Morgan Stanley 2026 Q3 Earnings Call

Thank you, operator. Good morning, and thank you for joining us. In the third quarter, Morgan Stanley delivered strong performance on the top and bottom lines with firm-wide revenue of $20.3 billion and earnings per share of $3.03. With a return on tangible equity of 22.6%, this quarter marks our fifth consecutive quarter above 20%, speaking to the consistent strength of our global franchise. Total client assets across wealth and investment management grew by nearly $400 billion during the quarter to a record $10.5 trillion. Against a complicated backdrop, the quarter's overall performance speaks to the momentum of the integrated firm. Wealth management continues to scale as clients entrust us with additional assets and deepen their relationships with Morgan Stanley. Wealth had a record quarter with revenues of over $9 billion, with milestone levels of net new assets of $232 billion and fee-based flows of $80 billion.

This sustained performance reflects the strength of our financial advisors, the breadth of our unique capabilities and product offerings, and the trusted partnerships that distinguish our integrated firm. Institutional securities delivered $10 billion of revenue, up 18% year-over-year. Equities led the way with another outstanding quarter at $5.8 billion. Clients largely remained active as we deepened engagement across our global franchise. On the forward, banking pipelines remain high and strategic dialogues inside corporate boardrooms are active and generally receptive to action. Clients are seeking advice to capitalize on the current dynamic growth environment while accepting some additional structural volatility. Pent-up demand and catalysts to drive scale and productivity in a more constructive regulatory backdrop support an ongoing favorable outlook for investment banking activity. In short, we remain positive about the ongoing ability to monetize the corporate finance life cycle across the investment bank.

Stepping back, the third quarter unfolded in two distinct phases. July and August were unusually brisk as risk appetite was dominated by hyperscaler investment in the build-out of the AI ecosystem. In contrast, as Labor Day approached, we observed the headwinds of renewed tensions in the Middle East and higher interest rates globally as central banks moved to keep inflation at bay. Market volumes were slower across asset classes as investors and institutional actors gauged risk-reward into the fourth quarter and year-end. As we move through October, the two known unknowns that we wrote about in our March shareholder letter, namely the acceleration of AI at the enterprise level and the risks associated with geopolitical conflict, have reached a critical juncture.

In the glass is mostly full camp, the enormous capital, which continues to be raised and deployed across the AI ecosystem toward efficiency, resiliency, and productivity, is driving U.S. nominal GDP growth of 5%-6%. Large cap corporate earnings continue to move higher. The economy is at full employment. The Fed is focused on managing long-term inflation expectations, and the salutary effects of common sense regulation are kicking in. In the glass is half empty camp, persisting conflicts in the Middle East and Ukraine, meaningfully higher benchmark interest rates and energy prices around the developed world, elevated asset prices in a fourth year of a bull market for equities, and uncertain electoral and policy responses in both the U.S. and globally are reasons to be more cautious.

As we move into the fourth quarter, it is clear to us now that these two known unknowns and how they interact and which of the third quarter's narratives, half full or half empty, holds the upper hand will drive investor and corporate behavior into year-end and into the first half of 2027. Against either backdrop, financial strength remains a key pillar of Morgan Stanley. We continue to actively support clients while remaining well-capitalized. Our very healthy level of excess capital with 300 basis points of excess CET1 contributes to our financial strength and affords us with substantial flexibility ahead. We look forward to continued dialogue and upcoming transparency as our regulators finalize the bank capital regulatory framework. As we enter the final quarter of the year, Morgan Stanley remains aligned and cohesive, focused on delivering higher highs and higher lows through the cycle.

Particularly when the environment is as complex as it is today, it is essential that we continue to execute on our clear and consistent strategy to act as trusted advisor to our clients, raising, managing, and allocating capital across the integrated firm. With that, I'll turn it over to Sharon to take you through the quarter in greater detail.

Thank you, and good morning. In the third quarter, the firm delivered strong results. Revenues of $20.3 billion, EPS of $3.03, and an ROTCE of 22.6%. Growth momentum from the second quarter carried into the early part of the third quarter, with markets focused on AI investment and continued economic expansion. However, rising energy prices and interest rates weighed on market activity following a shortened post-Labor Day September. Despite market uncertainty, corporate activity remains strong, reