growth when you were running all these various businesses you ran before becoming CEO. As you sit and look at the 3 business lines, do you see any white spaces that we should be in that we're not?

Well, of course, one's perspective modulates a little bit when you're the principal. And I think we have sort of a paradox, and I think it's a good paradox amongst our senior management team, which is we have been successful as a firm in transformational M&A. Smith Barney, E*TRADE, Eaton Vance. We've been successful on bolt-ons. Mesa West, Solium, which became part of the genesis for having a leading stock plan business. And now we believe EquityZen. So against 3 transformational transactions and 3 bolt-ons, you'd say you're good at M&A, just do your thing. And I think there's humility that shared with Andy Saperstein and Dan Simkowitz, our 2 co-Presidents, who are the 2 co-heads of strategy and the entire management team that M&A in this industry is really challenging, and we want to get it right because the smallest transaction or something that has some appeal on initial headline can drag you down in a rabbit hole, especially if the regulatory environment gets tighter and you get distracted from the core strategy. The core strategy is one where we have 2 TAMs, the Securities business, Investment Banking and Trading and Wealth and Asset Management that are organically growing, again, at 1 to 2x nominal GDP and then are growing, I would argue, further because we got the integrated firm concept bolted down. So I would argue as a first answer and a continuing answer, we like the organic strategy. That having been said, it is the case that because we're in a deregulatory or normalized regulatory environment, we are very much keeping our eye on sort of competition and strategy amongst new entrants and the incumbents. Some of whom wish to go to other spaces, and it could be possible in a world where you have valuations start to move in different places for different participants that there could be some M&A activity in the space, and we want to be wide away to that. Now we're not going to -- one of the axioms in our place is we're not going to do strategy by [indiscernible] because we raise manage and allocate capital. And 3 years from now, hopefully, we'll be sitting here saying, we raise manage and allocate capital. That's what we do. We're not going to deviate from that. But is it possible that there would be places in the Wealth Management space where we could continue to deepen or broaden our already industry-leading position in the United States. I do believe that.

Are there places around the world where we could potentially bolt-on strategies across the integrated firm? Perhaps. But rule of law, transparency, cross-jurisdictional regulatory environments, these are challenges. We can talk more about that, but that's part of the incremental hurdle of going outside of your home domain, especially in the times we live in. But to answer your question with some meat on the bone, I would say that I could imagine in the Wealth Management space and in some elements of the asset management space, although there in the classic asset management deal, personalities come together, comp plans come together, you pay for the talent twice, the incumbent is not so happy. These are things we all know, all right? So the question becomes, couldn't we just build it? And what's the rush? Let's just build it properly over time. But there could be a tool or there could be something inside of the Wealth Management business that Andy and Dan argue with the management team that would actually make us even a more robust competitor. And that's something we're going to continue to look at. EquityZen was relatively small, but that was having cataloged a whole bunch of candidates. And this is the one that we liked. I think there's a framework that's been inculcated in us that I think is an important one to sort of think about, which is strategy. What's the strategy? Do we have our strategy? What's Morgan Stanley strategy? Morgan Stanley's strategy is to raise, manage and allocate capital for institutions and individuals. That's the one sense. That's our strategy. Does this deviate from the core strategy? What's the culture? Our culture is rigor, humility and partnership and every single Managing Director of Morgan Stanley knows that, repeats it, and we try every day to live by that. Does the culture of the new player feel the same way. They're more entrepreneurial. We may be viewed as more bureaucratic. We're more regulated. They're more kind of free wheeling. Of course, you have to adjust for size and the journey, but does it work? Then comes, does the timing work? And then comes price. And I think that's that -- and you can debate whether it should be timing versus price or price versus timing. But I would argue in -- given what we've built and given what we know to be the last hard miles of integrating acquisitions, 5, 6, 7 years later, when the bloom is off the rose, and now you're with Morgan Stanley, how is it? And how is it going? And are we keeping share up? And are we making that brand? Are we preserving what we got and making it better, Ala, SmithFarney, Ala, E*TRADE. That question is one that we think about as we enter into potential ideas. So yes, there's some white space. Yes, we talk about ideas extensively. Yes, we're in a world now where our competitors have capital buffers and then there are new technology entrants, but we're keeping the -- it's a cliche say we're keeping the bar high, but we're living by that. But I would be remiss not to say there are opportunities that are coming at us, okay? And people have comparatively good currencies to play with. We're also keeping an eye, again, without doing the envy thing on what that player may be doing 2 seats down.

And we touched on a little bit just digital assets, which after 10 years of discussing and debating will it ever happen is beginning to happen. Is there...

Yes. All that -- you're early on that.

Is there anything there that would be...

I think there's something there, there now. I do think there's something there, there because I think what will happen is I think we all are living the reality that the traditional finance world and the digital world are going to start to -- they're going to start to come together. And at the individual level, the next generation is going to want to participate in both worlds. You can also imagine -- you can almost imagine like the idea of the prime broker to the individual. How do I optimize everything from your atomically movable cash through your entire asset allocation for you, your lifetime and the next lifetime. And it has to be done in a facile, technology-friendly way with all of the resiliency that a firm like Morgan Stanley brings, but then also leading to the delivery of financial advice. I think our view would be that we wish to be agnostic with respect to the old world or, I'll call it, loosely a DeFi world, certainly the digital asset world, where we want to be able to operate in both. Our clients they will want that. So we're anticipating that and you have anticipated that, and it's notable that you're going to spend time with Amy Oldenburg from our Investment Management business later today because there is an example where we now buy, sell, trade, spot. We built a wallet along with help from Zero Hash. So there's the ability to trade coin. But more importantly, there's going to be the ability with time to borrow and lend. That's the key that you can basically treat it as an asset where you can obtain leverage or it's just a natural part of your portfolio as a high net worth individual or as an institution, it takes time. There's all kinds of regulatory inconsistencies and trial and error and who's a player and who's not. And we ultimately, once we put our name on it, have to make sure that it works. So we've been aggressive in our thinking about the future, but we've been a little more pain staking in our execution. But now Amy is a perfect example, having launched an ETP and equity-treated product out of MSIM that effectively allows you to treat some of this product, I mean that is kind of a show on the Institutional side and on the Investment Management side that this is for real. We're doing it kind of on the Institutional side. We're also doing in the individual side and that kind of, again, Integrated Firm where digital assets, and again, Betsy, you were early on this, I think it's now coming to pass. And it will be a slow journey, but we're on the program. And at some level, we, as the wealth manager of choice and as a global investment bank, we're going to be increasingly agnostic with respect to how you hold your assets. We just need to be able to operate in both worlds, which I imagine a number of years from now, those worlds will not have a distinction.

That's robust.

It will take time.

Right. Yes. So my conversation with Amy is at 4:45 today, and we'll dig in a little deeper on these topics. We have you for 12 minutes, and we need to address a couple of other topics. Thank you.

Yes, 12 minutes and 45 seconds.

Yes. Okay. Tick tock.

I may take it to 14.

All right. AI.

AI, oh, okay, 12 minutes and 45 seconds.

How does AI fit into Your strategy.

Oh yes, AI. So when we, when we -- when I wrote the -- our pithy hand annual letter a couple months ago, I took the view that there were -- this is still great insight, of course, I took the view that there were 2 major themes for 2026. The first was the reality of ongoing geopolitics manifest and now a second or in the Middle East, and that if the war dragged on, it would inevitably lead to the importing of inflation around the world. First, the energy complex to those that don't have the ability to heat their homes. And then second, potentially food product and the rest, issue one. Issue 2, this notion that the coming of age of AI was not just at the consumer level, but the demonetization would be felt at the enterprise level. That does not sound like a terribly insightful thing to say. But 2 months ago, even, it wasn't so clear as we suggested that the interdependence between these 2 phenomena would be as extraordinary as they are, geopolitics and sort of now AI. And here we are. And so I think the way to think about, of course, is it's both the opportunity of our time and the challenge of our time. And I think we should embrace that, again, to use the word, paradox. I think that the reality is that our management team has shown some real dexterity around that paradox. Organizations like Morgan Stanley are quite good at playing defense. We got to play defense on a topic, we'll play defense, like defend, defend. And then the other context or whether it's a client or a situation, we circle the wagons and we defend. And then in other instances, like we're going to play offense. We're going to get after this. We're going to go get the ball. And the ball may be 10 years off, we're going to get the ball. And this one is one where you got to play offense and defense, and sometimes contemporaneously and sometimes with some of the same people. So you better have a management team that is talking constantly that has fluency around that, which is wheat versus [indiscernible], that which is integral to how the place continues to be best-in-class as a resiliency matter but also as a place that feels like it's got the future in its veins. And the management team has, again, shown dexterity on that front. And I'll point to an example that's still in beta, but is sort of emblematic of our thinking about the forward AI impact and how it will resonate with our clients, but also work well with our colleagues.

In the Wealth Management business, imagine basically a series of modules where you have a Morgan Stanley Assist, let's say there are 3 of them. Morgan Stanley Assist will be effectively someone who could be a companion to the CSA, you are able to get a wire in, you're able to pay tuition bill, reality is, I don't really want to call my FA to talk about the tuition bill, he's going to go on hearing about something. He doesn't want to talk to me because I'm going to do my bit. Let's just find a way to get this done that is efficient and works well to CSA at any hour, morgan Stanley Assist and an amazing kind of ability to go to the entire glossary of all the things I've ever done when I do them, how I do them. Where is the wire to? How is it send? Is it a partial, all that important stuff.

Then the second piece is Morgan Stanley Advisor, okay, which is this notion of I'm effectively looking at potential portfolio adjustments. I'm looking at how I want to calibrate certain assets. I'm looking at tax optimization, I'm kind of playing around with it. I'm not sure. I'm heavy in privates. I'm light in privates, I want to play around with it. So making decisions for me, of course, and I'm not making decisions, but I can really like get -- go down whatever rabbit hole I want, okay? And then there's a full blown Morgan Stanley, the full-blown Morgan Stanley AI Assist, okay? And the Morgan Stanley AI Assist is if the first is kind of helping to do cleanup. And the second is kind of looking at potential models or frameworks. The third 1 is effectively -- and this is in the future. And of course, it's going to have all the attenuated regulatory and careful look at testing. So it's -- there's not tomorrow's business, but the beta has been put in front of our top financial advisers, okay? The Chairman's Club, the top of the top. So effectively taking it to the user, which is super interesting rather than holding it back, show it to them, even in partial form and the reception has been quite positive, very positive because the third is about effectively having a conversation around what I might do across anything that could be a topic. So that by the time you get to the advisor, the advisers enemy is time. The advisor can't talk to 9 people once. But if the advisor knows that we are going to go through a quick inventory of all the things that you've been executing on that are hurly-burly, some stuff that you modeled, I didn't know you were that interested in metals and stuff that actually you played through with -- off hours with someone who can retrieve information and answer questions quite fluently based on past interactions when you get to the advisor, the productivity goes up. So if you're a top advisor, what's the game. The game is I want more assets. I want them to be durable. I want them to be advisory assets. I want my client to feel like they're being totally taken care of, that there's privacy within the 4 walls of Morgan Stanley. This stuff is inside of the Morgan Stanley business. We are all working together to drive a more productive outcome. So that, for me, is incredibly exciting in the 3 assist form. There are obviously all kinds of examples that we've all been reading about and hearing about that happened in the markets businesses with agents working in the electronic businesses, the normalization of Greeks across various businesses and across assets. Those are all happening and are also happening in infrastructure. But I'll give you, as a last illustration in -- we were looking recently in our privates business, which as you hear, we're investing heavily in a way to try to bring together some of the privates inventory, so it was user-friendly for some of the financial advisors. And there was sort of an undertaking of getting all of the universe of stuff that's in our -- or somewhere and bring it together. And the assessment was across a world-class technology organization that it was going to take several weeks, several weeks, underlying several. And it took several days. It took several days. Small example, bite-size example, inventory, making it fit for use, fit for purpose, which means it's got to go through all the testing and all the other stuff to make sure that you can actually roll the thing out. What took weeks, days. Is that can apply across everything? Of course not. But here's an example where we're able to get something that is going to be delivered to the client that's going to matter on the front end, where we're able to take our operational excellence and reduce the time lapse from weeks to days. So taken across all that, AI, yes, challenges, they will be with everybody at every level, corporate, every institution is going to be facing that reality, every individual, but there's also the enormous opportunity set that exists to better service our clients and then to be able to use our edge, our intellectual capital to actually be the basis for the interaction. Why do you want to interact with me? You want to interact with me, we want to interact with you because we have content and because there's trust. I can get access. I have the barbell. I can get access to markets. You can help me get access to other harder to get things, privates, new issues, et cetera. But ultimately, it's about the trust and the advice that is going to now be even more optimally technology-enabled.

Okay. So I'm hearing more productivity, both top line and efficiency. So...

Over time.

It seems like that's the case. Across the firm. Okay. We're going to treat this as a lightning round. In that...

i

You said when we were coming on, I don't have enough questions, well, it's going to take forever. I said, just I'm telling you, trust me. right? So I think every one is cool. We got a [ half an hour ].

Not only did you fill the time, but with content that is highly -- high quality.

Thank you so much.

So can we. My last question is going to be on 2 points.

Do the best, Betsy.

Okay. We have 1 minute each. International growth...

Everyone wants to be reassured, you now. everyone. So that was very nice. Betsy is going to carry us through the last couple of minutes.

Okay. International growth and capital buffers.

Okay. International growth, I think we talked a little bit about that rule of law, where we're not going to get mired in some kind of jurisdictional issue with beneficial ownership and with who has done what to whom when there's a change in government. My illustrative on this would be that we do our quarterly Board meetings, but we also do a once per annum strategy Board meeting. Two years ago or I should say, a year plus several weeks ago, we did it in Tokyo. And several weeks ago, we did this year's in London. So I would say that should give you a sense. Rule of law, where we believe the Morgan Stanley proposition is differentiated. When you go to Asia, we're an Asia house, okay? You did your time in Asia. Goodness knows, I've done my time in Asia. And you...

I hear you travel to Asia 3 times a year trip.

Yes. Yes. It's good, it's better going west than coming back East.

And you got back the other day.

Yes. So yes, so 65th trip to Asia. And our management team are travelers. And we're travelers. That's important we're travelers. But in Asia, particularly, Korea is the hottest market in the world. We have a vibrant business in Taipei. Of course, we have 15,000 people -- I'm doing this lightning style -- In Mumbai, Bengaluru, so it's not just an infrastructure play, it's a markets play. Hong Kong, 2,500 people, leading prime broker, world-class investment banking business. There, the entire integrated firm is world-class in Hong Kong and has been for years. And then Japan, Mitsubishi owns a quarter of Morgan Stanley, MUFG did so at the time of the financial crisis. They have a new CEO named Junichi Hanzawa is a great guy and the now Ascendant Chair, Hiro Kamezawa is on our Board. And we just did our 33rd meeting together, 33rd meeting home and away every 6 months, 33rd meeting. So we are not just once in a while visiting Tokyo. We're there 2, 3, 4, 5 times a year to talk about what more we can do in Japan. And we've been doing that from a very difficult period when naturally at JPY 90 and sort of 0 negative interest rate economy, and we had our regulatory as an industry challenges to be able to do anything, what are we doing in Japan? And the answer is with the benefit of hindsight, without being arrogant about it, we were preparing. And so now we are big players in Japan, and there is a ton of opportunity around savings to investment, and we have a trusted partner who we are knitted with, and that is super exciting. We had Alliance 2.0, where we treat Bank of Tokyo Foreign Exchange, brought together the research businesses. And now we have a whole bunch of people thinking about Alliance 3.0. And then briefly on Europe, U.K. is a fabulous place for us to do business, and we should be taking a good look at that.

On capital, as you know, SLR got moved off as a governor for a lot of the firms. So really CET1 exercise, we were at 15.1% in the latest quarter versus 11.8%, that's 330 basis points. We like the idea of having incremental financial strength. There are firms out there. There's one in particular that's sort of viewed as the kind of capital buffer of last resort around the world. We want to be viewed as when stuff comes as it inevitably does in this industry, in the world and people are running uphill, they're going to run towards us. We've got the incremental capital and liquidity, and it hasn't really impaired returns in any way. It hasn't diluted returns. We're carrying extra capital. Yes. We're in an unusual year is there was no actual 300 basis points plus above the bogey. Why does that matter? That matters because then we can make tactical considerations when certain markets are behaving in a way where we want to put more capital behind clients or situations in Asia or in the U.S. or in Europe, we can do that tactically. We have the wherewithal to sort of get after that. And then strategically, if we do decide to do something that is beyond just investing in these 2 great TAM businesses that we -- in the fullness of time, wish to do something inorganically, we're going to have the capital buffer to be able to do it.

And then finally, with respect to kind of the force ranking of how we think about all of this, I mean, first, you're hearing me say repeatedly, we want to invest in the integrated firm. We want to invest in these 2 TAMs, the Markets and Banking business, ISG, Institutional Securities Group and then Wealth and Asset Management. But second is this road of the dividend. The dividend got up to $0.35 in 2021. We doubled it to $0.70. We've been moving that dividend prudently, carefully, like a very large cap company should be thinking about it, continue to work the dividend, and we will continue to work the dividend in a prudent way that is important for our income holders. And then the buyback, we'll do opportunistically, and we've been consistent on that. I would note that we zigged a little while some have zagged. Some folks have gone to payout ratios that were much higher. We took the view as a management team 2.5 years ago that we actually wanted to accrete capital and did accrete just over $15 billion over the last 9 quarters. We feel really good about that because it puts us in a position where we have not only the buffer and the valuation that reflects that, but also the ability to play when the lights are green for us.

Excellent. So what I'm hearing is growth opportunities across the firm with the Integrated Firm powering and operating leverage with capital optimization. So as the analyst on stage here says to me that your returns on tangible equity are moving in the right direction, let's call it.

Yes. I would say integrated firm is working just like you said, Betsy. And I think for shareholders who know us well and have known us for a long time and are looking into the forward higher highs and higher lows. That's the idea. There will be some cyclicality in Investment Banking and Markets. We know that. But have we demonstrated operating leverage and can we retain that. And then importantly, this Wealth juggernaut is going to keep on progressing and we're going to continue to invest in it so that over time, we're going to be able to generate the kind of operating leverage people would want to see through the cycle.

Excellent. Thank you so much, Ted, for joining us.

Thanks for having me.

Good morning. Welcome to Morgan Stanley's First Quarter 2026 Earnings Call. On behalf of Morgan Stanley, I will begin the call with the following information and disclaimers. This call is being recorded. 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.

Morgan Stanley does not undertake to update the forward-looking statements in this discussion. Please refer to our notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release. This presentation may not be duplicated or reproduced without our consent.

I will now turn the call over to Chairman and Chief Executive Officer, Ted Pick.

Thank you, and good morning. Thank you for joining us. Morgan Stanley entered 2026 from a position of strength. Amidst increased geopolitical uncertainty, the firm generated a record quarter with revenues of $20.6 billion and EPS of $3.43. The top and bottom line results are an ongoing demonstration of the capabilities of our integrated firm in periods when clients and markets are active. The first quarter's return on tangible of 27% evidences the operating leverage of Morgan Stanley's business model, a leading wealth and asset manager alongside a leading global investment bank.

The consistent execution of the last 2 years plus is the proof of Morgan Stanley's ability to deliver on a higher plane of performance against different mini and macro backdrops of uncertainty. Wealth Management demonstrated continued momentum with growing durable fee-based revenues and increasing margins. Our client acquisition funnel remains unrivaled in driving industry-leading growth with $118 billion of net new assets and $54 billion of fee-based flows. With long-standing relationships across banking and markets, the investment bank was well positioned to serve clients around the world, underscored by a record $10.7 billion in quarterly revenues, inclusive of $5 billion plus in equities.

A well-diversified investment management business continues to attract strong demand for Parametric. Across wealth and investment management, total client assets exceed $9 trillion on the road to $10 trillion plus. In the first quarter, we deployed resources to support client activity and opportunistically bought back stock. Our reported CET1 ratio of 15.1% against the capital requirement of 11.8% translates into a capital buffer of over 300 basis points.

We're encouraged by this period of enhanced regulatory transparency and balance as we move through rule-making comments toward the finalization of Basel. It's worth noting that over the last 9 quarters, we've accreted $15 billion of capital. During the quarter, we also closed our acquisition of Equity Zen. As discussed in our annual letter, we remain mindful of the known unknowns of 2026, the accelerating adoption of AI at the enterprise level and the ongoing military conflict in the Middle East.

Against this backdrop, our approach is one of measured confidence. Our institutional wealth clients demonstrate continued resilience and as much as ever seek the depth and breadth of content and market access that Morgan Stanley provides. At the same time, we remain vigilant in the context of higher asset prices, tight credit spreads and interest rate path uncertainty. We will endeavor to navigate the upcoming period with the same level of intensity and execution that has defined our performance over the last 9 quarters. The end of the end of history is now at hand and alongside accelerating AI development, we're committed to staying in our strategic lane to execute with rigor, humility and partnership and to be prepared to tactically pivot on the ongoing military disruption or technology adaptation warrant. Morgan Stanley strategy and client-centric culture is set to raise manage and allocate capital with excellence, to invest in our clients and technology across the integrated firm and to grow assets and compound earnings in a capital-efficient way.

Now I'll turn it over to Sharon to discuss the quarter. Thank you, Sharon.

Thank you, and good morning. The firm produced record revenues of $20.6 billion and record EPS ex DVA of $3.43. Our ROTCE was very strong at 27.1%. The results this quarter demonstrated the strength of our integrated model and the scale of our global platform. Clients increasingly turned to our trusted advisers across the firm, particularly when market volatility became more pronounced.

For the quarter, our efficiency ratio was 65% reflecting strong operating leverage and disciplined execution as we continue to invest strategically across the firm. Improved efficiency includes $178 million of severance charges.

Now to the businesses. Institutional Securities delivered record revenues of $10.7 billion. Strength was broad-based across asset classes in both banking and markets and in all regions. The year began with optimism supported by solid economic growth in the U.S., significant strategic and financial assets waiting to transact an AI-driven transformational opportunities.

AI themes followed by geopolitical uncertainty and market dispersions continued to -- contributed rather, to strong client engagement throughout our quarter. Our global team across the integrated investment bank led as a trusted and long-standing partner to advise clients in an increasingly complex environment. Investment banking revenues increased year-over-year to $2.1 billion, led by growth in the Americas. Investments in our talent are yielding results. And despite ongoing geopolitical volatility, capital market activity remains resilient and boardroom dialogue remains active. Advisory revenues of $978 million increased 74% versus the prior year, driven by higher completed activity in the Americas.

Building on the momentum in the back half of last year, M&A activity broadened across sectors with notable strength in technology and industrials. Equity underwriting revenues were solid at $396 million, led by higher issuance across IPOs and convertibles compared to the prior year. Fixed income underwriting revenues were $742 million. Outperformance was driven by record issuance in the investment-grade market on the back of higher event-driven activity.

Looking ahead to the remainder of the year, investment banking pipelines remain steady, supported by ongoing strategic activity from both corporates and sponsors and increasing needs for strategic capital formation. Our integrated investment bank remains global, diversified and well positioned to effectively support clients.

Turning to equity. Revenues surpassed previous records reaching $5.1 billion for the first time. The performance reflected year-over-year growth across businesses and regions on the back of very strong levels of client activity. Our continued investment in technology is supporting scale and access across our global franchise. Prime brokerage revenues increased versus the prior year, driven by higher average balances that outperformed market indices, particularly in Asia with investor interest across the region.

Cash results increased against the prior year, driven by higher volumes across regions. Derivative results were also a standout, up versus the prior year, driven by robust client activity across products and regions. Fixed income revenues were postcrisis record at $3.4 billion. Our performance this quarter highlights our business mix and our ability to capture market opportunities. Micro results increased meaningfully year-over-year, driven by securitized products and credit corporates. Macro results were solid, reflecting declines in foreign exchange, which benefited from a more favorable trading environment last year. Results in commodities increased significantly compared to the prior year. The business navigated elevated volatility in energy markets well, benefiting from increased flow and structured client activity.

Turning to Wealth Management. Record revenues and robust margins in the first quarter reflected the scale of our platform that continues to drive exceptional performance. Retail clients were engaged across channels. Net new assets of $118 billion, fee-based flows of $54 billion and growth of bank lending balances all showcased that our investments supporting both advisers and clients are working.

Revenues reached a record of $8.5 billion. The business delivered a PBT margin of 30.4%. Asset Management revenues grew year-over-year to $5.1 billion, reflecting higher market levels and the cumulative impact of consistently strong fee-based flows. We are setting the industry standard in fee-based flows, generating $54 billion this quarter, a new record, excluding prior acquisitions. Transactional revenues were $1.1 billion, Daily average trades reached the second highest level on record as clients remained active in volatile markets. Results were supported by ongoing demand for our diversified alternative offering, which had record sales this quarter. This was driven by significant growth in private equity and real assets highlighting the benefits of our scaled alternatives platform.

Bank lending balances increased $5 billion quarter-over-quarter to $186 billion, driven by securities-based lending and steady growth in mortgages. Household penetration of lending products is now at 18%. This is up from 14% just 5 years ago. Through ongoing investments in technology, adviser and client education and an expanded product set. Sequentially, total period end deposits grew to $419 billion and net interest income increased to $2.2 billion. NII growth in the quarter was supported by both lending balances and higher average sweeps, which more than offset the impact of the 2 rate cuts in the fourth quarter.

Continued growth in lending has supported a steady build in NII over the past 6 quarters.

Looking ahead, we expect NII to build over the course of the year, with a modest increase in the second quarter compared to the first. Net new assets were very strong at $118 billion, the growth showcases our diverse asset gathering capabilities, which benefited from contributions across channels. Workplace stood out as having sourced clients who continue to aggregate assets onto our platform and benefit from stock [indiscernible] investing events.

Finally, while driving exceptional quarterly results, we remain focused on long-term growth opportunities. We closed the acquisition of Equity Zen, enhancing our leadership position in the private credit markets ecosystem and further deepening market access for clients. We launched our digital asset pilot through our partnership with Zero Hash, enabling select clients to buy and sell several major digital currencies through eTrade and we are investing in the development of our agendic infrastructure.

Most importantly, our investments in the funnel are servicing client needs and illustrating the value of advice. Since 2020, we have generated over $400 billion of new adviser-led assets from relationships that originated from either workplace or E-TRADE. Today, inclusive of workplace assets on our platform prior to the acquisition of E-TRADE, the total value of adviser-led assets sourced from Workplace and E-TRADE exceeds $1.2 trillion. This represents roughly 20% of our current $5.8 trillion of adviser-led assets. The scale of our client acquisition funnel is already powerful and combined with our ability to invest in the future, uniquely positions us as a category of one.

Moving to Investment Management. Revenues were solid at $1.5 billion. Asset management and related fees that were up 3% year-over-year on the back of higher AUM were offset by declines in accrued carried interest in our private funds. Long-term net flows were $3.3 billion, driven by ongoing demand for our Parametric solutions and fixed income strategies, which help offset equity flows. Total AUM now stands at $1.9 trillion.

Turning to the balance sheet. Total [indiscernible] assets were $1.6 trillion, we strategically deployed leverage-based capital this quarter to help facilitate client activity in our markets franchise. Standardized RWAs increased quarter-over-quarter as we actively supported clients. We ended the period with a standardized CET1 ratio of 15.1%. During the period, we opportunistically bought back $1.75 billion of common stock. Our first quarter tax rate was 19.6%. The lower rate was driven by share-based award conversions which largely take place in the first quarter. We continue to expect our 2026 tax rate to be between 22% and 23%, which similar to prior years, will exhibit some quarterly volatility. Our integrated firm has proven critical through this period. Clients are engaged relying on our advice in an increasingly complex environment.

We are well positioned to continue to support clients as they navigate fast-moving markets, and we have the capital and the resources to do so. With that, we will now open the line up to questions.

[Operator Instructions]

We'll take our first question from Ebrahim Poonawala with Bank of America.

Maybe, I guess we can start with all things, private credit. So heard your prepared remarks, there were 2 things, given kind of where Morgan Stanley interacts with private credit, you had the fund that you talked about, where we had some redemptions during the quarter. But just talk to us, Ted, your perspective on what's going on with the private credit market, how does that change or inform your view on how you deal with the business? And specifically, if it's caused you to rethink how to distribute some of these products through the retail channel in wealth?

Well, I think what's important over the last number of days is that there's more balance in the conversation. As you know, private credit as a sub-asset class has come of age over the last number of years as a new set of lenders has stepped in post the financial crisis in the place of Wall Street. While it's still a growing class, it's having a learning moment. We call it an adolescent moment where both the lenders and the borrowers are being looked at carefully. But the reality is it's credit and credit is going to broadly perform when the economy is in the kind of good shape it's in right now.

And the fact that it's called private credit has sort of taken on a bit of it -- took on a bit of a life of its own for a while. But now I think now we're all seeing that there's resiliency in the underlying product that the structures and the terms on collateral are very well thought through. And that this is a market that over the long term has extraordinary growth potential, it's just a question of time and working through economic cycles. Our own participation in this is in line with The Street. As a distributor, bear in mind, Ebrahim, as you know, alts are about 5% of our total FA phasing wealth management pile. So quite small, that's all alts. That would include real estate, private equity, private credit infrastructure. And then private credit is 1%.

So even smaller there. And in fact, as you've seen spreads widen a bit, either has been an institutional bid and others from the highly sophisticated institutional community on the private wealth side have come in and stepped in and we've seen net buying across these sub-asset classes in the first quarter. And then with respect to investment management, private credit is less than 1% of our total AUM, well under $20 billion of $1.9 trillion. So our exposures are small, are modest, but it is an asset class that I think there was a lot of learning around over the last couple of weeks. I think that is very healthy. But we just need to sort of remember the headline point here, which is credit should perform during periods when the economy is performing. This will be no different.

Some portfolios may be overloaded in a particular sector or a particular type of name in which case, there'll be winners and losers among asset managers but credit generally is going to perform as the economy performs. And right now, we're not talking about the R word, and that's positive for broad credit.

Super clear. And I guess maybe one for you, Sharon, just around liquidity management. To the extent you can -- if you can help us understand the reorg that was approved by the Fed for the German bank into the U.S. entity, like what does that mean in terms of adding liquidity and there are things that you may be able to do going forward? Just how should we think about the impact of that to the P&L.

Sure. I would say -- remember, it's a bank reorg and in terms of the bank reorganization, Basically, we moved over $100 billion of assets over the course of the quarter on to the bank. When looking at that, that will allow us to fund assets more effectively and make us more competitive, more broadly like our peer set and make us sort of fit for purpose as you think about how we play versus our peers in being able to distribute various products. The 100 [indiscernible] that we moved over, over the course of the quarter, you can think of about 30% of those assets at this point, being able to be better funded from -- you can compare unsecured funding to sort of a wholesale deposit rate. The math in being able to think about what the opportunity is that you will see just for that asset -- those assets over the course, say, starting in 2027, but it's really not just a 2027 story. This is something that over time, as I said, we were formed differently as a bank than some of our peers, and we're playing now at a different playing field with our peer set.

And we should be able to see more assets and more growth and more competitive pricing and certain types of product sets that we offer to our clients, which should enable us to grow within our risk envelope in the same way with just a better funding structure.

We'll move to our next question from Dan Fannon with Jefferies.

Sharon, was hoping you could expand around your comments on organic growth within the wealth channel. You highlighted workplace, but any additional context around that strength would be helpful.

Sure. I think that that's a fantastic question, mainly because I think what you've seen is quite encouraging over the course of this [indiscernible]. Sometimes there we call out numbers over $100 billion of NNA, and we talk about a single driver or something that's really changed the profile of that particular quarter. In this quarter, there was no one single driver that you can really point out. You still had really high levels of engagement across the adviser-led platform. But what I tried to point out in my prepared remarks is that workplace is becoming a bigger and bigger contributor and a more effective sort of thoughtful way of where we're actually seeing new client engagement. Specifically, with this quarter, you'll see that often and not surprisingly, that in the first quarter, you'll see unvested assets best. And what we saw in workplace this quarter is greater retention of the assets invested. So that's the first right, in this kind of funnel concept of what's going on with Workplace.

The first is we retain those assets, and we'll see -- in this particular quarter, we saw greater asset retention from Workplace, which translated into NNA. And then over time, and this is what I was highlighting at the sort of conclusion of my Wealth Management comments is we are seeing channel migration, and that's technology and investment where those workplace assets are now actually seeking advice and that migration is something that has helped to contribute to over $1 trillion of total assets in our adviser-led strategy.

That's helpful. And then sticking with Wealth. There's been a lot of discussion around client cash optimization and -- so longer term, I was hoping you guys could talk about how you think about your ability to earn NII on client cash as there are more tools available to move cash around more efficiently?

Yes. I think that's a great question and certainly very topical. The Wealth Management team with Jed and Andy at the helm, have always been there sort of thinking about ways to disrupt and continue to think about disrupting ourselves and what tools will be available in the new frontier. As you know, for us, and as you think about the current client sweep balances, those sweeps we've largely said have behaved -- there are certain places that are similar where they're looking for yield-seeking behavior. But then there's also a transactional nature to that cash itself. And that's what you've seen bottom out. So that's right now in the near term.

Over the long term, we're moving towards thinking about ways and in this new world, you actually have value of advice. So if you talk all -- where do you work through a tokenized world? How do you think of an on chain world where you can move assets quickly. The same way you'd be able to move those liabilities quickly, we would be there to offer different types of products on the asset side. So what type -- what kinds of things might exist on the lending side for on-chain advice? And then how do you also move and think about all of those digital assets, be that things that are yield seeking or like we said on the asset side that you're also able to get advice.

So how do you actually act and execute. So I think that as things move on, there's a lot of creative space in terms of the advice-driven model. We do, as you know, currently also offer ways to move around cash that's currently yield-seeking in nature.

We'll move to our next question from Steven Chubak with Wolfe Research.

So Sharon, I was hoping you could speak to the Fed's new Basel III capital proposal. And given you should benefit from long overdue changes, notably to the G-SIB surcharge calculation removal of double accounting in the stress test, how that might inform where you could be comfortable running on CET1 longer term versus, say, the older legacy framework?

Yes. So let's just take a step back and just talk about what's actually been proposed. There are 3 proposals that I think about. One is -- one, the models that obviously, we've put comments in II Basel and III G-SIB. So first, taking G-SIB and [indiscernible], that's the most obvious quantitative metric.

If you look at the 3.5% G-SIB bucket buffer that we were in at the end of the fourth quarter. That number in the new framework, as proposed currently would be 2.2%, and that gives you a sense of just the base in terms of the rebates from where you would be from G-SIB. But as you know, very well, Steve, you'd also be in a position that you'd see RWA inflation associated with the Basel proposal.

And we would hope that there will also be some comments taken from the stress testing models in terms of PPNR and the way you think about income-based modeling sort of for fee-based assets and the wealth management business as well as expenses. If you take all of that together, we would expect that we're modestly up here, either where we are today from capital neutral to modestly positive in terms of the overall amount of capital that we should have. But we'll have to see to quantify that, really where all 3 of those land and the interplay between them.

In terms of the actual CET1 metric, you'll see that we are using excess capital. We did see Specifically, we had the relaxation or the change, I should say, the overall change of SLR. We deployed SLR and leverage-based capital over the course of the quarter, and we continue to increase our RWAs to support our client base.

Yes. The only thing I would add is that the firm view is that we hope to work well with the regulator, along with the rest of the group to get Basel finalized. We have a window here and the big picture is let's put the puck on the ice once and for all. And not everyone is going to get everything they want that's, by definition, the way these things would be. But that take as much of the lot that is reasonable to balance that, which ensures ongoing stability amongst these firms, but also allows us to the pivotal role that we do in helping to power the real economy. So with that in mind, it's absolutely critical that we keep the momentum going and we land this.

That's great. And for my follow-up, if I could just double click a little bit more into some of the organic growth opportunities. You talked about leaning more heavily into markets. We certainly saw a nice uptick in loan growth in the quarter. Just want to get a better sense as we start to look under the new proposal, what are some opportunities that might be more compelling just given the strength of your capital position that you might be more inclined to lean into here?

I think you just have to go to the business model as it exists. The 3 segments, the TAMs are all growing at 2x GDP organically, and our share, depending on the space is somewhere between 10% and 15%. So that alone, knowing what we do and getting after it is critical. It's interesting when Sharon gave the earlier answer with respect to how the funnel is working. That's an accelerating phenomenon inside of wealth. But it also gives cause for the corporate coverage Officer and Investment Banking to talk to the CEO or talk to CFO and ask her how the stock administration plan is going and how employees feel about that. And now their coverage under the Wealth Management model.

So there is a lot of really interesting work that can be done within the frame of the integrated firm. I think the decisions with respect to how we deploy capital really has to be around client selection, where we think that there is a long-term reward and wallet setup that is appropriate against our risk parameters. I'd also point out that the Investment Bank is really a global investment bank coming of age now.

If you see the growth that's been experienced in Asia, not just in Greater China. And of course, Japan, where, as you know, we have a special relationship with our partners, MUFG, who own 1/4 of the firm, but also the growth we've seen in the re-equitization of India and then, of course, the AI connectivity that exists in Korea and Taiwan. So too, we are now putting in incremental management strength in places like Germany and the core of Continental Europe, which is looking to reindustrialize given everything that's going on. So being a global firm and doing it the way we've done it, but also to stick -- it's why I reiterated very simply in the opening that we stick to our strategic knitting, which is that we raise manage and allocate capital for institutions and individuals and that we keep it that way. And on the organic front, assuming the economy continues to grow, we think we've got a ton of opportunity to put top line up and continue to carry margin.

We'll move to our next question from Brennan Hawken with BMO Capital Markets.

I'd love to circle back on some of the comments 1 you made on cash. You spoke to on-chain. I don't know if you guys saw, but a competitor in the annual report, JPMorgan put out that they're planning to reduce some of the friction on brokerage cash. Is it right that in your comments around on-chain that that's the direction you guys are thinking of going as far as reducing that friction? And then relatedly, it's -- today is the 15th tax day tends to be a big event seasonally for you in your wealth business, how should we think about cash and then net new? And what the expected impact is on that this year?

Thanks so much, Brennan. So going first, just to cash, we continue to offer our clients different ways to access cash, talk about cash, talk about the cash management. And as we've talked about before, there are a lot of different places for people to think through. And we have been talking to our clients around various cash management over time, just given what's gone on over the course of the last 5 years. But we're obviously, as you know, always looking at ways to continue to enhance conversations that we have with various clients.

As it relates just to Tax Day and what we've seen so far this quarter, so far, right now, taxes are as we would have expected, but it's worth noting that from an SBL perspective, we've started the quarter strong. So the lending growth that we've talked about even at the beginning of this year continues. And we've put in a lot of resources towards lending products more broadly. So digital tools, digital enhancement and using automation to be able to help with the paper backlog associated with some of the various lending products more broadly.

Got it. And Ted, you spoke to an adolescent moment for private credit, which I thought was an interesting way to put it. You also flagged as a distributor, 1% of client assets in private credit, obviously, very small. But curious, but you do have great touch points across your Wealth Management business. And clearly, all the attention here is around wealth specifically given these vehicles. What are you hearing from the field around the temperature on some of these non-traded BDCs. Is the concern coming from more of the FA population or the investor side? And is there any emerging signs of looking at other asset classes besides credit?

Yes. Adolescent I mean to say sort of coming of age. The asset clients did not exist. And when the private lenders stepped in effectively in the place of the traditional Wall Street firms, it was new and of course, became part of the story for private and also public asset managers. We have to remember that this class is real. It's at anywhere between $1.5 trillion, $1.7 trillion, high yield, similar size, levered lending, similar size. But the IG market, obviously, is enormously bigger at $13 trillion to $15 trillion. So it's just 1 piece of the credit stack. And the reality is that with spreads having widened out a bit, there is an institutional bid. And we've seen this now in the last week where a number of the top asset managers have underwritten, and we've been very happy to act as underwriter on some benchmark issuances, they have been actually 2 over the last couple of days, wherein the -- at the asset manager level, at the BDC level, our real capital has been raised at quite reasonable rates to help get at the refinancing phenomenon that will exist in the years ahead.

Now the reality is some asset managers are going to outperform other asset managers, and that's just the nature of product selection and diversification. Part of the reason that the FAs do such a brilliant job with our clients is that they very much preach this idea of durably growing your portfolio in a risk-managed way, taking into account your liquidity needs in every imaginable scenario. And then importantly, to think about how alts over time, over decades, generations and even lifetimes can be an additive part of your portfolio. And even with that, through the decades of alt being introduced into the system. This is going back to the financial crisis, through COVID through BREIT a number of years ago. These products have sort of sustained the test of time. And even now, the penetration is only 5%. So on the one hand, it's material. On the other hand, it is still an area of growth.

And the key is to be selective in how you've put that capital across different alternative selections, whether it's PE, private credit infrastructure, and do -- or just straight private equity and then real estate, the 4 big ones and how you have selected managers on a diversified basis on the basis of where they have expertise by sector, what their history is of deployment, what their history is of return on capital, and that is part of the learning. And I think that has been taking place. And the data point that I would put to you, which we've heard elsewhere to is that during the quarter, notwithstanding all of the press and discussion, the system was a better buyer of alts. And so that is an important indicator that folks want to be participating at the right price with the right manager. And then over time, the asset managers that perform will generate terrific results. And the ones that perform less or -- less well will underperform, and that becomes part of the asset manager selection dynamic.

We'll move to our next question from Devin Ryan with Citizens Bank.

Question on Wealth Management. Stocks obviously sold off several times during the quarter on AI feature announcements the customer cash sweep optimization. I think to Dan's question was one of the events about other automation tools, I think, and just potential implications on revenue models. So the market seems like it's currently weighing AI as a negative for wealth towards a risk. And I suspect you don't agree with that. So it'd just be great to hear more about your view on some of the biggest implications of AI on the business. I know you guys have been investing for a number of years here.

Yes, I want to weigh in on that one. AI is our friend, okay? It is just the latest generation of technology that is going to be part of the ecosystem. And we're at an important moment. We're working with Claude mythos, the beta version, and we are looking at different places inside of infrastructure, where we will just continue to -- there'll just be continuous improvement and that's going to go on with the firms that have the history that we have of cybersecurity infrastructure as the #1 priority. This is not a new phenomenon. What is new is that we are beginning to evolve from pure efficiency exercises where you could have effectively replacements of what might have been a a call center or what might have been an operational function to automate routine tasks like moving money to something that over time becomes a productivity phenomenon.

And that efficiency and effectiveness transform is super compelling. The efficiency you talked about, but what about the effectiveness where you can have the historical context as between the financial adviser and the client where she is well aware of the past interactions and how that might drive against certain market dynamics, future action. And so that co-piloting, I think, is something that Jed Fin under the leadership of Andy Saperstein is spending a lot of time on where they effectively have corridors or super agents they are going to be working to drive, again, efficiency and effectiveness across the portfolio in wealth.

I'd also say that this phenomenon is taking place inside of our our equities business, where, as you know, we have a leadership business where we are able to take some of the complex questions that are asked, but sort of of the technical type and they can be answered directly by a client agent inside of the electronic trading platform.

And then, of course, there are the numerous examples inside of core infrastructure, where efficiency around classic operational flow and surveilling is a foot. So there will be the continuous arms race of one AI platform versus another, but this is not new, and this is something we consider to be additive to what we have, which is world-class technology, world-class cyber defense and then the best trusted advisers sitting with the client. That is ultimately, again, the secret sauce, whether it's the investment banker, the asset manager coverage Officer or importantly, the wealth management and financial adviser. That is the key.

I appreciate that color. As a follow-up, I want to touch just on Asia, 45% of the firm sequential revenue improvement came from Asia. It's only 16% of firm-wide revenues. I know a lot of that delta is from prime brokerage, but can you just expand a bit on the momentum in Asia? How sustainable is it further growth opportunity in the region, just given the big step-up we've been seeing here?

Well, it's a question of people. The person who runs Asia for Morgan Stanley is Gogo Leroy, who is a plus or minus 3-decade veteran of the firm. And he's 1 of the trusted leaders of the firm. He is also the co-head of equities with [indiscernible] Thomas, and they've done a phenomenal job in equities. But the Asia strategy has been one where we have really integrated the effort as between the bankers and the sales and trading unit inside of Institutional Securities for the last many years, there's a firm that has been a leader in Hong Kong from the '90s right through SARS and the handover and through recent years, but the game changer for us, of course, was during the depths of the financial crisis to be effectively married to our friends at MUFG and the senior management team of the firm travels to Tokyo 3, sometimes 4, times a year to meet with our partners day in turn, join us, they have 2 seats on our board. So we are deeply sconced in Japan with 2 ventures that were formed 20 years ago.

We expanded our capability across our research, integrating the research and equities trading platform now we help MUFG monetize through the old Bank of Tokyo, foreign exchange spot flow, which is incredibly powerful. So this is one of the classic cases where a great idea somewhat out of necessity was nurtured through management teams through the years of Mr. Gorman and now this management team has really gone even further to think about what Align 3.0 could look like, which is to really tap into the demography and opportunity that's inside of Japan.

So the ecosystem works. We also have a world-class wealth business inside of Hong Kong that caters to the Asia Pac region. That's quietly a $1 billion business. And then the last piece I'd say is some of this is location strategy. We decided years ago to exit a number of places. We exited the Russia ecosystem. We lightened up on non-core parts of of the emerging world. But we really doubled down on places like Korea and Taiwan and then importantly, in India, where we not only have 15,000 people as an infrastructure phenomenon, but we have a world-class investment banking trading business.

So this is not sort of the region [indiscernible], this is a region where we've had a leadership position. Actually, I think we've attracted some incremental competition into the space. So in a way that actually makes the challenge harder now. because I think people have seen the success, but that's the nature of our business, and we just keep on going. As these countries re-equitize, they take great companies and they want to list them and they want to effectively also deal with the issues around a lack of energy independence or where they sit in the AI ecosystem.

You can expect some very interesting M&A and hybrid activity. And that's right in the sweet spot for corporate finance coverage. So we like that region very much, and we like the growth potential and it's, of course, also very closely risk-managed.

We'll move to our next question from Glenn Schorr with Evercore.

I wonder if we could talk about and equity pipeline for a second, usually when the markets are this strong. It's a little bit better, but I know it's building, and I know there's some really big ones out there that might -- that are talked about coming. But thought one of the interesting angles on this was also that it seems like some of these big IPOs are very partial towards having a big retail allocation. And just curious if you thought that's true, how you use E-TRADE as part of your selling process? And then just talk about the overall pipeline in general would be helpful. So appreciate that.

Yes. So it's a great question. And I think that you do continue to see the democratization sort of products more broadly. That's one of the reasons when you actually think about the acquisition of Equity Zen and what we're trying to do, right? So a place where there's stuff within the private domain that's actually already beginning to transact. We see that as a technology that can help us. We have already begun to offerings come through that platform, and we would expect that to continue. So that is a market, as you know, it's growing.

There are a lot of places within the retail channel, the different companies are looking to attract, and we have that channel and those capabilities. you have it already existing on the adviser side, you have an existing to some degree when you think about the underlying E-TRADE side, but what you really need is to make sure that you also have the private market ecosystem necessarily before you see an IPO come through the marketplace that you're able to have different access and different corporate relationships. And those are the pieces that Jed and Andy have really begun to lay the foundation and build over time. So it's not just one thing. I'd say that it's a build across the other. And I think we have that offering to many of these companies that are looking for ability to transact within retail.

And do you have any numbers that you could throw at the pipeline or some soft details, we've been all been waiting for years on the sponsor-led pipeline, but in general, it feels like a backdrop that should be improving. Just curious on your take.

Yes, Glenn, what I'd say on that is, as you know, the PE firms are sitting on $1 trillion plus of dry powder. There are 1,500 companies plus that are privately held with an average duration of 5 years that are worth $1 billion plus. And the entire ecosystem of private companies, hard to know. Is it -- are they worth $3 trillion or $5 trillion, but they're -- there were multiple trillions. And so the question now is, do they come and how do the markets feel? And I think the reality is I give you a balanced answer on this. I think that on the one hand, you see the earnings power of the large-cap group, the balance sheets and the earnings growth.

And of course, now if the war is contained, 7,000 S&P and NASDAQ working its way back to. So pretty constructive backdrop. The fact is that the sponsors, as you know, would like to crystallize some of this portfolio, especially the publicly traded ones so they can keep this process going of effectively deploying and raising. I do think that not every company is going to be able to make it as an IPO in this environment. Some -- there's going to be some selection. And what we're seeing is that the largest asset managers, the largest private equity firms, some of whom have very high-quality companies are likely to be the first to move.

And the data point I'd give you is that there are increased numbers of bake-offs with sponsors. And again, think of it the way Dan Simkowitz would describe it is think about sort of corporates think about public asset managers, private asset managers. There's effectively competition and horizontal to see where capital clears is the way I'd put it. And a number of these bake-offs are two track, can we make a sale or can we list? And I think if we can get to a period now where we resume some of the narrative that we had going into 2026, which was a very strong one.

I think what you'll see is effectively the resumption of pipeline hitting the marketplace, whether it's through outright sales to other sponsors or likely to strategics or partial sales through IPOs, which is kind of a call that we collectively made going into the year. But I do think there is some selection. There are going to be mid-cap or small and mid-cap companies that aren't going to be ready to make it as public companies because the reality is that the bar is very high for public manager and investors, as you know, against the resiliency that's been demonstrated across sectors in the C-suite through COVID and now this period. So the comps in a sense are tougher. But I do think that the desire for private equity sponsors to begin steadfastly to liquefy chunks of their portfolio in order to get to the next, which is to deploy capital into the next leg of the cycle. I think that has increased. And I think what you should expect to see is a reasonable drumbeat of leading sponsor and leading companies hitting either the private or public markets if the macro environment permits.

We'll move to our next question from Mike Mayo with Wells Fargo Securities.

Can you elaborate more on the financing business within trading? I assume that's for both private credit and liquid markets, and that's just been growing so much the last year for this decade and a comment on the resiliency of that. Does that mean trading is less volatile than it used to be or if and when we get a bear market, does this shrink back down?

Sure. Thank you so much, Mike, for the question. There is a stabilizer, I would say, over the course of the last 10 years. I mean you've been covering us nearly 2 decades, I think. The last decade in fixed income has been marked by refocusing our business on clients and also creating durable sources of revenue. What you point out to is one of those sources of revenue. It is, to some degree, the intent is to be more stable on a balanced business. But as Ted said, it is a credit risk business. So overall, all of those types of products are looking at underlying credit, looking at counter-party risk, understanding both risk limits as well as the diversification, the structural protections that you might have, the various haircuts. What I think is important, specifically about the private credit business we started the call is that you also have this ability to look down on a loan-by-loan basis and we have the ability to both mark and margin across that. So there's a lot there within the ecosystem. But yes, that has been a stabilizing factor within our fixed income revenue results.

What I would add to that is I think the durability of the lending business is good. Of course, it kind of speaks to the proposition around valuation is repeatable P&L. But one of the things that Sharon and I have observed over the last number of quarters, the leadership groups in both and this is, I think, part of your underlying question, Mike, as well, in equities and fixed income have both really looked to try to build a well-governed classic trading business, effectively the moving of inventory market making, taking the world-class content that Katy Huberty has and getting it to clients in all kinds of different forms, not just traditional big conferences, but finding curated ways to get institutions to effectively act on bespoke ideas in a moment where you had to take a view when we had so-called Good Vol at the beginning of the year, and we have the content available for you to express that view. And then we effectively take that content and offer market access.

And that market access is to be on the cash desk where the equities guys did a fantastic job. And then importantly, in the derivatives business, that has really grown into a classic market-making, risk management business around Morgan Stanley's content. Similarly, in fixed income, again, contain risk alongside of -- largely it being a financing business, but doing that around clients wanting to express a view. So one of the things we kind of look at is having enough of the durable financing revenues throughout these businesses, and by the way, similarly in Wealth Management. There is an element of wanting to expand the lending product, but also we're looking very closely at DARTs and other indicators of just transaction activity, whether it's in cash form or derivatized form. And the answer is we want both because there are going to be periods where the markets are not going to be conducive to activity where either it will be risk off or just people sort of set in what they want to do, in which case, the financing revenues are the kind of durable P&L that allow you to sort of sustain the balance of the firm.

But at the same time, we want to have the right levels of activity around times when Morgan Stanley content matters. When we're delivering something that actually is differentiated and importantly can be acted upon. And then we wish to try to find a way to express that through liquid markets and market access. So it's an excellent question because I think one doesn't want to go too far to one end of the continuum or the other. But the fact that we really have built this financing business with some of our smartest people throughout the firm and that we have these credits as well structured and focused on as we have over the last number of years allows us to have an interesting activities based business alongside of it. And that, again, is not just in the Institutional Securities business, very much in the wealth business as well.

Sticking -- sticking to that topic of risk and following up on the other question. all I have are the headlines in the paper about Anthropic and the [indiscernible] model. And the article said only a few players had that model. It sounds like you said you have the beta version of the Anthropic [indiscernible] model. And again, the articles said that you guys were summing down to D.C. and that people are extremely concerned. And you say AI is your friend and you should be a beneficiary, not a victim. But I'm just wondering about the cyber risk and how that may have increased and what extra steps you're taking now that you're looking to the model if you're allowed to disclose what you've learned?

Well, we have the regular way meetings in Washington, the Financial Services Forum. So we happen to have been down there, and the press as reported, we all got together. This is not new. We've gotten together before cyber resiliency, as you know, has been a top priority at this firm and other firms. And yes, we are permissioned on -- I think the official name is Claude Mythos preview. And certainly, the reality is that cyber risk is in the ecosystem, Mike, as you know, an increasing threat broadly. And so our ability to, along with others, I assume, continue to act a stalwart defense in our industry is important. So we will, I would imagine, collectively get better via that, and then there will be other competitive products. This is another step in kind of the long tail technology transformation that we've been talking about that is once in a generation, and now it's here.

And as you've heard others say, cyber resiliency is a top priority at institutions like ours across all of our businesses. And if the ecosystem risk is likely increasing because of the quality and muscularity of the model than we do need to get our gloves up and take it to another level, and that's exactly what you'd expect, and we very much intend to do so. But I want to say on the back end, that a lot of the good that AI is going to bring both as an efficiency and effectiveness matter should not get dismissed because that's an important phenomenon that's going to continue to transform this firm.

We'll take our last question from Erika Najarian with UBS.

Sorry to prolong an already long call, but just wanted to ask one question?

Erica, for you. We're very happy to take that last question. You stepped in there, you stepped in there. What was that $25 ago.

Hopefully, some people are still listening. So anyway, can you hear some my question.

It may just be you and me, but I'm going I know exactly. We're good. We're good. You talked about organic growth opportunities in wealth you talked about broad-based drivers for NNA. You talked about AI being your friend and you talked about advisers really being empowered by AI. As we think about the pretax margin of 30% in a quarter where wealth comp had some upward pressure. Should we think about the low 30s as sort of a high level where you can sustain? Or is there potential for upward pressure given all of the dynamics that you mentioned?

Yes. Thank you so much for the question, Erika, and thank you for noting all the places that we're investing. We reaffirmed our targets at 30% in the strategy deck. And we did that for good reason, mainly because we want to be in a position that we can invest and so we've never really managed the margin quarter-by-quarter. We've said that multiple quarters. We always said when we were below 30% that could cut our way very quickly to a 30% margin. But for us, what's most important is that we're constantly investing and there are so many places within this best business to invest and it's paying off. And over time, we'll continue to move up the margin on its own organically. The most important thing for us is to continue to put dollars to work to service both our clients and advisers and continue to be a category of one in this business.

Ladies and gentlemen, this concludes today's conference call. Thank you, everyone, for participating. You may now disconnect, and have a great day.

Thanks, everyone, for coming to this session with our very own Dan Simkowitz, Co-President of Morgan Stanley. Thanks, Dan, for supporting us one more year.

Before we get started, I'm going to read the disclaimer. The discussions may include forward-looking statements, which reflect Morgan Stanley's management's current estimates and is subject to risks and uncertainties that may cause actual results to differ materially. Morgan Stanley does not undertake to update the forward-looking statements. This discussion, which is copyrighted by Morgan Stanley and may not be duplicated or reproduced without their concern, consent is not an offer to buy any security.

With that, I guess we should start with the current environment. The market has seen quite a bit of volatility, whether it was AI a few weeks ago, geopolitics at the moment, private credit has also made the headlines. And only 2, 3 months ago, it felt like we're in a bull market. How do you see the environment based on the conversations you're having with clients? And given the volatility we've seen, how do you see the capital markets environment playing out? And to what extent that's affecting the pipelines?

Sure. Well, first of all, thank you to everyone here. I've been at the conference since yesterday afternoon, and congratulations to you and your predecessors and your partners, but mostly to everybody in the room and all the companies are presenting. It's just a phenomenal event and venue to pull all this together. We really appreciate everyone taking the time, both people in the audience, but also all the firms that have done and you got the all-star crowd, and I'm like the side show here.

But what I would say is I think what's remarkable in a period of maybe uncertainty and unease because I think you touched on at the end there, the pipeline is how resilient the capital markets have been, the M&A announcements have been, as I said, in a period of uncertainty and unease. And I think it's worth at least getting our perspective on where the core of that uncertainty and unease is. And I'm going to say it almost independent for the moment around the conflict in the Middle East because some of the economic impact there, especially as it relates to the U.S. economy is sort of -- it's not hitting yet, and so it's still in front of us. So if I think about uncertainty and unease, which I would argue stretches back to the last month or 1.5 months or 2.

I would first start with MSCI world is up over 40% in the last 2 years. So right there, I think both people in this room, and I used to run asset management, people in this room as asset allocators and investors, but also our team around risk management, your awareness goes up after 2 successive years in that sense. So I think you're on your toes in that context. And -- but on the other side, I would say the primary driver this year is a recognition that the transformational productivity power of AI is right in front of us, and that creates sort of somewhat unclear outcomes in some elements.

When we look at it at Morgan Stanley as a user, for example, there's going to be extraordinary value in how we deliver service to our clients, service to more clients, service to more clients more efficiently and with more productivity and with sort of higher margin and across a broader swath. If we take that extraordinary value that we are seeing and the tools that we're seeing from some of our partners are accelerating and then we extrapolate that to other industries, this is really extraordinary productivity tool. And it's pretty clear to us that, that's going to have a lot of -- it's going to have a lot of client value. It's going to have a lot of shareholder value to Morgan Stanley.

I think it's pretty clear in the marketplace. We hosted our conference. We have a comparable conference for TMT, just to put in context around Morgan Stanley franchise. We had 3,500 attendees at that conference in San Francisco 2 weeks ago. I would imagine everybody in this room had peers representing that. I interviewed Dario Amodei at Anthropic, and we had Jensen Huang at NVIDIA. Jensen's point is compute and really as it relates to both our revenue as well as our expense base is really going to be extraordinarily powerful. If you extrapolate that, there's real value I think the chip makers, memory are all going to win. I think a firm like Morgan Stanley and people who have real client relationships and domain expertise and in our case, just a truly incredible advice platform will win.

But there is a little bit of angst between whether the LLMs, the data center players and the enterprise technology players, who's going to win in that? And how does that play out plus the societal impact. And so I think that extraordinarily powerful productivity tool combined with a beta that's moved 40-plus percent 2 years creates that environment. And so against that backdrop, plus at least the near-term impacts of the conflict in the Middle East, the capital markets and thus, our pipeline have been really resilient. And so it's -- I think it's important to repeat -- we raised since the conflict in the Middle East started, I believe, $6 billion for Galderma, which is probably the most successful LBO in European history, a reinsurance equity offering measuring in the multi, multibillion dollars.

The largest LBO that had gone public in December was Medline, and they came back in 2 months, and I think raised $3 billion. We've raised $75 billion in the last 6 weeks with hyperscaler debt, $50 billion of that just in the month of March after the conflict. And you're seeing some of the private equity LBO financing starting to move through the market. And just yesterday, we announced a big M&A deal in the real estate storage space. So in essence, the underliers and the receptivity to go do capital are pretty strong. And so in that context, it gives us confidence that the pipelines that we're seeing in investment banking, again, capital markets and M&A are really robust. And the underlying fundamentals around that are very much intact and people are executing and there is demand against that.

And again, just to repeat those underlying fundamentals, and Betsy, I think, is here, your colleague. She does a lot of work on M&A volumes and M&A activity versus GDP. But for 2.5, 3 years, we're way off the trend line, and we're just on a sort of grind to get back to trend line. And we're seeing that translate in M&A volumes. We're seeing it translate also because of the regulatory environment in the U.S. around M&A approvals. We're seeing it also because despite -- and I'm sure we'll get into it, headlines around credit, the actual credit markets that are supplying capital to M&A are functioning as well as we've ever seen them, absent -- presumably we'll talk a little bit around software as an example. So all of those are ingredients there.

And then private equity firms have a lot of dry powder to deploy, but having run the asset management business, it's hard to deploy the dry powder if you haven't sold some of your backlog and you got to go sell your backlog. And the backlog, you need to sell for 2 reasons. So the urgency is building. LPs want capital back. I think there is an increased focus across both the equity market and the credit market on liquidity, but also the junior partners at all of these private equity firms, they don't get paid on marks. Private equity only gets paid on cash. And there hasn't been that much cash return in its entirety. And if you're a founder, it's okay, you made your money in the past. But if you're a junior partner, you haven't been paid in 5 or 6 years. So there is some level of urgency we're seeing and that private equity market is also facilitated a bit by the fact that the IPO market is starting to work.

And so I mentioned Medline, I mentioned Galderma. There was a deal we did over the last 12 months for StandardAero, which is owned by Carlyle, all went public. And so you don't have to just rely on selling it to a strategic investor or selling it back into the private equity market. Even if you don't use the IPO market, you now have choices in that context. And so again, pipelines are strong.

I will say the IPO market this quarter street-wide is down versus the fourth quarter, but I think there is some element there around seasonality and just deals come at different stages in their element, but it's pretty clear to us that you'll probably see some of the largest IPOs in history in the next 18 or 24 months as an example, especially in the United States, there's a sense that being public is great again to borrow a phrase and that, that has been an emphasis out of the SEC and Secretary Bessent. And so you're going to start to see some of the companies that stayed private for a long time come into the market. And so that resiliency, I think, has been something that I've been quite sort of impressed and surprised, maybe not surprised, but I guess, impressed about in our -- and then that plays through the pipelines and the environment. And I think there is still some time to be had before that could change against some oil shock implications that come out of the conflict in the Middle East.

Great. You touched on private credit, which has been in the press. Can you maybe clarify how that touches each part of Morgan Stanley?

Yes. And I think it's also important just to take a step back. I think, first of all, if we have a recession, and this is the thing that we watch probably the close -- we watch the risk markets and the capital markets, particularly close when you have 2 years in a row, 40% beta move, but you also do it as you see credit spreads tighten and all the rest. But the real play in credit is if there's a recession, what credit is going to have defaults. I mean credit is not risk-free, right? You're getting a spread for taking some risk, and that risk has manifested itself at least at the total -- at the end result around defaults. And so the real play is to keep an eye on recession elements. And so if you're a recession, you're going to have private credit hit, you're going to have public credit hit, you'll have bank balance sheets hit. It's sort of across the board.

I wouldn't lose sight of credit risk is credit risk, whether regardless of the structure it's in and whether it's liquid or illiquid and whether it's on an asset manager sort of a fund or on a bank balance sheet. I think that is fundamental to the way we think about the marketplace. I think in the case of -- in private credit and having seen it from a public equity market management perspective, our own public credit market perspective in Morgan Stanley Asset Management and also servicing the asset management industry, I think this is largely going to be an asset management issue, not a systemic issue. And I'm going to make a plug for the Morgan Stanley Research Department. Tomorrow Vishy, who is our credit strategist, is running a panel here at the conference, I believe, and then on April 9, he's running a full day element on this. He's done a lot of great research in this perspective.

But just like we've seen in bank allocation of credit, insurance allocation of credit, public market allocation of credit, you're always going to have scenarios where firms will overdo it on terms or overdo it in a sector or win too much business and get a little relaxed. That has happened every cycle for my 35 years in watching asset management. And this is sort of that moment in maybe private credit. And so I think what you saw to a degree is private equity probably got a little overexposed to software. Private credit within that probably got a little overexposed to software. And then certain firms relative to other firms, both in the private credit market, but also versus maybe a public credit benchmark also got a little overweighted.

Their returns will suffer because their default rate will be higher than either their peers or their benchmarks. And as their returns suffer, their flows will suffer. But I don't think that will translate into anything systemic because if you look at it at the real core of where people's concerns are today, and again, ex a recession, the real concerns are in software. And if you just run through the math around that, around about 1/4 of the private credit market is software. And so then you run a default rate assumption and then you run a recovery rate assumption and you think about what that does, that doesn't create systemic issues. It just creates return issues and especially relative return issues. And so I think that's something to think about it.

In the context of Morgan Stanley, again, software being the one place, if there is no software, if private credit is less of a deployer of capital, a couple of things will happen. We are not seeing any impact to our M&A pipeline and the ability for M&A to be executed. The public credit markets are so robust still that they can easily support and we're already supporting the M&A market and our clients' M&A ambitions. So that would be number one. The sort of related element to private credit is software. The software IPO pipeline at Morgan Stanley is in the single digits. So it's not really relevant. And then as it relates to direct credit exposure to software, we're de minimis as an example. So from a Morgan Stanley perspective. And then our private credit around the Street lending to sort of private credit funds, the protections are -- at least in our case, where the exposure is quite modest, the protections are really very, very strong around marks, around structural protections and all the rest.

And then the last element, I guess, would be in Wealth Management. And what's interesting in Wealth Management and Wealth Management has seen at Morgan Stanley 20 or 30 years of experience around this, including real estate funds in and around COVID, the key to a Wealth Management relationship in the private markets, and we've experienced this with hedge funds and then real assets and private equity and now private credit is the discussion you're having with the client has to start with a liquidity budget. So you first have to start with a really intense discussion on liquidity budget. And once -- and not until you're finished with the liquidity budget conversation with the client, do you move on to a risk and return conversation with the client. And then you start to have a pretty, I would say, intimate and holistic asset allocation conversation and recommendation.

What's interesting around Wealth Management, just in the month of March, right, which is probably sort of peak private credit news flow, the flow into private markets at Morgan Stanley is up over 35% where -- and I think credit is still up -- is still positive. But real assets is up, I think, about that amount as an example. And if you think back to real assets coming out of COVID, a lot of the same issues that are being debated in the press around liquidity and all the rest were happening in the real estate market coming out of COVID.

And so I think in that context, the market and the impact to us is relatively small. But the shakeout, and that may be too strong word, but the relative winners and losers, not disasters, but relative winners and losers in credit asset management and private market asset management, that's going to come around to who is good investors, who is disciplined, who is staying true to sort of good risk management tools that's in front of us as an example, but we don't see it as a systemic challenge. We see it as a classic asset management flow. Asset management alpha return and flow issue and then the business dynamics that come out of that.

Okay, clear. I want to touch on in January, one of the highlights of the strategic update was how the equitization of global markets, institutionalization of credit markets and cross-asset innovation, how those were opportunities to drive further durable gains, which is the main goal. Can you unpack what the opportunities across those -- each of those?

Yes. Look, we've had a lot of debates over the last 10 years, let's say, especially when I was running asset management and then even before when I was running capital markets and some elements of the trading business around deglobalization. I don't know about everybody else in this room, but all of our clients, both asset managers and asset owners and corporates and relatively affluent individuals, they're as concerned about the interlinkages of the world that I've ever seen in 35 years. And so I think where we are gaining share is having built -- already built and there are places where we're investing, but we already built an institutional advisory business, whether it's to asset managers, asset owners or big corporations, sovereign wealth funds that is both for the prior conversation, public and private, multi-asset class. So equities, fixed income, importantly, in the environment we're in, commodities, as an example, both micro and macro, if I had to split it that way as well, but probably just as importantly, global.

And so our ability then to lever both some of the hedges that are embedded in all those combinations that I just mentioned, but also different growth rates and different flow elements around the world has been really important. But our client base, both asset management and corporates, in particular, but the asset owner sits sort of in the middle of that, they want to know where to allocate assets and where we are seeing trend lines. And so our ability to take our best technology, for example, in equities and deploy it in Brazil or in Greater China or in India or in the Middle East or remarkably in Japan, which had an equity market that was really dead and deployed against our best clients in the markets where we can get paid the best margin because we're providing the highest value versus the competitive set, that has driven share.

And the ability to help a U.S. pharma company think about how to do licensing and other JVs in China, there are very few investment banks, as an example, who could do that to help a multi-strategy hedge fund get set up to trade Japan after not being there for 15 years because the market was dead or get access to the market in Brazil or even in the last week or two trade the UAE and Saudi around events, that ability to serve the client wherever they want in a global context with the best technology and best advice has allowed us to gain share. It wasn't that long ago that we were worried about like Chinese investment banks or securities firms being our competition. The competition set, including people who are no longer here, right, Swiss Bank x, not here, other people's other firms pulling out of equities and prime brokerage, the competitive set has actually been stable and declining and our ability to lever all those existing investments across those multi-dimensions has been really quite powerful.

We're not standing still. I think there's a technology investment around -- continuous investment around staying on top of our lead around electronification in equities and applying that to fixed income, which has been helpful. And then we're investing primarily in investment banking talent in the U.S., which is a little surprising, but we see the brand and the depth of that market as still a real opportunity for us to go capture share.

You've touched on Asia, EMEA, sort of LatAm regions. How do you think about the international opportunity set more broadly? There was a slide for the full year, I remember that's showing Asia and EMEA business is growing faster than the Americas. Where does that -- does that global footprint, having that global footprint show up in your ability to win business and serve clients, do you think?

Yes. I think, again, we see macro themes that we want to go take advantage of and deliver value to clients around the world. And so as I said, there's equitization in Japan. We think there's the potential of equitization here in Europe, but in particular, in Germany. There's equitization, as I mentioned, in Latin America. There is reallocation of risk and equitization in Greater China. We have a leading market share in that context. And so the ability to service clients in that context, you're seeing real robust volumes and capital formation. I was with a big private equity firm here on Monday. Their largest IPO monetization market in the last 1.5 years has been India. We have a huge franchise, both trading and investment banking in India. And so our ability to take our experience and our technology around all of these global markets is really important.

And the MSIM business is very global in both where it raises capital and where it deploys but I would say even in Wealth Management, we have a very strong ability to take offshore assets and deploy them in the United States. There is still a view, especially in this kind of geopolitical environment that U.S. assets custodied at a really high-quality firm like Morgan Stanley with really high-quality advice is still a very attractive place to go. And so we run a very, I think, high-quality, high-growth offshore Latin American business out of Miami. We have a pretty high-end private banking type of business in both Hong Kong and Singapore. And so that ability to go capture wealth that wants to get invested in the United States with the premier advisory brand is still really, really powerful as well.

I want also to touch on the bank opportunity. The firm has talked about the bank being part of the strategy in the past and has moved more assets onto the bank. Can you give us an update of what you're doing?

Yes. If you take a step back, we have a pretty powerful deposit franchise in the United States. It's not branch-based, it's client-based in that deposit franchise. And so that deposit franchise emanates out of Morgan Stanley Wealth Management. It emanates out of E*TRADE and the ability to run a digital bank on the deposit side. It has the ability in certain circumstance to get corporate deposits. So we've got a deposit franchise that were -- has built and really developed well over the last several years. But from a structural perspective, we were not set up like many of our peers on the asset side.

And so what we've done over the last 12 months is to optimize that so that we are really running a really high functioning, high quality, high profitability, both asset and liability matched bank. And so what we've done is taken the fixed income derivatives business which used to sit on the broker-dealer at Morgan Stanley, and we've merged that and moved that into the bank balance sheet. And then we've taken our ISG, the securities business lending in Europe and also merged that into our bank construct. It has 2 main benefits. The first is there's just a funding benefit that accrues by having that set of assets and activity on the bank. And the second one, which is, I think, just as important but not always well understood, we were operating in a -- as the only firm running that fixed income business off of a broker-dealer versus all of our peers.

And so from a structural perspective and a complexity perspective, we look different. We look different to our counterparties, whether those be asset management counterparties or corporate counterparties. But we also look different versus -- to our regulators. And so the ability to take that complexity, complexity down, funding costs down through work we've done with the regulators around the world has been really important. This was an agenda item that we are focused on, but it was always sort of next year or a different regulatory scheme. And Ted really put this at the highest agenda to push forward. And what's fascinating is we were able to push forward. We had to recontract all of that business. And so some people in this room were part of that. Thank you, across all of our client base and do it seamlessly and do it in concert with the regulatory environment. We think it's a big deal as it relates to our overall integrated firm and the approach that we're taking.

We've got to touch on AI. Several members of the management team have been very vocal discussing the benefits of tech and AI from an operational perspective. How impactful do you see it being across the integrated firm?

Well, again, I started with the view that our ability to service clients, service clients better, more productively more clients, more clients in the Wealth Management business, more clients in the sort of corporate investment bank, private equity part of an investment bank, more clients in the trading parameter because to a degree, Morgan Stanley, if you go back to all of our DNA, we were at the top of the institutional market or even the top of the Wealth Management market. And some of the challenges around moving, taking that intellectual property, that technology and that experience and deploy it down a client set, we were just economically unable to do so.

What we're seeing in terms of the power of the tools to be able to deploy that at the customer level and broaden, in essence, our own intellectual property, our own trust and advice across a broader set of clients and do so really powerful is pretty extraordinary. At the same time, I don't think we endeavored to have the largest -- one of the largest law firms or the largest software development companies or one of the largest finance departments in that sense. And so the efficiency that we will be able to build in some of the support functions is also going to be pretty extraordinary.

But I'll give you a Wealth Management example. Through the acquisitions and then some of the organic growth around Solium and then E*TRADE, we went from 3 million households in Wealth Management to 20 million households as an example. If we didn't have AI tools, the ability to match up that incremental client set with advisers and drive what you're seeing, which is really dramatic growth in our advisory AUM and advisory assets. The AI technology to be able to match that is pretty extraordinary in that context. But also the ability to just give the adviser more time. So in essence, what we did, and we were early and we had our first meeting with Sam Altman, I believe, was in the fall of '21. There was a little COVID break when we got out of the office. We had OpenAI and Sam come to the Morgan Stanley Board in May of '22. I think it was before ChatGPT had even been released.

So some of these tools, we now have 3 years' worth of experience around taking it and allowing our advisory teams to really get more value out of their time. We -- as we move from $3 million to $20 million, we were about to become one of the largest physical call center companies in America. The tools that we've received in the last 9 to 12 months meant we were able to stop that into tracks because no one is employing us because we would be one of the largest call center employers in the United States. So the ability to stop that and allow it to be technology-driven with much -- with really high quality has been a huge sort of productivity and client service benefit, just as an example, in the marketplace.

We're seeing tools coming out of the partners we have. We're lucky at Morgan Stanley because of our advisory capability, because we're a big company, because we're a big financier of the marketplace. Gemini out of Alphabet, OpenAI, Anthropic, xAI. These are all incredible partners. The engineering talent that we're being provided, including just sitting on a trading desk so that we're able to now design so, in essence, our own at-the-desk software capability to either solve problems that we've had on our desk for years that just weren't rising to the top of the technology budget is pretty extraordinary. So back to our bullish view on overall TAM, when we see what we're able to do and then I talk to executives in pharma or defense or industrial or other elements of the economy, it's why we do think this is pretty powerful and why it's going to extend our client base and extend our margin throughout the firm.

I think the theme takes us nicely to Wealth Management. The business continues to show strong net new asset trends as the benefit -- the model benefits from that scale, the funnel that you've touched on with Workplace and E*TRADE. Where do you see the next leg of growth? And what would you say to some of the fears around AI and wealth?

Well, it's interesting. I think one of our peer firms who does pure Wealth Management and then does a whole bunch of RIA servicing went down a lot on a press release, I think. To a degree, that press release, which talked about account statements and a little bit of tax back to my comment around OpenAI being here since May of '22. what was released in that press release, I think, in January and February and caused that other stock to go down a lot. We've had those tools on the desktop at the FA for years as an example. And so in essence, our value proposition to the client is deep advice and trust and a brand that's built on trust. And then we're not seeing any -- really any attrition out of FAs we like at all. And so they're not going away. And then what we're seeing is as you get to a certain level of a guy -- a net worth and complexity, you want advice. And people talk about, I think, intergenerational.

Again, that big generational shift in wealth is going to come out of people who are 70, 80 and 90-year-olds being given to 50-, 60-year olds. It's not being given to the 25-year-old. And so we have the ability to build real connectivity all the way through the generational element. And I think what's important, and Jed Finn talks a lot about this and so does Andy Saperstein, the way our advisory business is now built is not individual FAs. It's built on teams. And those teams now have a technology specialist, so someone who can use the tools that I mentioned already. They have people who are varying of ages. And then the tool -- the other tool they have is they have a digital tool in E*TRADE.

And so as an example, back to growth, because of the workplace, we are getting client engagement with people in their 30s and 20s, 30s and 40s that we never had access to. So if you're an employee at a big technology company and you get your first vesting of stock at 30 years old, it automatically goes into an E*TRADE account. We have enormous market share in that market. We don't -- and it's not just public companies, it's private companies. So then that is -- that asset is sitting in an E*TRADE account. We now own the responsibility of keeping that with the tools that we have around AI and the other algorithms that we've been running now for a couple of years, we see what the formula is to success to retain that client through their 30s, when they compound and they have complexity in their 40s, make it an advisory client.

And we put out a slide not this year, but the year before in our strategy deck, once we have a client as an advisory account, we have 99% retention. And so that is as close to an annuity growth business. And what I would say is in that progression from 3 million households to 20 million households, we're in the very early days of monetizing that element. And again, I think in a world of AI, the accrual of benefits is to really well-capitalized scale players who can take advantage of that technology. To take advantage of that technology, you have to have access to the client. We have access to the client that is unrivaled in the industry because we have access to Workplace. There's only one other firm that has a Workplace business in the United States in scale. They have to wait until someone becomes 59.5 and does a 401(k) rollover. I know because I'm 60. So I did my 401(k) rollover right into the Morgan Stanley Wealth Management system.

But the Morgan Stanley Workplace system, and it's been added to because of our JV we have with Carta, we get those clients when they're stock vests. And so we have decades where we can build a relationship, use technology, meet the client where they want to be met, whether that's digitally, or with advice and go extrapolate that. And I think I've said it to you before, in my role as Head of Strategy and then at MSIM, I saw Wealth Management platforms, asset management platforms, I now run the securities business. The best scaled growth opportunity in all financial services is Morgan Stanley Wealth Management in the U.S. Even though we're #1, the market is not fully served. Our market share is, I think, low double digits. So the ability to take advantage of 3 million to 20 million households, but then take 20 million up and do it on the back of technology tools is pretty extraordinary.

I think we've gone over the different businesses. One of the big focus has been delivering the integrated firm more systematically. What are you doing differently? And how do you measure success internally?

Yes, I think we came out of the last 10 years having done a fair amount of M&A. We bought E*TRADE, we bought Eaton Vance, we bought Parametric. We really loved all the component parts. We felt like to just run those as silos or try to buy new things, we loved what we had, but it was the linkages that we felt like we could do a lot more with. And just in what I was describing, again, if the Workplace is the big driver of the Wealth Management engine, where is that Workplace? That's at a corporate client. If the corporate -- so the corporate client is delivering a Workplace opportunity, which is delivering NNA and advisory flows to wealth management, there's a linkage. If we are the largest allocator to asset management industry in the world, right?

Because we're close to 10 -- we're $8 trillion of wealth management assets on our way to our goal of $10 trillion combined with asset management. We're the largest allocator to the asset management industry because we've got this Workplace thing, which comes from corporates, we do have a holistic relationship with the asset management industry that is quite unique. And so what we did, there's a long history of collaboration and good culture at Morgan Stanley, but what we felt was formalizing that. Formalizing that and going to extract that value from those relationships was better than doing just some -- the next random M&A deal as an example. And so we took one of our most senior and capable executives, Mandell Crawley, and we put them in a formal role and putting together these processes is already paying off. It's paying off in more Workplace mandates. It's playing off in more holistic asset management relationships.

At the corporate level, we're now going to the CEO and saying, we can be your adviser, not just on your balance sheet, not just on your historical defined benefit pension plan, not just on your M&A, we can help you with your employees. We're going to give you financial literacy at the employee base to help you hold on and retain talent. And then what do we get for that? We get those relationships so that when that stock vests, we now have a client, and it's on us to hold on to the client.

Maybe a good last question to finish up on capital. The firm has 320 basis points of excess capital. There's now more certainty on the regulatory outlook. How is management thinking about deploying that excess capital? Is this about doing more business with existing clients? Or what are the new opportunities to deploy capital that you see?

Yes. Again, I think on the capital side, we like to be in a position of capital strength because what it allows us to do is continue to invest the capital in supporting the businesses. And right now, with SLR reform and the capital buffers that we've built, we can be quite sort of front-footed in investing in the client business. We can be quite sort of positive as we look forward around dividend growth. We can opportunistically buy back stock, and we also have the ability to sort of think about both organic and inorganic opportunities that a market environment may present us to us without having to feel like we're against the wall.

And so in that context, we feel like there's real continued growth in both business and dividend around the capital elements. And I think that's important as you see sort of varying market environments. I mean, again, we are seeing, as I said, a really good pipeline over the next couple of years, but there is going to be dislocations that we can take advantage of in that context. And you'll see elements around that. To a degree, we took advantage of when E*TRADE, when Schwab took commissions to Zero and Ameritrade left the table, we were able to say this is an opportunity, a partner that we always wanted. Same is true with Eaton Vance. It was on the top of our list with Parametric and then COVID happens and the opportunity presents itself. You're going to see -- even right now, you see situations where the market has some challenges. For example, our transactional volumes in retail are off of a record fourth quarter are a little lower this quarter, but then they're going to come back up. Can we take advantage of opportunities along the way that capital provides us that flexibility.

I think that's perfectly timed. Thanks very much again, Dan, for joining us one more year, and it's a very insightful session. Thank you.

And thank you.

All right. Perfect timing. So up next, we have Morgan Stanley and the Head of Wealth Management, Jed Finn. And I've confirmed it's the real Jed, not agentic AI Jed...

That is correct.

That's with us today. So let's just hit it head-on, okay? But before that, I have to read this piece of paper. Sorry. I didn't forget, Leslie.

The discussion may include forward-looking statements, which reflect Morgan Stanley management's current estimates and subject to risks and uncertainties that may cause actual results to differ materially. Morgan Stanley does not undertake to update the forward-looking statements. This discussion, which is copyrighted by Morgan Stanley and may not be duplicated or reproduced without their consent, is not an offer to buy any security.

Okay? I think AI could do that.

It seems like it's doing it.

Yes. All right. So we're going to go a little bit out of order given some of the consternation in the market. Obviously, there was an article on AI and wealth, that the market is interpreting as potentially the beginning of disruption for the wealth management business. So why don't you -- what's your response to that?

Sure. Well, obviously, I haven't seen the tool in question, but I have seen hundreds of tools like it because we have been innovating in the tech-enabled adviser space for the better part of the last 10 years. And for those of you who have been following us for a long time, you'll remember in 2016, at the height of the robocraze, we came out and we said that the future of wealth management was not going to be technology only and it was not going to be humans only, but it was going to be a best-of-breed integration of the 2. And we have been intentional in pursuing that vision ever since.

And so if you recall, what started in the late teens as machine learning-based algorithms to generate next best action ideas for our advisers to help them understand what to talk about with clients next, to help our clients better achieve their goals, that has migrated into a robust suite of AI-based, prompt-based agentic solutions that our advisers are using with our clients all the time. And so today, there's, last count, just north of 3,500 individual tools and capabilities, and a number of those have to do with tax planning specifically. We just -- we don't write an article every time we release one, obviously.

But the important point in all of it is that an individual tool is a tiny part of the capability ecosystem that is required to help clients achieve their goals. It has to fit as part of a platform. It has to be connected to products. There needs to be relationships with third-party managers to be able to deliver the advice. It has to be wrapped in a way that clients can understand and take action on. And we have been incredibly deliberate about orchestrating that ecosystem over the last several years, which is what has led to our outsized growth.

So let's talk about AI in context of your business, and you've spoken in the past how you've used this to empower your adviser base. How has that progression been? And what are some of the examples of how AI has improved productivity? What's your vision for how AI, for example, can empower clients, particularly those that aren't ready to shift their assets quite yet to an adviser?

And do you think -- again, over the value of time, I think you gave us a preview of this answer -- that AI will diminish the value of advice, which is, I think, what the debate in the market is today?

Yes. Let me start at the end of the multi-layered question and say that it is the opposite. I think AI is going to enhance the quality of advice, and it's going to help advisers scale and be able to serve more clients more effectively with the same set of resources. So I think it's an efficiency play and I think it's an effectiveness play.

But to just go back to the beginning of the question, you asked for examples. We had our managers in, who run our markets, last week and we were demoing a number of the tools that are usable right now. And one of them is called the Roth Conversion Analyst. It is an AI tool where it will automatically ingest all of the data we have about the client. And you can prompt it with forward-looking assumptions. And it will very cleanly lay out the recommendation: should you convert or not? And what is the rationale for that? And then in real time, you can run scenario analysis, what if I want to give a big gift, what if my income goes up, all with clients.

That is being used right now today, which sounds very similar to what some of the use cases were described in that article. And that's just a narrow tool and we continue to build those all the time. Where we are heading more broadly, we think about as 3 broad buckets of functionality. We're calling them agents, but in reality, there are hundreds, in some cases, thousands of agents that are orchestrated by a super agent.

And the first one is really focused on branch operations. Think of it as the companion to our client service associates. So it cannot just retrieve information like a normal bot can today, but it can take actions, so move money, open accounts, change beneficiaries. And the goal is to automate a lot of the routinized tasks, so our CSAs can spend more time on the higher value-added tasks, i.e., interacting with clients. So that is agent number one.

Agent number two is the team member agent that can actually interact with clients at any time of day, on any day, in the same way that they would interact with a team member. And the first set of functionality that we are releasing is all about information retrieval and sharing. So balance availability, sending tax documents, back to the tax theme, at the end of the year, understanding performance drivers and existing exposures in the marketplace. That is phase one. Phase two is moving money, so wires, bill pay, opening margin loans. Obviously, the fraud risk goes up with number two, and so we are sequencing it because it is important to discharge our guardianship responsibilities.

But what is so exciting about this agent, and would not have been available, by the way, in prior versions of the LLM that we are using, is it has the ability to ingest the entirety of the historical context with that individual client. All of the e-mails, all of the CRM notes, anything that is live in workflow right now. So its inferenceability is off-the-charts good. And it can respond back to the client in the same tone that the team has used over the course of that relationship, and even that is going to be configurable. So that's the second category: direct interaction with clients.

And then the third category, think of it as Jarvis from Iron Man, but for managing money. That is the reference point. And it's designed to enable the advisers to direct the work, but not have to do the work. And so examples of what that agents are capable of include a new client comes to you and has a portfolio to invest, and you can ask it to go and build a portfolio using the investment options available at Morgan Stanley, subject to a number of constraints: asset allocation, historical performance back-tested, expense ratio, Sharpe ratio. Literally anything you would want to build the portfolio, it will go away and do its best. You get to approve it and then it gets implemented without any more clicks. Those are hundreds, thousands of clicks saved by the agentic framework that we are releasing.

A less prescriptive example would be, I as an adviser, "I'm meeting with Mr. and Mrs. Smith. Give me a list of the top 5 tax efficiency ideas that would be relevant for the way their portfolio is invested today. Put it all on a simple page with the pros and cons on each, and give me an appendix that backs up the performance of each of those levers modeled over time."

Another example, even less directive, would be, "I'm meeting with Mr. and Mrs. Smith. Give me a list of the top ideas I could bring to them to deepen their relationship with Morgan Stanley based on what other advisers like me have done with other clients like them." So you get this peer collaboration element to it as well.

And so all of these tools in and of themselves are collections of a bunch of smaller bits of functionality, like the one that was talked about in the article. But what they are designed to do is make our top teams more efficient, because our top teams are doing or any way; it's just a lot of work and it streamlines it for them. But for our developing teams, folks who are just joining in the industry, the next generation, the steepness of their development trajectory goes up massively. And we're going to continue to build on those over the course of 2026 and beyond.

And I'm going to double-click on the productivity aspect of that later, but I did want to go back and pull up because, obviously, your targets were a big source of discussion for investors during earnings. The firm-wide goals that are related to your business, $10 trillion in client assets and a 30% pretax margin, right? You ended the year with $9.3 trillion in client assets and you posted 29% full year margin, and you achieved north of 30% in the second half of the year.

Totally heard Ted loud and clear about your -- because you meet the bar, does it mean you need to raise it? But the last time you spoke publicly, you mentioned some headwinds in your business, like muted capital markets, cash on the sidelines and higher loan paydowns. So how does that all factor into how we should think about those targets and your path to, I mean, even exceeding them potentially or hitting them?

Yes. Understood. So as Ted said on the earnings call, those targets are intended to be numbers that we achieve consistently through cycle in any market condition. And while we are rapidly running to and through that reality, we're not actually there yet on all of the different numbers. That said, as also mentioned on the call, we have a clear strategy and we have consistent execution and we are going to continue to deliver higher highs and higher lows. And you've seen that over the last couple of years and you will see that over the coming years.

As it relates specifically to your question around the target in Wealth Management, I'll focus on the margin for a moment because I think we would stipulate we're very close to the overall client asset goal and we are continuing to drive flows. So if you focus on the margin target in Wealth Management, we were super-clear back in 2019 when we launched our multichannel client acquisition strategy that our margin expansion was going to be delivered based on investing in growth.

That was how we were going to deliver it, which means leveraging our scale to invest in a set of capabilities that enable our advisers to serve their clients more effectively at Morgan Stanley than those clients could be served anywhere else, which allows us to drive more assets and take share from everybody else, which allows us to drive more revenue than anyone else, which allows us to turn around and invest back into the business to a greater extent than anyone else. It's an incredibly powerful virtuous cycle.

And what is important about that cycle is that the marginal dollar of revenue that we generate from that growth-led strategy is massively accretive, right? And so that incremental return, we don't have to, when we add a new client, when we add more assets from existing clients, we don't have to open up a new branch. We don't have to invest in a new server. So that incremental return is split between margin expansion and investing in the business. And balancing that trade-off is something we spend a tremendous amount of time thinking about.

Of course, we could float our margin up a couple of hundred basis points right now if we stopped making the investment. But that would be trading off near-term, medium-term growth. And we think this is actually the exact wrong time to do that because we believe we're sitting at the precipice of the largest wealth management opportunity in history. I'm not being hyperbolic.

You've got an incredible convergence of a number of trends. You've got demographics, which have been well publicized in this industry, $45 trillion of new wealth created over the next 10 years. The vast majority of that is going to accrue to the clients who have more than $1 million who tend to be advice-seeking. You've got $20 trillion of intergenerational wealth transfer, which is a money motion event from the baby boomers to Gen X and, obviously, the millennials at some point. And those are the demographics.

But equally important are some of the secular trends that are all converging at the same time. So we talked about AI a moment ago. Obviously, related to that, what we're seeing is increased sophistication of our clients. We are beyond the days of just wrapping a 60-40 portfolio of ETFs and being done. There's so much more that you have to deliver. We see it all the time, and it's a theme that we talk about a lot, is the institutionalization of wealth management. And by the way, that plays to our strengths given our scale and our connectivity to the investment banking business at Morgan Stanley.

Third, you've got the rise of and democratization of privates, as I'm sure we'll talk about. Fourth, you've got digitization, both with assets specifically, but also with infrastructure, which is going to turn a lot of the traditional processes in this business on its head.

And then fifth, and this is more unique to Morgan Stanley, you've got the increased opportunity that is presented through our ramped-up focus on the integrated firm that Ted has been driving over the last couple of years, that is leading to real outsized results in the Wealth Management business, from leads and relationships starting in institutional coming this way and going the other way as well. And so when you put that all together, firms that have scale and have the ability to execute are going to have an unbelievable run, and we are uniquely positioned against both those factors.

And speaking of those factors, let's revisit the famous funnel. The workplace and E*TRADE channels have delivered nearly $100 billion of adviser-led flows in '25, up from historical average of around $60 billion between '20 and '24. What are the key factors in terms of this higher conversion rate? And also, how have you, to use your words, accelerated the path to advice?

Sure. I mean if you put all of the other things that we've talked about, the scale, the investments, the expertise, the businesses that we've acquired aside for a second, the key factor is time. We have just had more time to understand what works and what doesn't work.

And putting this infrastructure together is highly complicated. You've got data coming from different sources. You've got different systems that management -- you've got -- that manage it. You've got different consumers consuming it across the funnel. And so it just takes a lot of work. And then there's a lot of trial and error to figure out what actually works.

But in terms of real improvement, I think it comes down to a couple of areas. The first is our ability to identify who is going to likely be consuming advice has gone up significantly. So we have a model now with over 200 variables that, if you back-test it, the top 3 deciles of clients, who we predict are going to want to have a relationship with a financial adviser, represent 90% of those clients who become clients of financial advisers.

So we know who ultimately is going to be advice-seeking, which is very helpful as we're interacting with those clients in the workplace or within E*TRADE. Similarly, by the way, it's also helpful as we think about attracting those clients from a marketing perspective into the door of E*TRADE, which I'm sure we will talk about. So that is one big improvement that we've seen.

The second is the matching algorithm, which we talk about as LeadIQ. How do you know which clients to match with which advisers? We've gotten a lot better at understanding that dynamic and understanding what is most important about the advisers when you're thinking about making that connection.

And then the third is just the quality of the advisers themselves. They've gotten so much better at building these relationships and branding themselves internally on site, on campus with different types of companies and being experts in the benefits plans of those companies. And they've been really embedded as extensions of the HR team as well.

And so you put that all together, and then add on top of it this consistent surround sound that we have invested in with Morgan Stanley tools and capabilities that are available on the Internet and webinar Wednesdays that anybody can log into and get information on a specific topic and on-site seminars and office hours, and it ends up being, for those clients who want advice at that company, of course, they're going to come to Morgan Stanley. Where else would they go?

And so it's really been about the seasoning of that infrastructure that has led to our outperformance. And you can see it in just the results in 2025. So you quoted the $100 billion number. The biggest driver of flow through that funnel is IPOs, because it creates liquidity for the private share companies that generate second order transactions. There's just a lot of activity that happens.

And even though 2025 was a fraction of 2021 from an IPO perspective, at the aggregate level, we did 100 in 2025 versus around 70 in 2021. And specifically relative to IPOs, we did more in 2025 in terms of conversion through the funnel than we did in 2021, even though the volume was significantly bigger in 2021. So we are really excited about how this is going to evolve, particularly if you believe we're heading into an IPO cycle over the next couple of years.

So we'll unpack that in a second. In '25, 48% of adviser-led assets were fee-based. You've noted in the past that you're already at a high watermark for the industry. How should investors think about where this percentage could go over the medium term?

Yes. So this has been a steady march higher, and not in a straight line, but there are a lot of secular tailwinds behind it. When we first did the MS-SB integration, we were sitting at about 22%. Now we're right around 50%. It's bounced up and down and different market dynamics can change it, but there are a couple of things that we think are going to drive it higher.

So number one, product availability in advisory is going up. And a perfect example of that is the rise of alts. But not just alts in general, but evergreen or democratized alts, right, these funds with regular liquidity. It's hard to put drawdown vehicles in advisory for a number of reasons, but this new category of alts, which has been in high demand from our clients, is moving in, as well as a number of other types of products. So that's one driver.

A second driver is just, back to the investment theme, we've been building out the tools and capabilities in our advisory platform to make it even easier for advisers to manage portfolios and to deliver value-add and alpha for their clients. So one example of that would be we are integrating Parametric as the tax loss harvesting algorithm in our own Wealth Management UMA.

So think of it conceptually as Parametric sits on top of a bunch of sleeves of the portfolio. Those sleeves could be delivered by other third-party managers. So now we're running Parametric on third-party managers. It's this concept of active on top of active. And it is very difficult for anybody to replicate that because they don't have as robust of UMA platform and they don't have access to Parametric. And that's only available in advisory. So that would be another driver.

And the last one I would point to is, for a very long time when we were in the 0 interest rate world, we had lots of fixed income migrate out of advisory because the yield and the return you get is washed away by the advisory fee. Since we've come off the lower bound, now there's much more opportunity for clients to benefit from a higher net yield, higher net return by taking advantage of some of the capabilities of our largest asset management partners. And even though it's been a couple of years, we're still seeing that flow continue.

And so there's a number of drivers for the growth of the percentage, whether it's 55% or 60% or 65%. It's not going to be 100%, but we think in the medium term it's definitely going to go up.

So I wanted to follow up on your response to alternatives. Alternatives and private specifically have been one of the big themes in the conference, and it was asked during fireside chats with UBS and Goldman. The responses in the other fireside chats was really balance between opportunity and suitability. And so how is Morgan Stanley balancing the opportunity and suitability?

Well, first, I don't see that as balance. We have been in the alts game for a while and alts funds have been blowing up spectacularly for an extended amount of time, and I'm not sure that a software wobble or 2 bankruptcies in the credit side changes that calculus. But the most important thing for our clients is to make sure that the risk is managed. And we invest an incredible amount in order to do that.

So the first path starts with investment due diligence, which is an analysis like anybody would do. But importantly, operational due diligence. We have people go to the actual sites of the managers. And there was a very famous blow-up post-crisis of a Ponzi scheme that we did not add to our platform because we couldn't reconcile the actual performance with what we were seeing. And so we take our gatekeeping role incredibly seriously. So to make it on our platform, and you can talk to a lot of our asset management partners that are in the room, it is very difficult to do that.

Once you get on though, there's a whole another wave of risk management and client protection, which is focused on, is this the right thing for this client? And what that looks at is the client's age, their investment horizon, their risk profile and then the characteristics of the product. And in some of those combinations, a 10-year drawdown vehicle may not be the right thing for our clients. So there's that element as well.

And then the final piece of it is making sure that we can get access to clients in the most efficient way possible. And alts, for all of the discussion about these blowups that happen and is it going to be here to stay or are people losing touch, for those high-quality managers, and we are partners with all of them, they have realized the illiquidity premium. They have managed uncorrelated returns. They've delivered higher IRRs. And our clients who have been participating in alts for the last 10, 15, 20 years are absolutely in a better position today than they otherwise would have been.

So it's not so easy to paint the industry with a brush and say it's good, it's bad. It's a question of selecting quality and then delivering it for our clients in an effective way.

And the last piece of that puzzle for us was this product called PMax that we launched last year. It's one of the fastest-growing products that we have ever launched. In just 6 months, it's close to $1 billion raised. And the reason why it's growing so fast is because it is accessible to a much broader set of clients. It's got 16 sub-managers. It's diversified. Minimums are $25,000. It's no fees for the wrapper. And it is very easy to invest in and it's 1 account, 1 1099. And we think allowing our clients who may not be at the higher end of the wealth to participate in uncorrelated returns over time is something that is a responsibility of ours as we help them achieve their goals.

So going back to the strategy update, Ted listed 3 avenues for future opportunities for your business: workplace, product capability expansion and institutionalization of wealth. So maybe let's start with workplace and maybe help investors sort of -- give a little bit of context and detail in terms of the opportunity.

Sure. So we talked about the second half of the workplace, which is the funnel, the B2B2C, maybe I'll just focus on the B2B part to start. And we are really excited about the pipeline in the workplace. Yes, we have 50% of the S&P by market cap as clients, but that means we don't have the other 50%.

And given the investments that we have made in our platform, we have continued to prioritize this, we have a feature set that is differentiated. And there are things that we can deliver to clients that are difficult for our competitors to match. And so just as a matter, of course, of new opportunities coming up for RFP, we are there and we are winning more than our share, meaning that 50% is continuously marching up. That is one avenue for growth.

The second avenue for growth is, as part of the Solium acquisition, which I referenced before, in 2019, which started our multichannel client acquisition strategy, we got access to Solium private, which is a cap table manager, which today has 8 of the top 10 unicorns in the U.S. as cap table clients and 70% of the top 100 by market value. And as the IPO cycle goes, we go from private to public, and suddenly with a push of a button, they become public equity admin clients with regular liquidity that go directly into that funnel where we can help them meet their wealth management goals. That is the second avenue.

And then the third, as we've talked about before, is we established the relationship with Carta. So while we focus on the late-stage part on the private markets, Carta focuses on everything else. And there's some overlap, of course. But as Carta's clients start to mature, they become early pipeline candidates to move to Shareworks or direct to E*TRADE or Morgan Stanley at Work on the public equity admin side. And so all 3 of those channels are firing right now, and there's examples of wins from all of them that are going to continue to work its way through the system.

And what about the second piece, which is product capability expansion, what are you focused on here?

Sure. We touched on a number of them. But as we've said before and as I started out with, to be able to really help our clients achieve their goals, we need to deliver across the board, right? It's not just alts, it's not just private. It's not just international, it's not just lending. It's not just planning, it's not just tax advice. You have to put everything together in a wrapper that is accessible and usable. And so we are constantly investing in the platform.

One of the things we're launching this year, which I'm incredibly excited about, is OCIO, but for retail, which will be the first of its kind in the industry. So OCIO, Outsourced Chief Investment Office, is designed to take the fiduciary responsibility away from institutions. And it was dedicated towards institutions that have hundreds of millions of dollars. We're now bringing it to high net worth clients who have $25 million, which means they will get institutional pricing and an institutional product lineup and an investment officer who can add support to the financial adviser in managing that relationship. You cannot do this without having the scale. And it's going to lead to a differentiated, sticky experience for our clients. So that's one example of a product that we are launching.

On the alts side, I talked about PMax, we're also continuing to invest in the platform itself. Part of how we differentiate is we get our high net worth clients access to managers who typically don't award capacity to retail, but because we have $280 billion of assets in alts and we are driving $40-plus billion a year, that is an attractive pool of assets for any of the managers. And so we use our scale and we wield that deliberately for the benefit of client access. So that part of the platform continues to grow.

A third area I would call out, and we started with this, is tax management, right? Given where we are in the cycle, so many of our clients are sitting on gains across so many different asset classes. And so it's not just the tax advice, back to what the analytics was saying, but it's also how do you implement that advice.

And I talked about Parametric in UMA as one example. Another example is more streamlined access to the long-short SMAs that have recently come to market that generate losses quicker. Another example is building out exchange fund capacity and creating single-stock exchange funds for our clients. Again, something that we can manufacture in partnership with MSIM because we have scale.

A fourth example would be on the private side, which is clearly growing in interest and focus for a number of people. We launched a couple of years ago a program where we get our clients co-investment access, and that has exploded over the last couple of years. We did a couple of billion dollars of investments into all of the private names that you would think about as being attractive to retail or high net worth clients. So that's one element of it.

The other element of it is obviously the EquityZen acquisition. Because again, while we differentiate at the high end, we need to be able to help all of our clients achieve their financial goals, whether they are self-directed at E*TRADE or whether they are advised by a team or focused on family office side of the world. And so EquityZen brings that capability to a more democratized view of clients. And so that integration has started.

The other piece I'll just mention on EquityZen is less about serving the client's immediate need for access, but that's part of it, but it's about building a differentiated value proposition for the issuer, right? We have, within the 4 walls of Morgan Stanley, all of the demand we need for privates at 20 million clients and $7.5 trillion of assets. We have supply in the form of cap table management from Shareworks and then we also have the relationship with Carta.

So what we were missing was a marketplace that can connect those 2 in an efficient, scalable way, and that's what EquityZen brings to the table. And they have a modern order book and they have an SPV infrastructure and workflow that can connect buyer and seller and issuer. Because remember, in privates land, at least for now, the issuer has to sign off on every transaction.

But what was so important about EquityZen was their operating philosophy of putting the issuer first, the company first, which is a shared value of Morgan Stanley. Our heritage is institutional. And so when you combine our demand and supply and the supply we get from Carta and the connectivity of EquityZen, we can start to build out this ecosystem that is going to be very difficult for others to replicate, because making it easier for the issuer means you have to have direct access to the cap table to update those entries and make it so it's not work on the part of the company.

And so rather than looking at private share transactions as an annoyance, we're building a real value proposition for companies where they can have controlled trading programs for employees as a benefit, not something that is a chore for them to do, and lending against those private shares for those employees who want liquidity but don't want to sell down what they view as their most valuable asset class. And research coverage from our partners in institutional securities and, of course, IPO readiness from our partners in the investment bank. And then tokenization, which we're working on with one of our core partners in the infrastructure space.

And so this combination of company-first value proposition is going to be unique. And in the space, liquidity begets liquidity, and over time, it's going to continue to serve our corporate clients and it will serve our wealth management clients who can now participate in the space that was previously only addressable by or accessible by institutional investors.

So finally, just to wrap up this part of the discussion, and you've already alluded to this, the last piece is the institutionalization of wealth. Obviously, you referred to it, you have a world-class investment bank. And all of the commentary today and yesterday was very bullish in terms of liquidity events. How should we think about how you're positioned to take advantage of just this capital markets renaissance and the liquidity event? And how close your investment bank is to these founders?

Sure. So the first thing we need to make sure that we have is a credible mousetrap for those clients as they come into liquidity. We talk about all the time now, clients have gotten so big in some cases that they're like walking institutions. And the traditional set of wealth management tools that you might use for your average high net worth client are not going to cut it for clients who look like walking institutions. So how do you build that value proposition?

One of the things that I would call out is just the growth of our family office business, which a lot of people have different businesses they call family office, it means a lot of different things. To us, whether we are acting as the family office or we're serving family office, we've built a robust infrastructure that can ingest the complexity of that family's relationship and bring a single general ledger for that family with ability for them to have differentiated access to invest away from us to leverage Morgan Stanley's due diligence. So it's bringing all the best capabilities of the firm into one single service model.

And it is resonating with clients. We went from 0 in 2020 when we launched it to several hundred billion of assets and over 90 families and full 100% retention of clients. So we've obviously struck a nerve in the space in terms of meeting a need.

And that is really important when you think about, well, can you be there with the investment bank as a wealth solution for their really important institutional clients? And as we've built up that credibility, there's more comfort on the part of our colleagues. And we've got an organization in the middle called Integrated Firm Management, which is quarterbacking the entire thing. So now when we show up to an IPO or an M&A, it's not just the institutional side of the firm showing up, but they are bringing wealth management capabilities as part of that integrated value proposition. And everybody is talking to each other, so the client knows that they truly are facing off against one firm.

So given how topical wealth is today, I just wanted to remind everybody some housekeeping comment. If you wanted to submit a question for me to ask Jed, you could scan the QR code and I'll receive it on this iPad. Alternatively, we do also have mics in the room if you wanted to ask a question the old-fashioned way.

So just quickly switching gears to the self-directed channel, maybe just a quick update on how the E*TRADE platform fits in terms of your growth plans and initiatives.

Sure. It's an incredibly important part of the overall channel integration. Keep in mind, number one, all of the workplace assets vest into an E*TRADE account. So it's kind of the place where people who are coming into liquidity first go.

And then number two, we have a very engaged active trader population that we view as -- the same way we view as our wealth management advice clients. And so Power E*TRADE Pro, which we launched last year, is the next generation in terms of charting functionality, algos, et cetera, that we have launched, that is getting rave reviews from our active user community.

And in general, we are enriching the self-directed investor experience with Morgan Stanley content and capabilities. And we're doing that because, A, it helps us differentiate from what other firms can deliver. But B, as they think about ultimately needing advice, when it's appropriate to make that introduction, we introduce them to a financial adviser and they're already familiar with the research or the products or some of the tools and capabilities. And so E*TRADE is an incredibly important part of our growth strategy, and it is pointed in the right direction.

So you talked about continuously investing into the business. And it's no secret that you had behind you a very heavy lift from a technology standpoint. Where are your investment priorities going forward? And going back to the AI question, do you think that you can keep those AI productivity gains potentially in terms of enhancing the pretax margin? Or is that going to be competed away, as some of your peers have discussed in terms of the productivity gains that could be achieved through some of these AI tools?

Yes. Look, at the end of the day, our business model is based around the adviser-client relationship. And we think that that is going to persist long past new AI interaction tools that get created. So that is the core of our business and it has continued to be the correct North Star when we went through this trade the first time and there was all the robo hysteria and it's asymptotically approached as an industry maybe $800 billion in assets, which is the size of like 3 of our markets, right?

So it's a very complicated, emotional, personal relationship that clients have with advisers. And even when the technology becomes as good as what anybody can do on their own, and it's not going to be too long before that happens, clients are still going to want advisers to leverage that technology. We've got the benefit though of having the scale and the resources to be able to make sure that that technology is best-in-class and most effective and unlocks the most doors, right?

So I'll give you an example. We haven't talked about this yet, but we've got 2 minutes left. There is a whole sea change happening now in the blockchain-based operational system of the banking infrastructure. And there's a lot of debate back and forth about how it's ultimately going to evolve. But you could probably stipulate with almost 100% certainty that, over the next 5 years, we're not going to go all the way one way or all the way another way, right? We're going to live in this hybrid world, which means clients are going to need access in real time to all of the traditional financial assets and capabilities, but also be able to tap into the DeFi, the decentralized finance world, blockchain, distributed lending protocols, tokenized assets, real-world assets issued on-chain.

For anyone who's ever tried to interact on-chain, it is massively complicated and terrifying, in terms of like are you sending your money to the right place. And so as a trusted provider of 20 million clients and $7.5 trillion of assets, we uniquely have the ability to abstract away all that complexity so clients can interact the way they want to interact, but still tap into all of these new ecosystems that are developing.

There isn't like an AI bot that's going to solve that for firms that don't have the ability to invest, right? This has absolutely been a scale business over the last 15 years as we have demonstrated, and it's going to become even more of a scale business over the next 15 years provided that we make those investments in the right place. And we're committed to doing that because we talk to our clients every day and we know what they want and we know what they're being offered in other places and they help us co-create the solutions that have been differentiated. It's not that complicated of a strategy. We're listening to what our clients want and investing behind it. And it's served us well to date.

And maybe just are there any questions from the audience? I don't have any from my iPad. So 20 seconds, Jed, any final words in terms of what you want investors to take away from your business?

Look, I'll double down on the last point that I made. This is a scale business. It is going to be very, very difficult even with the slickest, well-thought-through agents to build the distribution, to build the credibility, to have the experience for doing this in a regulated way, putting the clients' interests first. And we've got the scale.

And what's unique about us is not just the scale, but we are part of a world-class global investment bank where we're half of the business, right? So my partners on the other side care deeply about how this business does. And so when we need expertise, when we need access to balance sheet, when we need access to trading strategies, that's really easy to deliver for our clients.

And we're doing it against the backdrop of a team that has been together for a really long time. I mentioned the managers meeting last week, we had about 300 of our market managers in. The average length of service there is 19 years. 80% of them have been here for more than 10 years. When you combine scale with the global resources of an investment bank, with an experienced team that has a track record of execution, our setup, given this next wave of wealth creation and all of these trends that we talked about is really, really strong, and we're excited to continue to deliver.

Well, I think that's a perfect way to end. Thank you, Jed. Thank you so much.

Thank you.

Good morning. Welcome to Morgan Stanley's Fourth Quarter and Full Year 2025 Earnings Call. On behalf of Morgan Stanley, I will begin the call with the following information and disclaimer: This call is being recorded. During today's presentation, we will refer to our earnings release, financial supplement and strategic update, 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 and strategic update. Within the strategic update, certain reported information has been adjusted as noted. These adjustments were made to provide a transparent and comparative view of our operating performance. The reconciliations of these non-GAAP adjusted operating performance metrics are included in the notes to the presentation or the earnings release. This presentation may not be duplicated or reproduced without our consent.

I will now turn the call over to Chairman and Chief Executive Officer, Ted Pick. Ted, you may proceed.

Good morning, and thank you for joining us. In 2025, the U.S. economy proved resilient as ever. As predicted, the capital markets are kicking in with well-capitalized corporates and higher-end consumers driving the economy forward. 2026 starts with the tailwinds of constructive fiscal policy and easier monetary policy. As the arc of history resumes, geopolitics are front and center with a broadening set of opportunities and challenges. While the higher plane of Morgan Stanley results tell a story of durable performance, we are mindful of the combination of geopolitical swirl and abulent markets. The macro backdrop is complicated. On the one hand, the setup is ideal. We are monetizing the long-awaited conversion of capital markets green shoots across our investment banking and market verticals, and we are scaling asset inflows and transaction activity across our wealth businesses.

At the same time, we are well served to watch for any overreaching against ongoing global uncertainties and higher asset prices. 2025 results, and in fact, the results for every quarter over the last 8, are blueprint for Morgan Stanley's success. We expect this mix of tailwinds and headwinds to prevail in 2026 and are prepared to continue to execute. We will now walk through the 2026 strategy deck entitled: The Integrated Firm: Executing on a Higher Plane, which can be found on the Morgan Stanley website. We will then detail fourth quarter and full year results.

Turning to Slide 3. Morgan Stanley's 2025 results were summarized by $9.3 trillion in total client assets, $10.21 in earnings per share and a 21.6% return on tangible. The firm's trusted adviser franchise delivered across all 3 metrics. Slide 4 shows that our average earnings per share and returns on tangible over the last decade reflect the transformation of Morgan Stanley's business model. The last 5 years are the result of share gains in operating leverage via consistent investment in technology, footprint and the successful integration of key strategic acquisitions.

Moving to Slide 5. We're well on track toward our firm-wide goals. We've compounded wealth and investment management client assets towards $10 trillion plus. In Institutional Securities, we gained 100 basis points of wallet share with clients across investment banking and markets, reflecting the strength of our integrated investment bank and global franchise.

Please turn to Slide 6. We've moved up the firm-wide goals page for review in the context of the last 2 very strong years. 2025 results in the fourth quarter or on an annual basis, broadly met or exceeded our firm-wide goals. Asset growth accelerated with last year's additional $1.4 trillion. [indiscernible] pretax margins are at their highest levels ever, with the fourth quarter's 31% printed result. Institutional Securities gained share across underwriting and equities trading, and we closed the year with a strong advisory result. In short, the firm is running at a higher run rate. We are executing from a position of strength. Multiyear investments in the core businesses, client momentum, management stability and growing capital excess. But as I observed in the opening, there are both macroeconomic and geopolitical tailwinds and headwinds and in our view, while we are happy to have reached many of these firm-wide goals, perhaps earlier than some expected, this is not the time to overreach.

These last 8 quarters memorialized consistent execution against different mini macro uncertainties and our multiyear growth plan contemplates both secular growth and available wallet and continued durable share gains. Our expectation going forward is that if this environment is welcoming, we are meant to execute at or above these firm-wide goals as we did in 2025, and when the backdrop is more challenged, to endeavor to achieve higher lows. The longer-term cadence we seek is a higher plane of operating performance through the cycle as we compound earnings in a capital-efficient way.

Now to the forward growth plan. Please turn to Slide 7, where we review our major businesses. As you know, Wealth has 3 channels. Our financial advisers workplace in each [indiscernible], each a category leader, which taken together, comprise our strategic client acquisition model. In Institutional Securities, we have deep client relationships and a global footprint under the Integrated Investment Bank. We have diversification in investment management led by Parametric alternatives and fixed income. We continue to invest in each of our 3 business segments: wealth, institutional securities and investment management via human capital and technology.

Our growth plans embed the increasing adoption of AI tools throughout the enterprise and inside our client base. With each passing quarter, our confidence continues to increase in the potential for both the efficiency and the effectiveness of AI-related technologies across the business units and infrastructure.

Slide 8. Our wealth management business is built for scale and performance. The financial adviser workplace in each channels are each thriving. The business had net new assets of over $350 billion last year. Over the last 5 years, the firm attracted $1.6 trillion plus of net new assets with a doubling of fee-based flows. For 2025, wealth achieved $32 billion of revenues, 29% margins. The funnel is working.

Please turn to Slide 9. With 20 million wealth relationships, future growth is embedded in the business. Our intense focus on the value of advice, which generates movement through the funnel allows us to capture opportunities for adviser-led assets. In 2025, we saw accelerating flows across channels with $100 billion migrating to financial advisers. We are using our scale to invest in broadening capabilities for FAs that are difficult for others to replicate, alternatives and privates, tax-efficient investing, digitized assets, family office and OCIO and [indiscernible] London. Collaboration across the integrated firm is felt by clients for both their corporate and personal wealth needs.

Slide 10 dives deeper into institutional securities. We have an established global footprint and revenue base. Banking and markets gained wallet share, delivering margins of 34%, revenue growth supported by the recovery in investment banking is running roughly 2x SLR and RWA growth since 2023, reflecting our continued focus on capital efficiency and operating leverage.

Turning to Slide 11. The institutional securities value proposition is reflected in the integrated investment bank. We approach client coverage holistically and provide comprehensive solutions with the support of integrated teams, the collegiality and Morgan Stanley tenure of the leadership teams across banking and markets, on average, about 25 years at the firm is critical in bringing the best of our intellectual capital to clients. The themes of the equitization of global markets and the full suite of expertise to advise our cross-border M&A are at our global core, ISG share gains position us well for the global investment banking and capital market cycle in 2026 and beyond.

Please turn to Slide 12. In Investment Management, we continue to benefit from secular growth in investing solutions and the democratization of alternatives. Parametric is the industry leader in tax-efficient investing at $685 billion in AUM and stands to benefit as more clients and asset managers see customized solutions. Our alternatives platform has more than doubled in 5 years with investable assets now at $270 billion. These and other areas of strength are supported by ongoing investments in technology and global distribution.

Slide 13 underscores Morgan Stanley's global presence. We have 30,000 people outside the U.S. in every business unit and in large tracks of infrastructure. 25% of our revenues this year came from outside the U.S. with EMEA growing revenues by 40% and Asia by 50% over the last 2 years. We have leading businesses in Japan, thanks to our almost 20-year joint ventures with our close partner, MUFG and a world-class business in Hong Kong. We have grown in the EU and maintained leadership in the U.K. in a world that is both deglobalizing and reglobalizing our presence and footprint matter.

Slide 14 illustrates why Morgan Stanley wins at the integrated firm. We have scaled capabilities and a business mix that can support our clients throughout an entire life cycle. Our Morgan Stanley work business with its exclusive partnership with Carta positions us as an early trusted adviser to over 50,000 private companies. As Workplace companies grow, we can provide traditional institutional servicing. Employees across our Workplace companies benefit from our management of equity compensation plans, liquidity opportunities and our full-service advice. We are focused on both the public and the private ecosystems, augmented by our recent acquisition of Equity [indiscernible]. The objective is to cover growth companies and their employees from founding to their public maturity while broadening access for investors to the growing stack of private companies. Again, our technology leadership in wealth enables us to deliver a holistic client experience.

Please turn to Slide 15. Our durable business model and strong earnings profile have kept capital levels high during a period where the regulatory capital framework has normalized. As we have grown fee-based revenue streams, our regulatory minimum CET1 ratio has steadily come down. At a CET1 ratio of 15%, we have over 300 basis points of excess capital. With the passage of time, the continued durability of the business model may be enhanced by further regulatory relief. Prudent dividend growth comes first. And accordingly, we have raised our quarterly dividend by $0.075 for 4 years in a row to now $1 per share. As we've discussed in previous years, excess capital will be directed to continued dividend growth and to ongoing investment in clients and technology across the integrated firm. We will also continue to opportunistically buy back stock. We are keeping full watch on potential M&A adjacency, but we will continue to be patient. Because we have worked diligently through the acquisitions of Smith Barney, Solium, E*TRADE and Eaton Vance over the last 15 years, we know what level of focus and energy is required across the entire firm to make a multiyear integration successful. In short, we are endeavoring to keep the bar for acquisitions high, bearing in mind that many asset classes private and public trade at elevated levels that there is no shortage of ongoing opportunities and that the first call on capital must be to our clients and the continued growth of our core businesses.

Concluding with Slide 16, we're supported by our 4 pillars of the integrated firm: strategy, culture, financial strength and growth. Morgan Stanley strategy to raise, manage and allocate capital is well understood by our clients, people and our shareholders. Culture is about rigor, humility and partnership. Financial strength is about capital, earnings power and durability and growth is about smart, strategic investment into wealth, institutional securities and investment management and across the firm globally. The result is growing assets and compounding earnings in a capital-efficient way over the long term.

Thank you. Now Sharon will review our fourth quarter and annual results, and then we will both take your questions.

Thank you, and good morning. 2025 was an exceptional year for the firm, marked by deliberate execution of our strategy. Full year revenues reached a record of $70.6 billion and the fourth quarter revenues were $17.9 billion. Expanding markets increasing client demand for advice and improving client engagement supported results across businesses. Concurrently, multiyear investments in our talent, the integration of acquisitions, workplace and the integrated firm have significantly contributed to growth and momentum. Our ROTCE was 21.6%, and we generated record EPS of $10.21 for the full year. Alongside fourth quarter ROTCE and EPS of 21.8% and $2.68, respectively. In 2025, we delivered operating leverage while continuing to invest for future growth and advancing productivity initiatives firm-wide, our full year efficiency ratio improved to 68.4%, underscoring disciplined execution and rigorous prioritization of investments.

Now to the businesses. Institutional Securities delivered a record full year revenues of $33.1 billion, including $7.9 billion in the fourth quarter. We continue to invest in our global footprint and capabilities, resulting in competitive advantages and industry leadership, a strong macro backdrop, improving corporate confidence and open capital markets position us well to continue to capture durable share. Investment banking revenues were $7.6 billion for the full year, reflecting year-over-year growth across products and regions. Fourth quarter revenues of $2.4 billion increased 47% from the prior year.

Results were led by a record in debt underwriting, and advisory crossing $1 billion for the second strongest quarter ever. Corporates leaned into constructive financing conditions to fund strategic priorities, while sponsors were also active completing previously announced M&A transactions. Equity issuance led by convertibles and IPOs remain strong, driving consistent results in equity underwriting.

Looking ahead to 2026, investment banking pipelines remain healthy, global and diversified across sectors. Strategic activity is accelerating. Companies and sponsors are looking to access capital for growth investments and the reopening of the IPO market creates additional opportunities for clients.

Turning to equity. The business delivered record full year revenues of $15.6 billion. Our global share gains this year were driven by increased client engagement and dynamic risk management. Revenues were $3.7 billion in the quarter. All businesses were up versus the prior year's fourth quarter on the back of higher client activity. Prime brokerage revenues drove the fourth quarter's results. Client balances continue to rise, supporting the outlook for financing revenues. Cash results increased versus last year's fourth quarter reflecting higher volumes across regions. Derivative results were up versus last year's fourth quarter as well, benefiting from our consistent investments in our client franchise and product offerings.

Fixed income revenues were $8.7 billion for the full year. And importantly, investing in our lending businesses has contributed to increased consistency and stability of our franchise. Quarterly revenues were $1.8 billion. Micro and macro results declined versus the prior fourth quarter, reflecting lower volatility in foreign exchange and weaker performance in credit corporates. Commodities results declined primarily due to lower power and gas revenues, which had benefited from several large structured transactions in last year's fourth quarter.

Turning to Wealth Management. 2025 demonstrates the consistent execution of our strategy. We delivered full year records across revenues and reported margins reaching $31.8 billion and 29%, respectively. Both net new assets of $356 billion and fee-based flows of $160 billion for the full year demonstrate industry-leading growth. Workplace and E*TRADE relationships continue to seek out advice. Adviser-led assets originating from Workplace and E*TRADE relationships accelerated growing to a record $99 billion for the full year compared to historical averages of around $60 billion per year.

Moving to our business metrics for the fourth quarter. Record revenues reached $8.4 billion, and the business delivered strong operating leverage with the reported margin expanding to 31.4%. DCP negatively impacted the quarterly margin by approximately 95 basis points. Asset management revenues were a record [ $5 billion ], benefiting from expanding markets and consistently strong fee-based flows. This marked our third consecutive quarter of fee-based flows exceeding $40 billion, a first for this industry. Transactional revenues were $1.1 billion, elevated activity across both adviser-led and self-directed clients drove the strength. Additionally, net new assets for the quarter were robust at $122 billion with contributions across all channels.

Growth was supported by institutional relationships related to the integrated firm. Bank lending balances grew $7 billion sequentially to $181 billion, driven by securities-based lending and mortgages, growth reflects our efforts to deepen client penetration with SBLs, leveraging technology to improve automation and facilitate the client acquisition openings as well as increasing education with our advisers and our clients.

Sequentially, total period deposits grew $10 billion to $408 billion, and net interest income increased to $2.1 billion. The growth in NII was driven by the increase in sweep deposits and loan balances. Looking ahead to the first quarter, we expect NII to remain roughly flat quarter-over-quarter as higher average sleeps and lending balances should help to offset the full impact of the 2 rate cuts in the fourth quarter. As we look ahead to the remainder of 2026, assuming the current forward curve incremental loan growth and our projections for the deposit mix, we expect NII to continue to trend higher.

Before concluding, one update on DCP. Over the course of the first quarter, we will be transitioning all economic hedges for DCP obligations to derivative instruments. As previously announced, we will also increase the cash component of our adviser compensation. We are making these changes to reduce the accounting-driven volatility in revenues and earnings. While there will be some transitional costs, these changes support our overall investment into our financial advisers and will help simplify our compensation program. The full year, inclusive of momentum in the first quarter -- fourth quarter exemplified our strategy to reach new relationships, grow assets and deliver advice solutions to clients. Strategic initiatives, such as our recent acquisition of Equity [indiscernible], expanded partnership with Carta and collaboration with Zero Hash, all reflect our commitment to innovation. Together, they lay the foundation for sustainable growth to widen our competitive moats. Our intentional strategy to introduce and educate retail clients to the value of advice, coupled with consistent education over the past several years sets our franchise apart and positions us to continue to outperform.

Turning to Investment Management. Our franchise delivered strong results this year with durable management fee revenues reaching all-time highs. The margin continued to steadily improve. Total revenues were $6.5 billion, and we scale to a record $1.9 trillion in AUM. The business has now generated 6 consecutive quarters of positive long-term net flows with ongoing demand for Parametric and fixed income strategies, supporting the full year long-term goal net inflows of $34 billion. Long-term net inflows were approximately $2 billion in the quarter. Importantly, our broadened portfolio helped offset equity outflows, benefiting from the consistent strength in fixed income, Parametric and global distribution.

Liquidity and overlay services saw $68 billion of inflows for the quarter, driven by institutional demand, some of which may be seasonal. Fourth quarter revenues were $1.7 billion, driven by higher asset management and related fees on higher average AUM. As a reminder, certain performance fees are recognized on an annual basis largely in the fourth quarter, which drove the sequential increase. Performance-based income and other revenues were $71 million in the quarter. Gains in U.S. private equity and private credit more than offset markdowns in our infrastructure fund.

Turning to the balance sheet. Total spot assets were $1.4 trillion. Standardized RWAs increased sequentially to $553 billion. Our standardized CET1 ratio ended the year at 15%. For the full year, we bought back $4.6 billion of common stock, including $1.5 billion for the quarter. Our tax rate was 21.5% for the full year and 23.2% for the quarter. We expect our 2026 tax rate to be between 22% and 23%. And consistent with prior years, we do expect some quarterly volatility. As we look ahead into 2026, the firm enters the year from a position of strength. Our Wealth and Investment Management businesses exited with $9.3 trillion in total client assets. Client engagement remains high. Our pipelines are healthy, and our global footprint positions us well to continue to deliver advice and solutions across markets.

We remain focused on investing for the future and scaling our business to perform through various market environments. With that, we will now open the line up to questions.

[Operator Instructions]

We'll take our first question from Glenn Schorr with Evercore.

Okay. So the results are pretty great across the board. And I think I appreciate your comments about environment risks, your conservative guy, your risk manager. I do think people would love to hear a little bit more about why no change for the targets. Are there pieces of the business that you think are just at peak and over earning. You -- we don't want to set ourselves up the market's up 80% for the last 3 years. And then just like cyclical caution basically versus anything underneath [indiscernible].

Well, I think that's the important question for the day. we had a robust conversation about it. But in the end, the decision was really pretty easy. I think the view is that the shareholders ultimately want to see an enterprise that can operate at high levels with the kind of ballast that you began to see over the lows in the last decade. And then on the forward, we can achieve effectively higher lows. And I think the tendency has been when a target is hit, the view would be what we hit it, let's take it up further. And there is no view that the net wins are headwinds. They are, in our view, secular and cyclical tailwinds that work for us, both in terms of wallet and in terms of market share across all of the major businesses and we have even more operating efficiency that we think we can continue to nerve from the infrastructure by way of AI over time. But I think part of the premise of rigor and humility at our place is that we do this in a way where we compound earnings again and again, right through the cycle. And of course, we will revisit these targets in the late year to come. And if then we've passed through them very clearly and it's time to take them higher, we will certainly consider that.

But I think the view is, we're a couple of years in. Each of the quarters has been by many measures, quite excellent and the 2 years taken together each on their own and then taken together also excellent. But I think mistakes that I'll make, Glenn, this won't be one of them, which is to kind of hit the new target side at the beginning of year 3 because we're [ filling our oats ].

I think we have a very positive view of where the firm is positioned. We like the spaces we're in. But we think that demonstrating our ability to compound earnings through the cycle is what the owners want to see, what you want to see. And then when things are bumpier, they're choppier, we'll have higher lows. And if we can continue to compound earnings at 20% returns, we're going to have happy owners.

We'll move to our next question from Dan Fannon with Jefferies.

So I guess just to follow up on that, given the success of the Wealth Management business. Can you talk about the drivers of the margin from here? Is it just scaling and growth of the business? Or are there things underneath from a cost or efficiency perspective that we should think about or mix of business that can drive those margins higher.

I think it's both. We have consistently added fee-based flows. That is demonstration that the funnel is working. So from the revenue line items, right, the drivers of continued to expand expanded market are twofold. One is building out the fee-based revenues and the fee-based assets, and that is happening as we do introduce new clients to the power of the advice-based model, but there are also clients who just want self-directed activity, and we have been investing in that business, in the E*TRADE franchise and E*TRADE Pro. And you see that our transactional revenues are also increasing. So that's an investment story in technology.

And the second piece that you mentioned is efficiency. We are also using technology to help us from an efficiency perspective, both on the cost and the revenue side. I'd note to you that some of the AI that we've been doing is actually also on the revenue side. So Lead IQ, for example, which is helping us introduce our advisers to our clients who are interested in advice that's happening using AI. So there's technology that can be used both on the revenue side and on the expense side that should help us drive the margin on both the top and the bottom line.

Workplace is particularly exciting as a way to bring the entire enterprise together to help drive both the corporate client base and personal wealth into a broader Morgan Stanley funnel. So that plank of the funnel has been particularly extraordinary.

We'll take our next question from Brennan Hawken with BMO Capital Markets.

Excellent. I actually -- sorry to be a little repetitive, but I'd love to have another question here on the targets because we -- it does seem as though we've got maybe a shift in how you guys are thinking about them. And you made some comments around -- I totally get I wanted to chase the drag in, right, and continuing to raise the targets and think about what the peak could look like. You spoke to higher lows in addition to higher highs. So is the right way to think about how you're framing the targets and how you're thinking about managing the business as more like a central tendency through the cycle? Or is it even feasible as you continue to scale to think about how this might be, you never want to use terms like floors in businesses like you have because of the market sensitivity and whatnot. But potentially what you could be looking to do even in more challenging markets as we continue to progress forward.

Sure. There is a chasing dragon element to this, of course. You hit some of the targets once and you feel you got to sort of bump and raise. We want we want this to work organically over the very long term. This is part of the reason on Slide 4. We put up a decade of results. The area cyclicality in the business. There is no philosophical frame shift though. I think we just now have the kind of confidence what we can start talking about what would be like if there was a more challenging environment and our ability to still generate return on tangible with an environment where earnings could be below $8. We don't have that in the plan, but it is an important ballast when we think about the earnings multiple that you put on the currency that there's a view that we can continue to generate real leverage -- operating leverage through performance in tougher periods. That is a tough -- that is a tough thing to tell the market you have confidence in, unless you've done 8 quarters as we have in the sort of mini macro uncertain periods where we've been able to see performance driven by the 2 major segments separately and then together.

It is the case though that with the compounding of earnings and the continued growth of these businesses, it is quite possible that we are going to be moving right through these firm-wide goals. By definition, the math should take us through the $10 trillion. It's compounding math, and you've seen our performance on that score over the last several years. And we printed wealth margins that were, in fact, above 30%. We continue to gain share inside the Investment Bank. As Sharon went through, we had margins for the enterprise, i.e., efficiency ratio that was below 70%, and our ROTCE was 21%, 22%. So we demonstrated it. It's just not in our prudent kind of long-term thinking that is the Morgan Stanley of today that we should just move the targets higher because we've had a couple of good years.

I think the view is we are going to continue to compound earnings. We are going to not push on robust objectives when, in fact, 20% returns are pretty darn good if we're continuing to gain wallet and secure market share in the businesses that we care about, whether they are in core investment banking and the mergers business. You see our advisory number was excellent this quarter in our equities business, which has become, again, the kind of competition that it was some years ago, where the leadership group is moving away from the pack in fixed income secured lending, where we have a great client touching business and then really across that wealth funnel, which is really quite extraordinary.

So there is an element of we're going to keep our heads down and execute as opposed to kind of hear some targets just to get everybody excited in the moment and then let's see if we ever hit them. I think our view is, let's hit them again and again to the point where it kind of gets louder like, when are you guys going to take this up because it's sort of a no-brainer for you now. And when we get to that point, that will be a happy day, but in the meantime, let's compound earnings, let's do it the right way. We got a lot of long-term plans around the durability of the business model, and we're playing for the multiple too. It's the -- as you know, it's the [ P&E ] and part of the way to get a premium multiple earnings multiple in the marketplace is to demonstrate our ability to see what we're going to do and just go out and do it again and again.

We'll move to our next question from Devin Ryan with Citizens Bank.

A question on institutional trading. Obviously, wrapping up another great year for the firm, up 16%, and that's coming off of 19% growth in 2024. And clearly, Morgan Stanley, you guys are executing on our wallet initiatives and gaining share. But as we look ahead into 2026, can you help us think about some of the puts and takes of just assessing kind of the trajectory of the wallet. Just trying to think about kind of the baseline here after 2 really good years, can the wallet continue to expand and kind of the secular dynamics versus the cyclical.

Yes. We like the tailwinds. Sharon will improve my answer here. We really like this business. I think one of your colleagues like to ask us sometimes what inning we're in. I think in the capital markets business as a whole, I kind of put us in the third inning. Now there are sort of exogenous outs sort of, as I said, the geopolitical swirl. But the reality is the equitization of markets around the world is underway. That's why we put in the slides on the global presence that we have. It's not that we're trying to be all things to all people, where we are good, though, we wish to be very good. So we are differentiated in Tokyo. We are differentiated in Hong Kong. Hong Kong was the busiest issuer of equity in the world over the last year, that will continue. And of course, we have the sweet spot in the U.S.

So there is a global theme to this. But as we talked about in prior calls, too, there have been reasons why there has been some sort of stuck boardroom mentality, understandably, as we went into the pandemic, and then we came out with rates having roof to try to combat inflation. But I think now there is really no more time to waste. The reality is that AI is now taking hold endogenously. And you need to actually have some real scale to be able to [ feed ] the teething of putting that into your core business. And so we should see consolidation. And the sponsors are just getting going. They are having bought some time and taking a look at what they want to keep and what they want to run through markets, they are beginning to unglue their asset base. And then, of course, we have very large private companies that are wildly successful that are probably going to start bridging to getting public.

So I'm starting there because that's all about investment banking. And then in the equity space, rates that are above the 0 floor foreign exchange that starts to trade. And then importantly, the institutionalization of the private credit class all speak to vibrant capital markets. And as you know, we are at some level of stock house, M&A, wealth management and then equities and clearly, getting our footing to be #1 or #2 in the equities business in a given quarter, has been a priority of ours to do it the right way with clients. And importantly, within that, the growth of the derivatives business, a relative weakness of Morgan Stanley relative to the top-tier competitors. A lot of that has now been erased. So we actually are coming across now as a derivatives house as well for clients. So I like what we like what Dan has done quite brilliantly with the integrated investment bank, which is sort of take it up another notch with clients right into the cycle where we have the global footprint and where we are ready to put capital to work, as Sharon said, in places like M&A acquisition financing, prime brokerage, fixed income secured lending and other durable businesses that accrete to the broader integrated firm.

And then my last comment would be the beauty of this, and you heard it woven into my slides and Sharon's commentary, is that a whole bunch of what we're talking about as application above both -- across both the institutional and wealth client set. Stock administration side of workplace has appeal both for the CEO and then for -- that firm for their wealth management business. So we're quite excited about it. The old rule of thumb is 2x GDP. I would think 2x GDP is not a bad way to go, nominal GDP even. So you could see the wallet in this business continue to grow by anywhere between 5p and maybe even 10% per annum. And then as you can see, we are continuing to gain share from some of the lesser firms that have incomplete offerings, which should augur well for the largest established firms frankly, the ones that reported this week being the ones to thoughtfully gain share here over the next number of quarters.

We'll move to our next question. Sorry, go ahead. We'll take our next question from Mike Mayo with Wells Fargo Securities.

I was going to ask you what inning you're in, but I think you just ...

I know, sorry about that.

Well, it's the wrong season, too. So maybe I can put it in football terms. I don't know.

How about this? Maybe just ask the question again and then like I [indiscernible] pick a softball.

Look, as it relates to trading, I get investment banking and the equitization of markets globally, the institutionalization of private credit class. And I think that kind of probably hits the mark. But the trading size is what I think people wonder about. You always put a forecast in there and it doesn't always turn out so correctly. And so how do you think about the trading business? You had unusual volatility last year and when you say third inning, maybe it's the first or second inning for IB and eighth inning for trading? Or how would you characterize that? And then as an overlay, how do you think about the AI opportunities and risks as it relates to your business?

That's very interesting the way you put it. So I'll do the first part, Sharon will do the second part. The -- yes, I could argue that the trading businesses, in some respect, have to be viewed if you just -- we were to look back on the earnings print years from now, maybe they're in middle innings, simply because we've had this huge move in asset prices. So by definition, you're off higher notionals and there's gross leverage, and you've seen real sort of capital accumulation in places where we can monetize and maybe we're in that sweet spot right now as opposed to the pure investment banking business, which is in the earlier innings. So I guess you could probably argue that. And it is the case that if we have lower asset prices because we just -- we have a drawdown or we have kind of like a blip in the economy or the geopolitical thing kind of hits tails because there are tails obviously. The base case, as we both know, the base case is positive, just given the health of the corporate, the consumer and the general kind of tailwind of deregulation, but if some of that kind of creates periods where things are kind of risk off, yes, I would agree.

If there are folks that are trading and have some inventory and kind of the risk that we all know gets kind of linked to trading, could there be lower levels of performance. Absolutely, which is, by the way, also part of the reason that we are emphasizing for the purposes of the investment bank kind of durable share gains in wallet as opposed to trying to show a ton of volatility around returns.

Now we can't control asset prices, but sort of control that, which we feel like is sort of a mandate business with our institutional clients versus kind of just moment-to-moment sentiment. And that's part of the art of overseeing and risk managing these businesses, but that's something we're focused on.

On the second part of your question, Mike, you hit on a great point, the need for capital markets and structuring expertise in terms of what's going on within the AI ecosystem is clearly there. And I think that, that's a part of what you're seeing both play out over the previous year, but also when you look ahead, with companies needing access to capital markets. So these are places where we see ourselves playing that intermediary role in terms of our strategy of helping clients manage and allocate and get access to capital. And that will happen both as you think about the equity underwriting business and also in different parts of the project finance and potentially even the M&A space.

We'll move to our next question from Steven Chubak with Wolfe Research.

So I did want to drill down and take a broader question on firm-wide operating leverage. Just as we think about the earnings growth algorithm putting the decision not to change the targets aside, I can certainly appreciate the desire to be a bit conservative there. Given the expectation though for meaningful growth in both cap markets and wealth revenues in the coming year, and consensus really contemplating a little to no improvement in margins versus the 50% incremental margin you achieved this past year. I was just hoping you could speak to the philosophy around operating leverage and whether you can still deliver those higher incremental margins if the revenue momentum is sustained and the operating backdrop remains constructive.

That was very clever. You're effectively -- I did read your report, you are trying to get at moving the goals without moving the goals. Yes. I mean, Sharon put some meat on the bone. But of course, we expect there to be ongoing operating leverage if we are running these businesses as we have -- and the market backdrop is constructive, there is largely a fixed cost base. And sure, there's some variable costs as you go, but that is why we are -- we believe we're not overreaching and saying that even with the ongoing investments we're making back to Mike's question on AI, in core technology or in ongoing AI efficiency and effectiveness tools, we would expect that if the markets are conducive, and we execute, so those are 2 ifs, market is constructive, and we execute across wealth and the investment bank and IM as well that we should continue to realize operating leverage. I don't think our view is that it's a linear model, but our view would be that, that is why we thought that the efficiency ratio at 70 was a good number. And in periods of performance in the past, and certainly, again, this year, you saw it in the fourth quarter at 68. And you saw it for the year at, I believe, also 68 and change that we should be able to continue to press that further in a thoughtful way as we compound earnings.

Absolutely. I mean I highlighted a little bit touched on AI, I talked a little bit about the revenue side. But there, on the expense side, there are definitely places where we see investment that we will be making. We were a first user first adopter of AI technology. And we're already seeing some of those productivity points play out. Ted mentioned it in his prepared remarks, but think about the operation space. Think about -- we used to have 2 teams necessarily checking each other on different documentation to make things sure things are right. We now have 1 human team and 1 AI team. And so when you're actually looking at those docs, you have ways to continue to see productivity gains and teams can do more work on a different type of cost base than you've had before, and we need the flexibility to also be investing in that technology as we move forward.

I really like the example of Sharon gave, because that 1 has served a very sort of -- a simply put example where there should be realized efficiency. From that, presumably, there is effectiveness, i.e., productivity gains that come realized from insight that can then be applied to other infrastructure functions and then inside the business unit. The one thing I would say, which we all know, but it's worth just putting on the table, is there's going to be teething pain on this stuff. I mean we don't know what the combination of languages will be the sort of the ultimate best recipe for one institution or another, what the cost to sort of put that through the system will be, how we work the regulator and then importantly, how advanced our client base is with respect to some of this toolkit.

So there will be some [ teething ] around that. Again, like the introduction of the Internet, it will take several years. But I did mention in the deck and Sharon called out again, this is the kind of thing where we are seeing quarter-by-quarter as we all are in our personal lives, that the substance underlying the progress, the technological advancement is real.

We'll move to our next question from Erika Najarian with UBS.

No good deed goes unpunished. To be fair, JPMorgan has been sticking to 17% ROTCE through the cycle despite outperforming it. So maybe just approach it a different way, Ted and Sharon, you mentioned 320 basis points of excess capital clearly, the regulators are keen to redefine that. As you think about the forward and achieving higher highs and higher lows. Where are you investing back in the business in terms of trying to build moats and also give in Sharon's response earlier on the Wealth Management pretax margin. Markets aside, there seems to continue to be structural opportunity to improve that underneath the surface. And I just wanted to make sure that we were taking away the right conclusion from that response.

Absolutely. You are taking away the right conclusion. We continue to see opportunities to expand our margins over time really in all of the businesses. We get a lot of questions around, to your point, Erika, are there still opportunities to invest that are ROE accretive inside the building? And the answer is absolutely yes. You can see that in the results, particularly in the investment banking franchise. We have been adding talent and with additional talent resources, capital resources, to help service a broadening and a widening out of a corporate portfolio and different corporate clients that we cover. That has helped us gain share and gain durable share in the investment banking, both the advisory side, the ECM side and the DCM side. So that's a very clear place where we've been putting capital work. You can see it in the loans and lending commitments in terms of the growth in balances and then the outcome is evident in the results this quarter. Other places where we've been investing capital have been secured lending.

So again, a durable business line that has helped, as I mentioned, to stabilize the performance that we've seen in fixed income over the last number of years and as well capital within our equities business to help service our clients. That's on the ISG side and there are plenty of places in wealth. I talked a lot about SBL and mortgages. We're increasing our education to the clients and to our advisers as being able to have products that we can offer those clients and where we can deepen relationships. So it's across the enterprise, so to speak, and it has been and will, we think, continue to be ROE accretive.

Yes, that's all right. And I would also just to tag on there, I would also call out just the early days of the digital asset transformation side of wealth. We announced a partnership with Zero Hash last year. We're looking to expand our capabilities. We're well positioned now in the crypto and tokenized asset space. So of course, that's probably a first or second inning type of phenomenon, and there is a lot for us to do there. There is continued work that we're doing in E*TRADE take a world-class platform and continue to make that interesting for our active self-directed community. And then in investment management, just to call that out, I mean the success of Parametric classic case of scaling an asset from within an acquisition quite brilliant what the team did there to inside of Eaton Vance to find this real gem and to scale it across wealth management and clients outside the building.

I think there is a ton of work to do in alternatives, and we continue to invest in that. So some of those our sort of ongoing capital investments in businesses like equity derivatives where they should just improve an existing product set. But I'd argue, too, that there are adjacencies that we are really like embryonically building inside of the institution in alts, in digital assets inside of new customized solutions in the investment bank that are exactly kind of dovetailed with the intellectual capital we we're supposed to bring, but are going to take time and investment.

We'll move to our next question from Gerard Cassidy with RBC Capital Markets.

Sticking with capital, obviously, you guys are very well capitalized relative to your required levels. And we know, led by Secretary Bessent, that this administration is really pushing deregulation within the banking industry, and we're seeing it we're all expecting, of course, the Basel III in game proposal, hopefully, in the first quarter, G-SIB recalibration, stress capital buffer recalibrations. If your requirement comes down even further from where you are today, at what point do you really have to look at giving back maybe even more capital since you got an abundance of it already?

This is -- thank you for your question. This is part of the kind of the Morgan Stanley today, where we are comfortable being in a position where we sort of sit at high ground. Yes, we have a capital surplus. And indeed, that surplus is growing with a buyback that's been restrained and a dividend that's been growing prudently, but we continue to grow the buffer, and we're above 300 basis points. So everything you said is correct. But I think we are in no rush. There are a ton of ideas that are coming at us. The bar for acquisition is super high.

As I said, we know what what it takes to kind of integrate an asset. Having done that 4 times, we have humility around that. We also know that it's kind of incrementally helpful to the institution and even to valuation that folks see that we are real stewards of our capital. Now you're saying at a certain point, it gets to be where we may wish to do something incremental to the capital beyond putting into the business, as Sharon and I outlined, let's see when we get there, and we'll be talking about that. But we continue to find great places to put capital in the business, a whole bunch of business lines across the integrated firm, but yes, it is a nice place to be that we are above 300 basis points. And it is also the case that we believe the business model speaks to real substance around the argument for our CET1 ratio to actually go further down.

So you could argue that 300 could get bigger. And then if it does, we'll be talking more about how we want to prosecute against the alternatives.

We'll take our last question from Chris McGratty with KBW.

I think in your prepared remarks, you talked about 25% of asset gathering being international. I guess I'm interested in your views for the business and the growth international, domestic over the medium term, certain markets, businesses, higher growth or higher ROE potential?

Yes. We continue to see assets coming from our wealth channels that are obviously based on the U.S. But I would note that I think that you might be discussing also, there is international distribution that we're seeing in Investment Management. So when we bought Eaton Vance, one of the was they had a franchise that was basically very U.S.-driven from a distribution perspective. We are in a position where we are seeing -- for example, our fixed income flows over the course of this quarter, 50% of that distribution was coming from international accounts. So there's plenty there. Now in terms of the rest of the institution, obviously, the global franchise has certainly helped from a capital markets perspective when you think about the 9 boxes we used to talk about in equities, we're seeing contributions from all of the businesses or all of the regions across institutional securities and in the equities business.

Now we did think it was important to call out the non-U.S. businesses because the revenue growth and the margins attached to them have been quite impressive. And of course, our client base is global. And so you're speaking to the revenue contribution to the firm overall. And that is one that may not necessarily grow relative to the total as a geographic matter but should compound nicely as we continue to grow, not just in the Americas but in EMEA and Asia.

Ladies and gentlemen, this concludes today's conference call. Thank you, everyone, for participating. You may now disconnect, and have a great day.

Good morning. Welcome to Morgan Stanley's Third Quarter 2025 Earnings Call.

On behalf of Morgan Stanley, I will begin the call with the following information and disclaimers. This call is being recorded. 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. Morgan Stanley does not undertake to update the forward-looking statements in this discussion. Please refer to our notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release. This presentation may not be duplicated or reproduced without our consent.

I will now turn the call over to Chairman and Chief Executive Officer, Ted Pick.

Good morning, and thank you for joining us. In the third quarter, Morgan Stanley generated record top and bottom line performance with revenues of $18.2 billion and EPS of $2.80. Robust returns on tangible of 23.5% reflect the operating leverage of the integrated firm. The capital markets flywheel is taking hold as the administration seeks to execute on its 3-pronged strategy to reshape the economy, with Fed rate cuts likely to continue into next year. Across public and private markets, institutional and retail clients are engaged, seeking trusted advice and global access from investment bankers, financial advisers and market specialists.

From the first quarter of 2024, a top priority for the team has continued to be the reaffirmation of Morgan Stanley's strategy to raise, manage and allocate capital. And over time, to execute on a higher plane when favorable capital markets environments permit. Our business model is activity based. And while we cannot control the broader economic and market backdrop, the heart of the Morgan Stanley investment thesis remains our delivering earnings and returns durability, alongside continued dividend growth through periods of uncertainty.

This focus on maintaining earnings durability and driving earnings growth is governed by execution rigor inside the lanes of the priorities outlined in our annual strategy deck. The readout of sequential EPS results during this period underscores ownership of earnings growth and durability against different economic backdrops, $2.02, $1.82, $1.88, $2.22, $2.60, $2.13, and now $2.80.

Morgan Stanley is well positioned in each of our businesses, and is demonstrating consistent execution. Total client assets across Wealth and Investment Management are up $1.3 trillion over the last year, and have reached $8.9 trillion. In Wealth, our scale and client reach continue to drive performance. Reported margins were a full 30%. We added $81 billion of net new assets and $42 billion in fee-based flows in the quarter.

Investment Management continues to scale capabilities with sustained leadership from Parametric. Across all 3 regions, our Institutional Securities business delivered outstanding results. Our equities business affirmed its #1 position with a standout quarter. A rebound in the investment banking environment reopened the door to strategic M&A and renewed financing activity. The equity underwriting result was also industry-leading this quarter, which speaks to the power of our integrated investment bank.

With respect to the bank regulatory capital framework, regulators are moving toward a more balanced approach, executing on their prudential oversight responsibilities and more leveling the competitive playing field, where the largest, best-capitalized financial institutions can once again act as a primary engine to drive sustainable economic growth. Morgan Stanley specifically appreciates the Fed's recent reconsideration of our CCAR results, and we look forward to ongoing dialogue and transparency. Our excess CET1 capital stands at over 300 basis points.

Periods of economic and geopolitical uncertainty were to be expected. As we transition from the post-pandemic period, we called the end of the end of history to a period we now could call the continuation of history, a period in which the push and pull of industrial policy, national identity and technological innovation will continue to be front of mind for our clients and stakeholders.

Morgan Stanley will continue to capture opportunities around the world through cycles, staying close to our clients as they raise, manage and allocate capital. We are actively investing in the Integrated Firm across Wealth and Investment Management, Institutional Securities and across our bank and infrastructure units. We are deploying capital and expanding capabilities through the wealth funnel and enhancing the global distribution of our asset management offerings.

As macro uncertainty and enormous opportunity uncomfortably coexist, our 2025 year-to-date results demonstrate both the capability and the capacity to deliver earnings durability and generate operating leverage against shifting economic and geopolitical backdrops.

Morgan Stanley's strategy remains consistent. Our durable earnings and capital strength are clear. The quarter's performance across Wealth and Investment Management, alongside the strength across Institutional Securities in all 3 regions underscores the proposition of the Integrated Firm. We are focused on generating strong returns for our shareholders and have real degrees of flexibility to pursue growth opportunities across our core businesses. We are committed to advancing through $10 trillion in total client assets and on to the next phase of Morgan Stanley's growth trajectory.

As the firm celebrates its 90th anniversary, we're as ever focused on executing first-class business in a first-class way across the integrated firm for our clients, our shareholders and our colleagues.

Sharon will now take us through the quarter in greater detail.

Thank you, and good morning. The Firm delivered exceptional results in the third quarter, underscoring the power of our global Integrated Firm and the scale of $8.9 trillion in total client assets. Performance was very strong across the businesses and regions, driving record revenues. [ CVA ] of $2.80 and an ROTCE of 23.5%. The year-to-date efficiency ratio, 69%.

The Firm continues to demonstrate operating leverage while maintaining focus on longer-term investments. Our investment in Workplace, E*TRADE and our Investment Banking franchise are yielding results. Our early AI use cases, some live and some in pilot, are showing progress. These include the DevGen.AI tool, which enhances developer efficiency by modernizing code. [ Parable ], an interactive tool that quickly analyzes and summarizes data, and LeadIQ, our AI-powered lead distribution platform, focusing on matching workplace and self-directed relationships and facilitating engagement with our financial advisers. Together, these use cases are laying the foundation to drive productivity across the firm.

Now to the businesses. Institutional Securities revenues were standout at $8.5 billion, driving powerful operating leverage. While the Americas led to year-over-year growth, clients were active around the world. We are continuing to see attractive returns from steadily investing across the integrated investment bank. Themes around emerging technologies and renewed investor appetite in Asia contributed to the results.

Investment banking activity has meaningfully improved after several years of muted volumes. Capital markets reopened and supported underwriting issuance across both debt and equity products. Specifically, market receptivity for IPOs encouraged both sponsor and founder-led companies to come to market. This, combined with strong credit metrics, set the stage for renewed strategic activity. Investment banking revenues increased to $2.1 billion, marking one of the strongest quarters in recent years. The year-over-year improvement was driven by broad-based strength, with underwriting results up over 50%.

Advisory revenues increased year-over-year to $684 million, driven by higher completed activity. Equity underwriting revenues increased 80% year-over-year to $652 million, driven by IPO activity and further supported by strength across equity products and sectors. Activity picked up materially in September on the back of record-breaking post-Labor Day issuance in the Americas.

Fixed income underwriting revenues were $772 million, driven by higher non-investment grade and investment-grade loan issuance. As the M&A market shows signs of recovery, event lending commitments -- event-related lending commitments met receptive markets. Results were supported by higher flow activity as clients took advantage of refinancing opportunities.

Secular themes and pent-up demand have supported an increase in activity across the integrated investment bank. Clients are increasingly turning to Morgan Stanley to navigate complexity, monetize opportunities and deploy capital decisively.

In the quarter, robust pipelines translated into announcements and credit markets were resilient and open, conducive to activity. We continue to selectively hire bankers and product specialists as the Integrated Firm culture is attracting opportunities to deepen the coverage footprint.

Our leading equities franchise generated $4.1 billion in revenue, propelled by broad-based performance across products and regions. Prime brokerage revenues drove results as average client balances and financing revenues reached new records. Cash results were strong, reflecting active client engagement and an increase in global market volumes compared to the prior year. Derivative results were up year-over-year, driven by higher activity and regional strength in EMEA.

Fixed income revenues were $2.2 billion. The business showed consistency, driven by strong client engagement across credit and commodities, partially offset by lower results in foreign exchange. Micro results increased year-over-year. Performance was driven by strength in securitized products, benefiting from robust securitization activity and historical growth and durable lending balances.

Macro revenue declined versus the prior year. Volatility decreased in foreign exchange markets across developed market currencies, leading to reduced client activity and trading opportunities.

Results in commodities finished the quarter with strength, increasing year-over-year, driven by our North American Power and Gas business, which included structured transactions during the period.

In the quarter, ISG provisions were modest at $1 million, as a sequential improvement in the macroeconomic forecast was offset by portfolio growth in individual assessments. Net charge-offs totaled $46 million, primarily driven by commercial real estate loans that had largely been provisioned for in prior quarters.

Turning to Wealth Management. Our franchise is growing with sustained momentum, reinforcing our industry-leading position. A record $7 trillion in total client assets, record revenues of over $8 billion and continued operating leverage drove margins to 30%. Another quarter of strong net new assets and robust fee-based flows illustrate the power of the funnel and the scale of our client base, which spans over 20 million relationships. Assets that originated from Workplace continue to migrate into our adviser-led channel as a result of the consistent investments we have made into our differentiated platform.

We are not standing still. In the third quarter, we continued to invest, deepening our competitive moats in areas like our expanded collaboration with Carta in private markets and in digital assets through announced partnerships with Zerohash. We continue to innovate, reinforcing our leadership in the industry and enhancing our ability to service our clients with unique capabilities.

Moving to our business metrics. Record revenues were $8.2 billion. The business continues to demonstrate operating leverage, with the reported margin expanding to 30.3%. DCP negatively impacted the margin by approximately 100 basis points this quarter. Asset management revenues were a record at $4.8 billion. Fee-based flows were exceptionally strong, exceeding $40 billion for the second consecutive quarter. Transactional revenues were $1.3 billion, and excluding the impact of DCP, we're up 22% year-over-year.

Throughout the quarter, retail clients were engaged across products and self-directed activity was particularly strong. We launched Pro -- excuse me, we launched Power E*TRADE Pro, which is a reflection of our investments to enhance our platform. These investments have helped support E*TRADE's transactional revenue, which is highly accretive to our margin.

Bank lending balances rose $5 billion sequentially to $174 billion, reflecting our multiyear investments to meet the full portfolio needs of our growing client base. In the quarter, we deepened our client penetration with lending solutions, inclusive of securities-based lending and mortgages.

Sequentially, total end period deposits grew to $398 billion and net interest income increased to $2 billion. The growth in NII was driven by the impact of our market environment and the cumulative loan growth. Looking ahead to the fourth quarter, we expect to see a modest sequential gain in NII. Of course, the rate environment, trajectory of loan growth and deposit mix will all come into play.

Finally, in the third quarter, we delivered net new assets of $81 billion, a testament to the depth and breadth of our diversified platform. All 3 channels contributed to our asset growth. The reopening of the IPO market also supported results. Further evidence that our Workplace channel serves as a powerful asset acquisition tool. This quarter, the business demonstrated exactly what it is built to do. With over 20 million relationships and $7 trillion in total client assets, our scale and connectivity sets us apart, positioning us to deliver.

Turning to Investment Management. The business continues to perform well. We are seeing momentum for secular demand in our highly sought-after Parametric solutions and expanding our global reach in fixed income. Our investments have supported our growth to a record $1.8 trillion in total AUM, and further position the business for the opportunities ahead.

Long-term net inflows were $16.5 billion in the quarter. Over half these inflows were driven by Parametric and further supported by ongoing strength in fixed income. Parametric inflows were inclusive of a large partnership with a third-party investment adviser, seeking greater tax efficiency for its clients.

Liquidity and overlay services had inflows of $24.8 billion, driven by demand for our liquidity strategies. Revenues of $1.7 billion increased 13% compared to the prior year. The increase was driven by higher asset management and related fees on the back of higher average AUM. Performance-based income and other revenues were $117 million, supported by gains in infrastructure, private equity and real estate.

Turning to the balance sheet. Total spot assets grew to $1.4 trillion. Standardized RWAs increased sequentially to $536 billion as we actively supported clients. Exposures rose intra-quarter on greater levels of activity and reduced into quarter end as we syndicated risk. Our standardized CET1 ratio stands at 15.2%. We opportunistically bought back $1.1 billion of common stock in the quarter. Our quarterly tax rate was 23.6%, excluding $50 million of net discrete tax benefits. We continue to expect our fourth quarter tax rate will be approximately 24%.

The Firm is operating with momentum across all segments. We enter the fourth quarter from a position of strength, with a combined $8.9 trillion in total client assets, an engaged client base, healthy pipelines and global reach. We remain focused on continuing to invest in our business as we look ahead.

And with that, we will now open the line up to questions.

[Operator Instructions] We'll take our first question from Dan Fannon with Jefferies.

Ted, I was hoping you could just talk about the environment. You've been quite bullish all year. Obviously, a great quarter. So can you talk about the sustainability of these trends, maybe the context of the backlog and investment banking, the diversity and how that compares to maybe prior periods.

Yes. The question is the right setup. Whether we are entering a -- a golden agent investment banking remains to be seen, but it has been now several years of chatter around green shoots, and now the flywheel is taking hold. It's happening across industry groups. It's happening across regions. It's happening against a generally more favorable regulatory backdrop. It's happening at a time where there is deglobalization and re-globalization depending on where you are and how you're looking at it. And obviously, the need to feed the cost of endogenous AI. So that sets up for a very interesting environment for strategics who now will compete for product with sponsors in each region and in each major industry.

We've been spending considerable time and capital on building our investment banking core, and the fruits of that are seen in both the equity and debt underwriting number and an advisory number that continues to pick up. And to what you're alluding to, Dan, the pipeline looks very good across all 3 regions. So we are we are optimistic. Now of course, the world is an uncertain place, and there could be pauses depending on how geopolitics feel. But generally speaking, the investment banking product category over the next couple of years should be generally up and to the right.

Great. That's helpful. And then Sharon, I was hoping you could expand upon your comments around just the [ NNA ] growth within the wealth channel. You talked about Workplace and the IPO market being a contributor. So maybe if there's a way to contextualize that a bit more and also just talk about the other channels in terms of the momentum there as well.

Absolutely, Dan. Thank you for the question. All the channels are strong. Self-directed. We've been increasing our marketing and business development. You can see that. Our advisory is also strong. We have new clients, existing clients, both coming in, so we're attracting assets held away. But we're also bringing in new clients, and that's a lot of the tools and -- that we've been giving to our advisers.

And as it relates to Workplace, that's probably the most exciting part. I think we're just scratching the surface of what we've seen in Workplace. It's bringing in assets not just in NNA, but also directly into fee-based flows. So people are -- we're seeing momentum. As you have IPOs come to market. People are bringing their assets to Morgan Stanley. They're dropping into their self-directed accounts, yes. But they're also moving it directly into the adviser-led accounts. And that's been a large part of the story.

I think you and I have talked about it, Dan. Historically, you've asked about -- we've given a $300 billion number about that Workplace migration, and we've said that we've seen about $60 billion of migration per year. We're already 3 quarters into it, and we're exceeding those numbers from a full year basis. So Workplace has been a contributor to net new assets, to fee-based flows and channel migration.

Our next question comes from Ebrahim Poonawala with Bank of America.

I had a question on the pretax margin hitting 30%. I know you kind of removed all the pluses and the signs when you took over as CEO. But it's coming up a lot more frequently in our conversations with investors is when we look beyond one, do you think you achieved the point where the 30% pretax margin is sustainable? And again, I'm not saying you're changing your guidance, but I'm just wondering when you think about the outlook and all the productivity improvements, et cetera, is there risk that the 30% is drifting higher? Or moving lower in terms of -- when we think about the medium-term outlook?

Thanks for your question. It's incredibly important that we continue to understand that the investment dollars go into that wealth business to broaden and deepen the funnel flywheel that Sharon just described, whether it is putting more dollars in the Pro product in E*TRADE where we're also focused on upping deposits, whether it's investing in adjacent digital asset product, whether it's in deepening our relationships at the corporate workplace center or it's ultimately in our financial advisers, we're going to continue to put investment dollars into the system.

Now whether that with continued operating leverage gets us to a number that is higher than 30% over time, let's see how it goes. But right now, it was important for everyone to see that we had a reported number in a reasonably friendly environment that was, I believe, 30.3%, but that is an output, not an input. So the continued input is our investment dollars to drive PBT growth. And what is most exciting about what the wealth team has done is to drive revenues and to drive overall growth in each piece of the funnel.

Got it. And I guess, just in terms of -- you mentioned a friendly environment, there's so much discussions around whether there's an AI bubble where in the late '90s in terms of where we are in the cycle. Just talk to us, when you think about both sides of the business, investment banking, and as you're getting insight from how your clients on the wealth side are thinking about things, just how do you handicap that risk of where we might be in the cycle? And what has history taught us of what that implies for your revenue or growth outlook?

So when we think about our use of AI, and what we're seeing is there are many places that one can use AI. It's not just around efficiency, but it's also productivity, both on the expense line, but also on the revenue line. I tried to note 3 different examples at the beginning opening comments, and they were purposeful because they all represent different ways that one can begin to use AI from a full firm perspective. One is just going through code and being able to work faster. Make sure that we can be more efficient with our time. Coders can be more efficient as they go through lines of code that they're able to see and rewrite. And so that's one example that we can all kind of see across different firms and I think different institutions have talked about it.

Then you have things that are specific to a Morgan Stanley, which might be around LeadIQ, and that's very revenue driven, right? So how do you give more time to an adviser. How do you make sure that you give more matches that produce better results. And that's how we've been using all sorts of technology on forward.

And then you have things that you can see across all sectors. [ Parable ] is something that we've been doing really in finance, looking at our data, piloting it through and finding ways to summarize key data that other companies can also take advantage of. And so I think for -- you take a step back and your question is, well, what does it mean? There's a lot of ways to use this technology. It's extremely powerful. And this is another place where I think we really are just scratching the surface of what it can do.

We'll move to our next question from Christian Bolu with Autonomous.

I wanted to follow up on Wealth Management and your outlook for that business. Just given your leverage to private markets and technology sector through Solium, your Carta partnership, I'd imagine you should be an outsized beneficiary of the wealth creation around sort of the AI CapEx cycle. Curious how you see that? And then how does that influence your outlook for sort of 5% to 7% organic growth over time?

So when we think about private markets, we are obviously the largest provider of all the alternative space, yes, for the wealth management businesses, just given our overall aggregate size. It's about $250 billion of client assets.

But on the forward, I think what's important here is that there's an education process. We don't look at it as something -- you're not going to necessarily flip the switch. There's obviously places that we can continue to see asset, asset growth and asset accumulation. And we're offering new products our clients, such as just evergreen products, products that allow for lower denomination size. But this is a journey, and it will take time as we think about the education process and [ rewaiting ] or rebasing individuals portfolios. So absolutely a growth opportunity. But again, one that will take time.

And then on equities, really nice growth there, and it's been a consistent pattern of share gains in that business for a while now. Just remind us again kind of what's driving share gains there? And then where do you see further opportunities going forward?

So as it relates to equities, it's an incredible business. We've done an incredible amount of investing in our platform and our people and in also our global regions. Equities, more broadly, does speak to what we've talked about when we talk about durable share-based gains for ISG. This is a durable business where you have increases in prime brokerage balances. We have obviously spent the time looking at our end clients and looking at the end balances. But this is yet another place where you do see technology investment dollars going in. You see that on the derivative side, and you see that on some of the cash-based businesses and what we've offered internally in terms of trading tools to make our own business more efficient. So for us, Christian, what's important is the consistency and the consistent growth that we've seen in that equities business.

And I would be remiss if I don't mention yet again, the strength of the global nature of this franchise. We talk a lot about our competitive moats. Those moats are not built immediately. So when we talk about these investment cycles, we've been investing in Asia throughout Asia for some time. In different periods of time, you see different periods of growth across that region. Sometimes it's Japan, sometimes it's China, sometimes it's India. And so that global reach and that investment is one that you're just seeing take place and take shape, I should say, as the global markets begin to reemerge in this capital market cycle.

We'll move to our next question from Brennan Hawken with Bank of Montreal.

I'd love to drill into the Carta relationship. So you guys recently expanded that partnership. You made reference to it in your prepared remarks. Can you speak to the experience that you've had with Carta, prior to that, and your expectations for our larger relationships.

Yes. It's really nice to hear from you, Brennan. So it's nice to hear you back on our calls. This has been a multipronged approach in terms of the Carta relationship. So as you know, Carta generally deals with the private markets side from the stock plan perspective. And you know that our platform deals with both the public and the private market side.

So where the original relationship started is a referral-based model. So as companies began to move from a private side to a public side, they would be referred to Morgan Stanley, and that's working. We've seen evidence. We've had referrals. We've had number of referrals since that original relationship was started. And we have seen conversions into our space from the public side already over the course of this year. So it's been a great experience.

But there's now a second prong of the approach. As you know, what makes our platform on the wealth management side stand out is the value of advice, explaining the value of advice to our clients, to our broader client base, which standout, we often call it a category of one. What Carta now does is it's been interested in being able to offer these services, not just to the individual founders or the top providers, the tops of the companies as they go from a private public state, but throughout the entire journey.

So we're offering our advice-based service to those individuals. And from that perspective, it also helps solidify some of the other work that we've been doing, right? We've done a lot of work on trying to service founders, on trying to service family offices. There's all different places when you can think about how we've grown our wealth management business in terms of the types of coverage we give to the individuals. And these -- this is just one more place where our relationship with Carta can be helpful, and it will allow us to better deepen relationships also with private companies.

Excellent. Thanks for the warm welcome back. I appreciate it. When you think about that added access right, plus the strong and established business that you have in Solium that has -- that [indiscernible] is a little bit more private, I know you guys don't go -- you know what I mean. How much more substantial is that base versus 2021 when you last saw robust capital markets?

Well, I think that goes back -- I think it was Ebrahim. I can't remember, maybe Dan Fannon. The first question that we answered about NNA, it's just the beginning. I mean I don't know how else to say it. It's something when we look at what's going on in Workplace across new assets, across IPOs, these are all ways for us to build out the Integrated Firm. And we talked a lot about it over the course of the last 2 years and more recently over this year when we spoke about the Integrated Firm effort.

This is a place that you're seeing that build from a wealth management creation side. We have people around it to help shepherd individuals across the entire firm as you think about Institutional Securities, think about underwriting, et cetera. So there's a lot more to go in the entire ecosystem of being able to work with companies and their founders, understand them from beginning to end, and then bring them to market and service them throughout the life cycle of that corporation.

Our next question comes from Glenn Schorr with Evercore.

A quick one first. Sharon, I was very interested by your comment on the Parametric inflows and the large partnership with third-party investment adviser. So my question is Parametric has grown a lot, and I feel like we're still scratching the surface. But are you -- and that was a direct [ thing ] and direct sales into your wealth channel. Can you differentiate your growth mindset going forward for, a, penetrating your huge client base; and then b, is there a big white label opportunity that this is starting to scratch the surface [ itself ]?

So the way that I would describe it is what you're seeing is you have our wealth channel where you've seen growth, but that -- and that has been based on multiple years of what we call [ tax university ]. So when we first bought Parametric, we worked within our system to explain the product and the benefits of what you can use sort of tax harvesting, et cetera, within your portfolio, how is Parametric use to our financial advisers. So our financial advisers started to use it more and better understand that actual product. So that's one channel of growth.

Then you have other retail distribution channels that are also using it. And what I spoke to specifically here that was a newer opportunity that we haven't seen before in such size, is we started to work with third-party asset managers as well. We had a press release out close to a year ago at this point where we did discuss that this is something we're working towards. And we've talked about different types of asset managers who can look at their own portfolios and say, for my own portfolio and the assets that I cover, maybe this would be a good tool. And that's what we saw in terms of the inflow. Those will be lumpier. We are not saying that that's necessarily something that you're going to see every quarter, which is why we called it out. But it's certainly another place in another channel where we see the opportunity for Parametric over time.

Okay. Awesome. I appreciate that. Bigger picture, Ted, I'm curious. I agree with everything you said. The regulatory capital framework is hopefully going to be more balanced. You've got an 80 basis point refund recently. As you mentioned, you have over 300 [indiscernible] excess capital and you're making tons of money. So I think the buyback and dividends are good.

But my big question is, are there areas that you could deploy more capital at a higher pace into to drive growth. Your return on tangible equity is hardly anything to complain about, but it is a big denominator. Are there areas that you could deploy at a faster pace, whether it be organic or inorganic, that would just broaden the platform, make the company better, drive future growth?

Well, Glenn, as you say, that's the key question. The dividend is now $1 a share. That is sacrosanct, and we'll continue to grow that along. The buyback has been opportunistic. We'll continue to buy shares back, maybe a slightly higher cadence, but we're going to continue to view that as a tactical lever. As you know, over the last year plus, we've accreted [ $7 billion, $8 billion, $10 billion ] of capital dating back a number of quarters. So that, of course, has been effectively capital put in the piggy bank.

As we think about investment, you heard Sharon talk about a whole bunch of that. The best uses of capital continue to be internal investment into the business and to the Integrated Firm. Those are -- they can either be adjacent investments or they can be a little more orthogonal like digital assets or something that is kind of new and offers diversification effect, but they're all in the cylinders of the strategy around the Wealth and Investment Management and then the investment bank.

The mantra has been to scale with our key clients to build out product capabilities to invest in technologies. That's why I thought it was great that Sharon went into some detail on some of the technologies that are being born as we speak. Some of them are efficiency driven, some of them are effectiveness driven.

If you think about the kind of locus of where the Integrated Firm is, it's around the key decision-makers at these banking or asset management clients or our wealth management clients where they are the primary decision-maker for strategic financing or catalyst events, which, of course, dovetails with the investment banking wave that is kicking in now.

And we are investing a lot of dollars, whether it's in the markets business intra-quarter or it is through our wealth clients, either directly or indirectly. So E*TRADE Pro is effectively an investment. It just happens to be an internal one. Sharon has spoken at some length around Workplace and connectivity of private companies in Carta. Think about what we're doing with Zerohash and building out the full wallet. Some of this stuff, we can either harkening back to the equities days of 15 years ago. We might buy, we might build, we might lease. But those are investments that are made inside the business and eventually for the benefit of our financial advisers. We're also building out our bank. That is a key channel that we are much focused on, as you know, Glenn, and that's gotten a lot of dollars and attention to.

So the organic opportunity is the one that clears the bar and checks the most boxes. And that's going to be the continuing strong bias of the group. That having been said, we are well aware of the capital cushion. We do have, thanks to the better part of 15 years of Mr. Gorman, we have been well versed and trained around the thinking on the inorganic, whether it fits in the strategy, whether the culture is right, whether the timing makes sense and then ultimately whether the price works. Strategy, culture, timing, price. And right now, there is a lot of product that is coming at us. But in virtually every case, Glenn, we feel we can do the build internally, organically.

And for the last 2 years, I think you'd agree, what's been most important in the delivery of our management team, which has worked together for 10, 15, 20 years, beginning, of course, to Dan and Andy, leading the firm and then Sharon, Eric, Charles and then the rest of the operating committee, that for the last 2 years, we've been focused on saying what we're going to do and putting up the numbers.

And that hasn't been at the total expense of the inorganic, but we have felt comfortable continuing to make the case that there is growth, both in Wealth and Investment Management and then durably inside the investment bank, and that the sum of those 2 would be greater than the whole in the context of the Integrated Firm, that it would not just be kind of [ salesy ], but it would be something that, in the right kind of market environment, would offer operating leverage.

So in a sense, it's been the little picture. The little picture of both kind of squireling away from chest nuts, but then also building out the income statement, making sure that there's manifestly operating leverage against the uncertainty of geopolitics and transitioning economy. And then over time, we can consider carefully whether the inorganic ticks all 4 boxes: strategy, culture, timing, price, and whether we want to hold something in.

As you well know, this firm has successfully integrated Smith Barney, Solium, E*TRADE and Eaton Vance, but there is such a thing as winners curse in the financial services space, and we were not about to make that mistake. We don't need to put up a print for the sake of it. We are very excited by the way, on our announcement on Zerohash. We think it's great. We're building out the full wallet, and we will be ready to go as we move into 2026.

But whether we continue to compound the wealth and [ asset ] management base through $10 trillion organically or whether we do something inorganically, it will have to fit the test. But I wanted to give you a sense that, of course, we think very much about the big picture for [indiscernible], but we also, in this 2-year period, have been very much focused on the little picture, the spec on the rug, and making sure that we have numbers that are clean and that sustain the valuation that the market has awarded us, and then we move forward with a capital buffer that is 250 to 300 basis points plus.

We'll move to our next question from Erika Najarian with UBS.

I just had one follow-up question on the back -- the first question on the Investment Banking backlog. As we think about the sustainability of the Investment Banking strength, I can't help but notice that, of course, markets are at all-time highs and spreads are quite tight. It seems like the right precondition for the realization pipeline for sponsors to also take hold. And Ted, I'm just wondering, what other preconditions do you think are needed for that to be -- for the realization pipeline to spill into '26 activity?

We're seeing it. So thank you, Erika, for the question. But we're beginning to see it already. We saw it in the third quarter, and it continues to be a big part of our sort of backlog as you think about and pipeline for the forward. And the reason that we think that it's coming to fruition is as you said, we are seeing the capital markets kick in. As Ted said, he said the capital flywheel is working. The capital markets flywheel is working.

Specifically, when we have IPOs, that provides another lane for exit. And so that provides 2 sort of places that a financial sponsor can look, both an acquisition opportunity and exit from the perspective of advisory, or from the perspective of IPO. And so what we've seen is that that's been helpful to help the engagement, and it's certainly something that's already beginning to play out in the marketplace.

And the bigger picture here is that being a private company, a successful private company over the last number of years, as you know, Erika, the old rule of thumb was when you had a certain number of beneficial owners or a certain level of wealth created, you need it to go public if for no other reason to fees, employee stock option plans and to have a currency to get bigger through acquisition.

The reality is that the democratization of the private channel and the ability for companies to stay private longer has been one that has very much taken hold. And for lack of better words, been institutionalized over the last 5, 10 years. So being a private company, a good private company, has been a good thing. And the Street has been helpful in offering sponsors additional space beyond the 10-year fund to continue to keep the winners in-house. At the same time, being a public company has not been that great. The regulation got, as you know, much tougher. And the -- just sort of the reality of being a mid-cap or even small cap company that may be orphaned and still has to comply with the regulatory burden is tough.

So one of the things that we think is going on here is that with some rebalancing of the regulatory framework, the ability to go public, the ability to go public perhaps earlier and to draw the attention of new issue investors who were not cleaning up a secondary sale of a financial sponsor, but in our strategic investor, but in fact, are coming in where there's still plenty of growth in a sort of going public discount premium that makes it an exciting asset class again, we're optimistic about that.

The reality is the sponsors have not moved as fast because they've had the ability to sustain these capital structures as private companies that has its pluses, that has its minuses. What's changed though is that as we -- notwithstanding all of the concerns with elements of the 3-pronged strategy, the demonstrated success of Prong 1 and now a much Prong 2 and clearly Prong 3, i.e., deregulation, which will be very much a pro business and hopefully pro broader economy phenomenon, makes it more interesting for the strategic buyer to -- or the seller, in fact, if they want to purify their portfolio to go in and do something. To do something on a cross-border basis, to know that there are regulators going to give it a thumbs up or thumbs down versus timing it for uncertain periods.

There may be deals in the national interest that won't go through. But the entire proposition of mid- to large to mega cap M&A has been one that has not been on the table for a long time. If there's going to be large cap M&A across growth industries around the world, there will also be an IPO market as they work symbiotically in terms of attracting growth capital to grow the winners.

We'll move to our next question from Devin Ryan with Citizens.

I want to start with a question on Wealth Management net interest income. Obviously, it really benefited as short-term rates rose in prior years. And I heard Sharon's comment for a modest increase in NII in 4Q even as I said, is now starting to lower rates. And so I think what's becoming more clear is there's a lot of natural hedges in the model there, margin balances, sec lending, pledged assets, stabilization and the brokerage suite balances. So I'm just curious, as we think about rates now starting to move lower and perhaps the first 100 basis points of cuts, do you see a scenario where [indiscernible] NII can actually grow? And then can you just talk a little bit more about some of these hedge impacts as we get the other side of this?

Yes, absolutely. I'll take the question. The -- we will revisit 2026 guidance in 2026. But sitting from where we are today, yes, there is room for an inflection as you continue to move higher. You could ask me, well, how could you -- to your point, what are these offsets, and how can you get there even if rates begin to move down? Of course, it will depend on how quickly rates move. And if it's priced as it is from the forward curve we sit in today. So all of my answers are predicated on that on kind of this moment in time.

But at this moment in time, the reason that you can have that outlook really has to do with the lending balances that we've seen and the consistent growth in lending balances. SBLs, for example, is something that I talked about this quarter. I think we've talked about it over the course of the last couple of quarters and a place of growth. And that is coming not just from existing clients. So you could say, well, your existing clients, aren't they tapped out. We're getting new balances. We're getting new client participation. And there's more to do to help the bank itself grow, as Ted said. So that's a place where you can have that potential growth.

The other offset that I would note to you is historically, when we've seen rates come down, we've also seen an increase in balances. So yes, there's a trade-off in terms of how quickly will those interest rates come down and what will that mean. But that is from a sense of modeled behavior, another natural point than you could see in terms of a potential upside rather than downside on the forward.

That's great color. And just a quick follow-up on the equities trading results. Obviously, it feels like the bar keeps moving higher here. And you referenced the growth in financing and kind of record results there. Can you just give us a sense of kind of what the growth function has looked like in financing relative to intermediation over the past couple of years? And then just what the mix kind of looks like there today and how that's evolved as well? Because it just feels like you're building kind of a higher base overall in equities, and I'd love to just get a little more sense there.

Certainly. I mean we talked about record balances in financing, and we talked about that. That should -- obviously, you should think about that relative to where markets are. You're gaining client share, wallet share, but you're also benefiting -- one is benefiting from increased balances as the markets have risen.

As it relates to the more transactional level of activity, that's going to really be based on what's going on in the marketplace in that time, and you can see that more based on a volume-driven approach, i.e., our volumes rising or are they falling and client activity more broadly. So that might be more idiosyncratic to your point. And so yes, the base will rise as those prime brokerage balances will rise, assuming that there's not sort of some major market decline, which would cause a contraction [ in ] balances.

Yes. I mean, to echo that, we're at 6,700 S&P and index asset price highs around the world. So if there is a deleveraging event or just lower, let's say, there's a sort of recession scare and the markets are lower, well, by definition, the financing revenues will be lower. I mean they are linked in that sense, as you know, inextricably.

What is an interesting development, though, inside of equities, is, first of all, as global as ever, Sharon has talked about, we have a business that is thriving, both in Asia, which is, as you know, multiple locations, and then also in Europe, again, multiple locations. But then also the development of our derivatives business, liquid derivatives and the cash business, once thought to be one that would be totally electronified, that is being run very much as a barbell with the best-in-class MSET product, as you're aware of, but also one where the high-touch old school research sales-driven product with a world-class research department with folks who have been at Morgan Stanley for 20, 25, 30 years, who are embedded with our asset managers and are able to help them capitalize in a market now that is rewarding dispersion across strategies and across waiting.

So the first time in generation, you have real dispersion amongst our clients, which means they are looking for intellectual capital. We can offer that. And that there is real ability now to monetize that, not just in the classic financing pipe but also across cash and derivatives.

We'll move to our next question from Mike Mayo with Wells Fargo.

Ted, in the past, you said it's the moment of, I think, both [ wealth ]. I guess it's playing out, and you've mentioned IPOs, mergers, the flywheel. You mentioned U.S., Europe, Asia, mid, large, major corporates. So it seems like a lot is going on. But I think the question is, can you size where we are in the capital market cycle? Like what inning are we in? Are you overearning, underearning? Just if you could dimension this for us.

Well, I mean, you've been at this long enough to know that the typical answer that one would give would be driven by where we are in the economic cycle. And I'm just not sure it's working that way this time. There is clearly pent-up supply of product and idea flow that, as we've talked about, stems back from the earlier days of the pandemic, whether it's embedded in sponsored portfolios or it has been sort of ideas in the making inside of the EU or Greater China or Japan or obviously in the United States. So some of that inventory is meant to come.

There's also the reality of almost like a [indiscernible], big size creates category killers, and the regulatory combustion large-cap M&A has also been kind of an unnatural constraint to the supply of large-cap mergers that now need to happen to [ defease ] the cost of AI. So I think those are all tailwinds.

What I am less certain about, and I wouldn't want to be caught on the wrong side of kind of an [ abulent ] take on the world is there is a lot of geopolitical uncertainty by definition. And there is considerable uncertainty around how a [ key ] economy manifests itself in terms of Fed policy and then fiscal response function. I mean, to just ignore that would be silly. And the markets have come a long way. And then there's also the reality that the private capital class has been democratized over a relatively short period of time. So there will be occasions where folks are going to find out things they don't like around liquidity or issues, whether, by the way, those are public or private companies.

So I don't think it's just a blue sky, all boats steaming. What I do think is that for the first time in a long time, the largest investment banks that have global enterprises, that have invested in world-class corporate finance bankers who can offer the full set of global idea flow and then risk management around uncertainty through an M&A announcement, which is not just regulatory uncertainty, but it could be foreign exchange. It could be the hedging of interest rates and then through to the complexity of a rights offering or a sub-IPO, that entire daisy chain, Mike, probably takes us back to something that feels like the mid-90s, for example.

It could take us back to periods that are in the mid [ 00s ] before credit got out of hand, where you have real companies that are getting out and doing back to basis corporate finance. The difference now is you need the full kit, you need the full global support. And it has been, as you've pointed out and rightly pointed out, a lot of talk about a lot of green shoots for a heck of a long time. So some folks have blinked and other folks have continued to invest. And we feel good about that opportunity over the next 3 to 5 years.

But will there be periods where the windows could well shut because the geopolitical uncertainty takes us to risk off or asset prices correct? Absolutely. In which case -- which companies you bank, which ideas are going to actually be the ones that win the day, that's where winning and losing is going to be made amongst the global investment banking group.

So you're staffing and resourcing for this capital market cycle for the next 3 or for years or so?

Yes. We have the kind of tension inside where, on the one hand, we have an installed base because as you know, introducing new bankers on what is sort of the longest sale, it's like a financial adviser. This is like the key event for the CEO, the CFO, the founder. They don't want to meet someone new. So the installed base has to have been there, which is why a lot of the hiring we did, we did over the last 3 to 5 years.

On the other hand, you don't want to overhire because you know that investment banks tend to behave procyclically. So is there some tension in the system from folks who want us to have more bodies in front of $3 billion to $5 billion market cap companies to get that sell side, yes, there is. And I think that's a good thing.

When the tension is like [ 3 4 ], that feels right. If it's [ 1 ], that means you're probably overdone. And as you would point out, then you've got a purge and reset, and it kind of messes up the narrative. And if it's a [ 7 or 8 ], that means, obviously, we haven't made a decision about where we want to have leadership. And we want to have leadership in the core trusted adviser bracket. The Integrated Firm proposition, of course, is that you may be a trusted adviser, a founder, and that founder may have a relationship with a wealth manager, and that wealth manager then can work with the investment banker. And it's not forced behavior. It's behavior that is something that is a natural because we've been at it together for a long time.

We'll move to our next question from Chris McGratty with KBW.

Ted, you talked about the 300 basis points of excess relative to minimums. I guess a 2-part question, just a follow up. Number one, what's the right level of management buffer there? How that might be evolving, and perhaps the algebra behind that? That's the first question.

I mean, I think that -- we've highlighted where we have excess capital, and that's obviously on a risk-weighted basis. Honestly, like a risk asset-based basis. We also have excess capital as it relates to [ SLR ].

In terms of how and where it's evolving, it will really depend on everything that we see on the forward. So you think about the models that we're supposed to get from a CCAR perspective, that's going to help us understand base RWA -- or trust RWAs. You think about Basel, that will help us understand what is base RWAs, then you have to understand the overlap and G-SIB. So those are all 3 pieces on a risk-based capital framework that we're waiting for, and that will help inform us on the forward look as well as the finalized rule on SLR, which I think the industry is really looking forward to seeing so that we can move away from that being a binding constraint and a backstop.

And I don't know if this is algebra, Chris. But the way I would sort of think about it is, in line with what Sharon just said is, I believe in the last call, I said 200-plus, and we were at 15 for the quarter. And obviously, there's [indiscernible] from period to period. But we were 200 plus I said, we said, right? And then this quarter went from 15 to [ 15 2 ], notwithstanding, obviously, the payout of the dividend and the buyback because we just accreted more capital.

We also, during the period, received the reconsideration on CCAR from the Fed to the tune of another 80 basis points. So 80 plus 20, that's 100. And so I'd say the 200 goes to 250 plus in the spirit of conservatism, taking 50 out of the 100. All right? So 200 on -- was sort of -- 200 plus was the prior. 250-plus feels like the way to say it. Sure, we could say more because the actual numbers is [ 340 ], the implied buffers there.

I think others have said, colleagues on prior calls, and I would much agree with and repeat the algebra as you say, around the number, by definition, you need to have effectively a buffer and a buffer because of the regulatory uncertainty, which nodule is the governor and then the entire process of going through submissions and the like. We're hoping some simplification, some additional transparency, which we're much seeing from the Fed and the other regulators, which we are -- it's early days, but really heartened by that. There's more of a common sense approach to this, should, by definition, over time, prudently lower the size of anyone's buffer because they just know predictively what framework they are being measured by as opposed to the uncertainty underlying the test itself in times that are relatively not uncertain for large, well-capitalized banks 15 years after Dodd-Frank. So that would be the way to think about it in terms of the size of the buffer. But if you wanted to just jot down a number, I'd say 250 plus is a comfortable way to go from here.

Did you have another question? No? Looks like we're moving here. We're moving.

Next question comes from [ Saul Martinez ] with HSBC.

Okay. Saul, you're the last one up. I'm getting signals that you're -- so let's take it out really -- softball, softball, softball here. [ 10 40 ], please.

I'll do my best. I think -- I'm going to ask the question. I think, in a way, you've been asked a few times about the sustainability of the results in institutional securities. But I guess I'll ask it a little bit more bluntly. You did a 20% ROTCE this quarter through 9 months, 17%. I guess, can you sustain this type of profitability in Institutional Securities because it wouldn't [ buy ] that given your business mix, you would imply that your ROTCE at consolidated level would be above 20%. And IBCs, obviously, this quarter, very strong [indiscernible]. We haven't seen since 2021. And obviously, a lot of room for optimism for a lot of reasons you've highlighted, Ted. But we are really in a [ sweet ] spot as markets businesses are also [ humming ] and doing extremely well.

So I'm just curious of your perspective. Is an environment where investment banking continues to grow over a multiyear period, is it consistent with a backdrop where markets revenues can be sustained at these levels or even grow given these businesses, too, benefit from volatile economic and market backdrop, recognizing that there are many sources of durability too, and perhaps more than they have been in the past. I don't know if that's a softball question, but I'll try to put a bow on the conference call and leave you with that one.

Yes. I think you said it nicely. I wouldn't though call it softball. It is sort of medium ball, but a very fair -- a very fair question and sort of kind of a cousin to Mike's question.

Look, again, [ 6,700 ] S&P, you are going to have businesses that are going to -- if you execute well, you're going to have performance, assuming the operating model is well functioning and tight credit spreads, the financing flywheel should work. If you have lower asset prices and deleveraging and credit spreads widen because there's a recession concern or an inflation scare, my guess is markets businesses generally are going to perform less well. I mean that -- there's no untying that link. So some of this has to be driven by whether you think we are at the early stages of a reacceleration of growth in the U.S. economy and then the global economy, and there are signs that, that is happening or you think you're actually in a later stage of market evolution, i.e., the economy may be okay, but the market has had a huge run, risk assets have had a huge run and we are going to chop around or even trade lower, in which case then, the markets businesses are generally on the street going to have to work through that.

That having been said, we spent a lot of time doing everything we can to make sure that there is durability inside of these businesses that we are an essential 1, 2, 3 partner to the largest asset managers with whom we are wedded to and that we are doing business that we think is right in line with advising our clients that we -- you see it, the VAR ticks up, but not dramatically, that the use of capital is prudent, but that we are connecting not just inside of equities, but across fixed income. I'd call out by the way that the performance of the fixed income business for the last whole bunch of quarters has been remarkably stable. That speaks to the management of that business as a part of a durable narrative inside of the investment bank, but then across the firm.

The investment banking flywheel, again, is also activity based and economically sensitive. But we do think that the pent-up supply there is going to have to come. And we do believe that in the investment banking and capital markets new issue arena, we are gaining share. We would be seeking to do that globally over the next year, 2 years.

And then as it relates to the markets business, i.e., sales and trading of stocks and bonds, we want to do it prudently. We're now looking to overreach. We are well aware of what the underlying valuation narrative is for Morgan Stanley. We want to serve our clients. We want to help fill capacity and capability for them, but we are going to continue to have a high bar on what new business we take on and how it generates incremental margin.

Ladies and gentlemen, this concludes today's conference call. Thank you, everyone, for participating. You may now disconnect, and have a great day.

Great. Welcome up next. Very pleased to have Morgan Stanley. You could put up the first ARS question as we introduce our speaker, but very pleased to welcome back Dan Simkowitz. I think this is your third consecutive year. But for those that don't know, Dan's co-President of Morgan Stanley, responsible for the Institutional Securities Group, serves on the firm's operating management and risk communities as well as the Morgan Stanley MUFG Steering Committee.

Before we jump in, Morgan Stanley asked me nicely to do this. This discussion may include forward-looking statements, which reflect Morgan Stanley management's current estimates and subject to risks and uncertainties that may cause actual results to differ materially. Morgan Stanley does not undertake to update the forward-looking statements. Discussion today is copyrighted by Morgan Stanley and may not be duplicated or reproduced without their consent and is not an offer to buy any security.

Great. So with that, Dan, welcome back.

Jason, it's great to be here. You and your partners, including Venkat, put on a great event. So we really -- we like coming each year, and it's a great place to bring the industry together right time. So I really appreciate being here.

Thank you. Dan, I appreciate that. Dan, maybe the best place to start is just the overall environment. It certainly feels a lot better, many suggesting we're finally kind of seeing green shoots grow. It's maybe taking a little bit while. Just do you agree with that? And how does this the current environment feel to you?

Yes. I think it's much better across the board from our perspective. If you look maybe narrowly, but it's really, really important from a capital markets and M&A perspective, it has dramatically improved. And not just versus the April, May, maybe tariff volatility, but versus any period we've seen since the post-COVID inflation move.

I think what we're seeing through the summer, you see it in equity beta, you see it in credit spreads. Policy volatility is actually narrowing. It doesn't always feel that way, but it is narrowing. I think the equity markets are reflecting that both the people in this room, asset managers, asset allocators, corporates have sort of had to get through, I would argue, the early tough medicine, some of which could be long-term good medicine around the economy, tariffs, DOGE the cost cutting or the growth inhibiting part of DOGE, not maybe the deficit reducing part of DOGE immigration.

And now in front of us, our whole series of pro-growth policies around deregulation, the impact of the tax cuts, especially on the corporate sector, private and public partnerships. So that's in [indiscernible]. And then if you just look at the data this morning, the market is telling us 6 Fed cuts between now and the end of '26, at the same time the market or the consensus is not talking about recession. And so that is a confidence building backdrop as you think about people who have to make decisions on strategy and large, let's say, illiquid capital investments.

And at the same time, the last 3 years, M&A and IPOs, but I almost group IPOs as a part of the M&A and strategic dialogue way off the trend line versus GDP growth. So you've had 3 years where it's just way, way off. So there is a huge backlog around strategic activity that's out there. And as you know, we've talked about this in the past. When I ran strategy and MSIM, we had a pretty good run on M&A. I think we bought $20 billion to $25 billion of companies. I think they're all working out incredibly well. We'll talk about that.

But we looked at over 100. And what I will tell you, as you look at 100, each one gets a discussion about something else. And that could be at the corporate development team, that could be in the C-suite, that could be at the board. But you don't just look at something and then reject it. And I think we ended up doing 5 or 6 deals, not just the big ones, it -- flow begets flow in the strategic element. And that is happening across all of our clients in the corporate world all around the world as well as our private equity clients.

And then the other element is there's a lot of change going on. And sometimes, it's scary, but in other times, you have to react to it. And so the industrial policy in the United States is being sort of restructured. That has impact on supply chains and where you want to put your assets if you're a multinational company, AI is generationally changing. If you're in the U.S., you got energy independence. And if you're in Europe and other places, you've got energy transition, all driving boardrooms to now react into that environment.

And then so the flow begets flow. The other place where flow is coming is private equity is just starting to monetize. They were skewed to the buy side this summer, and I'll talk about that in a second, but they are monetizing. I think that's a function of both LP pressure, which people have talked about, the LPs want some of that capital back. They want the model of PE to be reaffirmed. But also there's some compensation element. You don't get paid in private equity until the asset set gets sold or really the entire fund gets monetized. So there's some junior partners who want to get the compensation going.

And so there's private equity flow. We estimate that there's 1,500, I got to get the numbers right, 1,500 private equity-owned companies just in the United States worth at least $1 billion, and many are worth much, much more. So there is flow coming. And then the other flow element is regulatory, right? So we advised Wiz when they got bought by Google, we closed the Discover transaction, where we were an adviser, and we were the adviser to Union Pacific. We're going to go from 4 railroads to 3 railroads. So all of that creates a flow, and then there's fuel. And you and I have talked about this. And so I've been waiting for it. As we said, not just shoots but the growing of shoots, but the credit market has been really stable and really deep throughout. But there is a connection between the IPO market and the M&A market.

And the IPO market has recovered in sort of late May, June and has continued through this morning with a big deal that we announced pricing last night for Klarna has been really, really strong. And what that does in an M&A context is it creates another alternative that sellers can use, and it lowers the execution volatility and execution risk which then gets buyers and sellers more willing to engage.

And I think that is why we're enthused and it's a narrow topic, maybe around M&A and the IPO market but for a firm like Morgan Stanley, it cascades through our entire business. So the M&A revenue is obviously impacted the advisory revenue on a lag these got to wait for the deals to close. IPOs you see the closings. But in our entire credit infrastructure, we're financing all those transactions. People want to risk manage rates, FX, sometimes commodities in and around those transactions.

And then in wealth, it creates a lot of NNA, money in motion, and we're the #1 wealth management firm in the U.S. So you get things going on. And even in MSIM, you get carry. So I think that gives us some real encouragement around the market backdrop.

The other thing I would say around that backlog that is built and what we're seeing, the backlog being not just the corporate backlog I mentioned, but probably $4 trillion to $5 trillion of PE dry powder, that doesn't all get done in late '25 and '26. So we're going to have bumps along the road. I'm confident of that. But to get through that backlog and get back on trend line, this is a multiyear, I think, recovery. And it -- we're in the early innings to use a baseball phrase.

So I guess, solid near-term outlook. You talked about the early innings. Maybe just expand on that in terms of your view of the longer-term wallet opportunity as well?

Yes. I think we get a lot of questions around the markets business, again, this is in ISG, I think you're asking me specifically on ISG and the securities business. And then just back on that M&A, there's $7 trillion of cash back around health. You don't do anything for 3 or 4 years, you get conservative and yet GDP continues, productivity continues. There's $7 trillion of cash sitting on corporate balance sheet. So there's a lot of fuel in that. In terms of markets wallet, we just go sort of line by line.

Long-term debt long-term government debt is still a growth business. And so you've got -- we've got defense spending and stimulus in Europe. The Japanese bond market was not a place anybody focused on for 20 years. It's now a place. So you got a real rate curve in Japan. And so macro is still has some growth -- underlying growth and volume behind it. Risk management against that macro is still a growth business. So again, in a world of financial repression, we didn't have a Japanese bond market to go deal with. And we didn't have to risk manage because it was all being repressed.

Now if you're a corporate or a private equity firm as an example, you're making investments, you're worried about your rate exposure given what's gone on in the last few years, and you're going to go hedge it and you're going to hedge it with us or our peers in that context. So that creates growth in the business. And then I think we'll talk a bit more, but we are very bullish as a long-term, really scaled secular trend is credit is moving into the asset management space in real size and with more activity and more active management and more sort of complexity to it, and that is really good for us.

And then in equities, we continue to see just really good equitization trends around the world. Japan was dormant back to that point. The rate curve developed in Japan, but then the equity market comes -- there's real IPO volume, there's activism. There's hedge funds coming there for the first time. And so you have a lot of activity in Japan. You've seen the press around how much activity there is in India. We have enormous rate of change in the interest in Greater China, the Middle East, Brazil. So there's a lot of equitization around the world. And at the same time, this is one of my new phrases, maybe a word I used with you, there's derivatization. That's not a real world, but it's a Dan word, all around the world, including single day options here, people want to change their risk and return profiles. And that could be the managers in this room who don't have a pure Delta One view on Morgan Stanley, hopefully positive. And so they'll manage that in a way because you can't just afford to be lazy in your expression, in your views, and certainly in the wealth management platforms, people want, generally speaking, not pure Delta One. They want risk management, downside protection or a little bit of leverage on the upside.

So all of that helps the equity business create elements.

The final thing I would say as it relates to markets is all of this is coming in a world that I would say is more complex globally rather than less. And in a world where I think everybody in this room thinks about what's going on around the world more than they ever have before. So deglobalization is not showing up yet in our asset management clients, our private market clients and our corporate clients. They have to worry about it more than they ever have before. And in that context, they have to come and assess that with Morgan Stanley, and that allows us to have just less competitors. The number of competitors who can build Ted used to talk about 9 boxes, think about 9 boxes at the whole firm level.

We are in the credit markets. We're in the equity markets, we're in the macro markets, we're in the corporate control markets. We're doing that across cash and derivatives and financing. And we're doing it everywhere around the world at a time when, hopefully, our asset management and corporate partners want to have less partners around the world, less advisers.

And so what we can do is really optimize and I'll just give you 2 examples. They're both from conferences, Morgan Stanley is doing the health care conference, you guys are doing this conference as an example. But if we do a study for a big multinational around the Chinese market, they may not act in China, but they know we have a world-class M&A franchise and so they'll hire us to sell a U.S. division. At the same time, we've got an asset manager, we're getting them corporate access, our version of this. They are going to pay us back potentially because we're the #1 prime brokerage firm in Asia with complex Asian prime brokerage, which is higher margin.

The ability to create that kind of ecosystem is really expensive. We're actually -- we lost competitors. We lost [ Credit Suisse ] and equities. We lost a few others. So in that context, we like the market share dynamic in the markets business. And again, I've already sort of talked about the, I would say, the cyclical but multiyear cyclical move in the banking businesses.

Stay with ISG for a second. You kind of touched on market share, and we've seen Morgan Stanley this year kind of increase its share versus peers and versus the last couple of years. Just maybe anything else you would add in terms of just how you're doing this?

Well, I think there's a relentless -- I think being global, being focused, right? We're not distracted. And we'll talk, I'm sure, along the way as it relates to corporate strategy. But Ted and Andy and I building off of James' focus on this, we just help clients allocate capital. When business strategy is that defined and that distinct, and that client could be a wealth management client, that could be hopefully a whole bunch of the asset managers in the room, asset owners and corporates.

In that context, if you get really focused and you're not distracted and you're not wandering strategically, we think you can gain share. If you do it with all those boxes I mentioned and they're linked together, and we'll talk a bit more about this integrated firm, you can gain share. And we're just relentless right now on bringing the entirety of the firm the value we bring and where can we gain share. And so actually, the question we're often asked, and I'll deal with later maybe is you're gaining share and you're really big, but you need to go somewhere else.

And we think the growth opportunity still in the firm in ISG around market share, but certainly around wealth around just the TAM is still really attractive, and so we don't need to wander and so that keeps us quite focused. But again, being global in a world that's more globally complex and we're investing. And we're big enough, $250 billion market cap or so circa $60 billion in revenue that we're investing in the underliers. And so we are investing in technology in the equity business. We're investing in credit financing. We're investing in sort of regular way U.S. investment bankers here who know sectors because the private equity industry has become much more sector oriented rather than general. These are sort of bread and butter core investments that help us drive share because the brand and the client need is so high. And I hope I just found out I want a piece of business. We want a piece of business, front row.

Our client base generally, and this is a great thing to inherit that I came back to ISG, clients want to do more business with us, just across the board. Corporates, asset managers, public and private, they want more from Morgan Stanley into an environment that is turning.

Interesting. I guess, we've heard -- we've also heard that Morgan Stanley is looking to leverage its bank more. Maybe just help us understand what the firm is doing and how that fits into the overall strategic plan?

Yes. The bank is critically important and really has been for maybe the last 6 or 7 years. So just to put it in context, and we had regions and I think maybe at Fifth Third before -- got all of them here. But the numbers are important. And it's both sides of the balance sheet, and then I'll give you a context of the strategy. So loans have gone from about $115 billion to $250 billion in the last 6 or 7 years. And on the deposit side, we've gone from $190 billion to almost $400 billion in deposits in the last 6 or 7 years. Both sides of that balance sheet in the bank have been driven entirely by the client franchise and client value.

Our clients want to both leave their money with us in good, good hands on the deposit side and lend back to that client base. So we're not wandering to either go grab either side of that trade. So there's no mission creep in the bank. But what's new, and this is just a function of how we became a bank and some of the intervening years is we have dramatically less of our ISG asset base versus our peers on the bank.

And so what you'll see over the next years is if there are eligible assets, we're going to move more and more of that into the bank funding model, and that has a whole bunch of real-world positive impacts. It's got a funding impact. It allows us to do more growth into those client bases. And it makes us both more client-friendly, we look like our peers, so there's client simplicity to that, but it's also regulator simplicity because we look like all the other firms that they regulate.

And so I think that is a play around just the ISG element. But the other part of this is, we'll talk a little bit more about lending. Everyday Banking for wealth management. We've got the client. We've got the deposits. We've got the loan. Can we put more to make it even more sticky. The E*TRADE digital bank infrastructure helps us do that. And then I can't believe I made it this far, and I haven't mentioned workplace, but workplace delivers a vehicle where we can broaden our bank scope. And we've got a really great team sort of managing in a very integrated way. Ted and Andy and I, Sharon and our Chief Risk Officer, we spent an enormous amount of time around this growth area as sort of the infrastructure to help us grow in many, many ways.

I guess maybe that's a good segue into Wealth Management. Love to get an update what's going on there. And maybe just start with giving us a sense of how you're seeing retail clients behave. Love to hear about kind of what you're focused on the growth piles of business? And just maybe how do you kind of maintain the moat around those business. Wealth management is certainly something we're hearing a lot of other providers talk about?

Well, I think the client base has been patient, resilient despite some of the volatility and other elements. And that you're seeing the numbers, the business continues to grow pretty dramatically, which is a function of clients wanting advice and staying engaged in their investment portfolios and still very, very much engaged in the market.

I think it's worth -- I still am surprised, hopefully not -- definitely not with Jason and hopefully not with this room, that people haven't been keeping up with what Morgan Stanley Wealth Management is. If I have been at this conference 6 or 7 years ago, I'd be talking about 2.5 million households, and fighting it out with wire houses for people -- for advisers who are not young and clients who are not young.

We're at 20 million households today, 2.5 million to 20 million households as an example. $1.6 trillion in assets just over the last 6 quarters. We're getting those households much earlier, much younger ahead of their wealth accumulation, which is really important. And as their lives become more complex, they become advisory clients, and I think Ted and Leslie put up a slide at the beginning of the year, 99% retention on advisory clients.

So if you do that math, we're in the various earliest -- very, very early days of monetizing that move from 2.5 million to 20 million. But once we monetize and once they become -- their lives become complex, they need advice and they become advised clients -- they are advice clients for a very long time, and we're going to have that much earlier in the element. But it also -- that whole formula means we are the destination of choice for financial advisers. This is our best attrition year ever. So people were writing off this industry or our model a while ago. Our model is not like anybody else's model.

We are generating leads. So in that world, where we've gone from 2.5 million to 20 million, there's an enormous lead potential if you're a financial adviser. And then again, these are leads that could become clients for 30, 40, 50 years, outstripping the lifespan of actually the adviser. So we are a leads machine in that context. We're also -- we're not a recruiting machine, but our ability to go to high end and recruit this year is one of our best years ever. And I think as you know, when we hire our assets coming in are dramatically higher than the assets we lose when we lose adviser. So there's a delta in the asset accumulation. And that is just a function of we can help advisers grow. We can help them grow in terms of new clients around leads and lead generation. That is, as Andy and Ted say, we're a model of one. We can get it through the workplace, we can get it through digital and E*TRADE and then we can be part of the advisory model, that is a really powerful element. And I think it's also somewhat underappreciated that the service that we provide that 99% retention has to be earned.

And so the service we can provide off the platform. We're the #1 private market alts firm in wealth in the country by a big margin, and it's innovative. Most of that stuff we're showing more than half is exclusive or first look product. The integration of Parametric has been a huge home run around delivering real value in the portfolio into the wealth management client. And that's going to grow over time. And all -- and then lending, as I mentioned, off the bank, and all of that is tech-enabled, which is really powerful.

I guess maybe shifting gears to investment management business near and dear to you. We've had -- we've pretty strong net flows this year. Maybe talk to kind of what's driving the strength and what just differentiates your franchise?

Yes. Again, you guys have so many companies to cover. You have to think through it. So I know it, and Jason knows it more, but just to put this in context, this was a $400 billion franchise in 2018 dominated by mutual funds and sorry, some of the people in the room, mutual funds, active equity developed market, $400 billion. Today, it's more than quadrupled. So it's $1.7 trillion, dramatically more global in its distribution, and dramatically more diversified in its asset classes.

And so $1.7 trillion, you've got a $0.25 trillion private markets and alternatives platform, as you know and have seen, these are really hard to build. They're really potentially expensive to buy, and we're -- we've built over a couple of decades, this really powerful private markets and alternatives platform at $0.25 trillion. And embedded in that are 2 or 3 like market-leading franchises. We're the largest open-ended core real estate fund in the country. We are the dominant player in the private funds that help people diversify away from their concentrated positions. Both of those are really big funds and really big market leaders. So alternatives is one.

But Parametric just keeps on delivering value to MSIM and the entirety of Morgan Stanley. So it's now almost $600 billion. It's, I think, 2 or 3x bigger than its next nearest competitor. But you've seen a real validation this year around the product which is historically has been a beta product that gives you customized indexes, but we are now seeing external asset managers, the capital group, Lazard, -- there's -- I think there's almost a dozen come to us and say, we're not going to go build this ourselves.

We're going to wrap our active portfolios in an SMA wrapper, that's tax efficient and that SMA wrapper is Parametric. And so when the industry, the asset management industry, the people in this room are not building it themselves and they're coming to Morgan Stanley Investment Management to wrap that and take that. That's a validation of the product, a validation, a little bit of our open architecture ethos all the way through the firm. And it's also a validation of the fact that the strategy is tight and there's real integrated firm going on because I can tell you that all those relationships from those asset managers that are coming into another asset management company are driven by the relationships we have in ISG, the relationships that we have in wealth, and that's pretty powerful growth drivers. So Parametric has been a really fantastic growth element.

And then the other one, we just have a secular view, as I've mentioned already, around credit and we needed to get that business bigger and get the overall MSIM more diversified. And so the credit business at MSIM has gone from $60 billion, 6 or 7 years ago to over $350 billion. And so that is a nice sort of balance to that extremely profitable, great performance model but was pretty narrow in its construct. So we like the dynamics and to get over the last several quarters into very healthy long-term flows has been really encouraging.

Maybe we'll come back to some of that, but I just wanted to shift gears a second to capital. You in the industry are in a strong capital position. The environment for capital regulation is getting easier, SEC came down, it maybe comes down further. Maybe just talk about how you think about deploying that excess capital and it's not lost on me that you've mentioned E*TRADE, Eaton Vance and other capabilities multiple times so far this morning.

Yes. I think the core of this is we're just very encouraged by the regulatory backdrop. Vice-Chair Bowman, is bringing to the dialogue and the policy -- a common sense approach to capital that as we see it is rational, it's highly professional. So she is hiring really very, very talented, thoughtful people to be part of her leadership and her staff to go over. It's detail-oriented, and as it relates to capital, it's holistic. And it's holistic across SLR, SEB, G-SIB, maybe even Basel, and the net of that is it's going to create a greater level of certainty as we plan.

And on the supervision side, which I don't think you can discount, there's just a real world, real life intense focus on what really is safety and soundness and stability issues. And so both on the income statement as well as the balance sheet, we're just going to be able to run safer and more efficient, and then play a bigger, bigger role in the growth of the economy. And so as part of that, you come back, it's going to allow us to continue to deploy capital in greater amounts both capital levels, income statement impact and then a removal of our own internally generated buffers given some of the vagaries of the past, invest in the business.

So I've already mentioned ultra-high net worth, high net worth lending and wealth management, supporting corporates in the context of M&A wave but also a CapEx wave in data centers and AI and energy transition around the corporate client base. And then what you'll see is continued investments and growth in our financing businesses in the markets business.

So financing of credit asset managers in fixed income and financing of prime brokerage, all enabled by a more rational common sense and holistic capital model. So that's coming. Obviously, it's in the context of the dividend and dividend growth being paramount. We have a durable business that is getting more durable and more scaled and we can -- we're really committed to not just the dividend level, but the dividend growth.

And then on acquisitions, we love what we have. And so we -- as I said, we love the TAM that we're operating in. I didn't say it earlier. The #1 growth opportunity because I used -- when I ran strategy, and ran [ Anthem ] I got to speak to everybody, other asset managers, wealth platforms, other financial services company. The #1 growth opportunity in financial services, I think, that's scaled is Morgan Stanley Wealth Management in the U.S. today. And we're already #1, but the growth -- the scale growth from here to there as we monetize that workplace funnel and have all those capabilities. So we love what we have. So in essence, M&A really fits into business strategy. And it fits in, in a context where ISG, we have relatively good and solid market share and the market sort of mature. And -- but if there's product extensions or client extensions in wealth and asset management, we'll look at that, but we don't have to go anywhere because we do love what we have.

What I will say is embedded in that in those business units we'll continue to look at innovation engines. And so I think Solium. If you think about it, Solium, Parametric, E*TRADE, probably 3 of the greatest fintech acquisitions in financial services in the last 15 years. So they -- in the case of Solium, it's not the biggest, so you won't see big, big deals, but where we can see innovation that can help our individual business strategy. And again, the business strategy is very simple, just help clients allocate capital. We love that strategy. You'll see that as a part of the capital deployment and the strategic agenda. But strategy doesn't drift. We really just keep it to the business.

Got it. We have 5, 6 minutes remaining. I just wanted to touch on kind of private markets and maybe a bit more -- talk a little bit more about that and why you see that as such a compelling opportunity.

Yes. Again, it touches all parts of our business, and I'll sort of mix it with both a private market view and a view on the credit markets as well. But we're the #1 allocator into the private markets in wealth management. We think we may be the largest private markets investor in the world. So that includes sovereign wealth funds and asset managers is a little hard to get the data. But we have $250 billion in the private markets and wealth management. It extends actually also into private shares. Because of the cap table business and the partnership with Carta, we're in the flow and our advisers like us to be in the flow and our investment bankers like us to be in flow with every private company in the ecosystem.

So we are in there with the Carta partnership and we're innovating. And when I ran MSIM, it was all around ease of use. So we now are launched over the summer, Phemex, which is a single ticket full private market portfolio product, third-party or open architecture product, and it is going because the advisers then get their entire portfolio with a single ticket. That is really, really important.

So we're innovating in that business. And again, in ISG, the largest segment, fastest-growing part of the business is on the private markets manager, and it's not just PE firms, but it's also private credit firms. And there's a lot of talk about private credit. What I try -- what I think is more relevant is just think about credit, financial repression is over. The asset owners historically had extremely low allocations to credit, big U.S. pension funds. They follow the Swanson model. The Swanson model had 0 strategic allocation of credit. Financial impressions over, banks are regulated or bank investors don't want banks to lend. Asset managers are stepping into that. So we see huge flows and it's both on the public side and the private side. To a degree, at Morgan Stanley, we're indifferent.

As long as money is flowing to supply credit and it's flowing through the asset management industry, it's really powerful for us, and Apollo and Marc Rowan in particular, deserve a lot of credit. The insurance industry and how it invests its credit portfolio has been revolutionized. So you have all of this insurance capital that has gone from being very, very passive to very active and is being run by asset managers. And again, all those asset managers who are embedded in this credit secular trend, they need us to help them come up with new products. We help them raise capital. We help them buy other asset managers. We originate the assets, we finance the assets, we securitize the assets. And depending on where it sits on that public private line and the line is getting blurrier, we trade the assets.

The ROE of that business for Morgan Stanley, that move from assets being maybe in the bank sector or maybe in the insurance sort of sleepy part of the insurance account, all moving to asset managers, big secular trend and big ROE play. We think over the next 5-plus years, there could be $35 trillion of credit money in motion. And that gives -- and that -- the private markets are just one example of that. And you're seeing -- it gives us what's happening in the insurance market and the sophistication of these asset managers is it gives our investment banking team an ability to be a solutions provider to a corporation or a private equity fund that we've never been before. And we are the origination partner for all these funds. They need assets. They have to come through the Morgan Stanley Investment Bank and maybe one or two others, but not a lot of others, and that's pretty attractive. And we're deploying that strategic view, as I said, in MSIM, where the credit business has gone up 6x. The private credit business has gone from $1 billion to $50 billion, and then wealth management is definitely deep into that ecosystem.

We've got a minute left, but it wouldn't be complete without talking about integrated firm, something we spent a lot of bit of time on last year. But just maybe quickly, how important is that to driving long-term results? How is that coming together? Any metrics we should be looking at to monitor the progress?

Well, I think the metric is, are we doing well as a firm. We -- as I said, we love all the components that the leadership team, inclusive of James built over the period. So we love all those components. But at this point, we think one of the greatest, I guess, deployments, and it's not maybe deployment of capital, but deployment of energy and time and technology dollars is to buying them together because what we're finding is there's so much synergy around our client bases. Just think about this room, the prior speaker was a regional bank. We have a great relationship with them. We have a great relationship with every asset manager in this room.

Our wealth management clients want investment banking services. So there's real linkages. And so increasingly, we're saying, we love what we have. But instead of thinking them about them like business units, let's think about them as client segments. And so client segments are asset managers, asset owners, corporates and relatively wealthy or affluent individuals and they all engage intensely with each other. As an example, in essence, we're here at this conference because corporates need to engage with asset managers. Right there, we've done 2 of them. And I'll give you 2 examples. I know I'm going to 30 seconds over. Workplace, just think about workplace. This is corporations that we know in investment banking. We're now running part of their sort of talent management program. And we got in there with a product, but we're not stopping with the product. We're going to go and do financial wellness.

So our investment banker has a conversation with the CEO and says, "I'd like to do financial wellness, not just with your top 100 executives, but your rank and file the next 1,000", because we're the only firm who can handle and scale, the ability to service that CEO all the way from their CFO to their software engineer. We can go do that at Morgan Stanley, and then that creates the funnel, and that gets to the 20 million households. And that's linkage.

And then asset managers, hopefully, a whole bunch of this room, we can be their holistic partner, and the more we're doing it, the more we're seeing a holistic partner and help them create a new product, raise money in that product, trade the product, finance the product, but now we can also go back and do help their employees. So think about private equity, the portfolio companies are great workplace clients. The partners are great, high net worth clients. And so putting that all together has been a real passion of Ted and Andy and I, we put one of our best people, Mandell Crawley, to run it because we -- what we had as ingredients is we had a culture and we had real clarity of strategy, but we did feel like we had to put a little organization around it. And I think you'll see it in the results.

Great. On that note, please join me in thanking Dan for his time today.

Thank you.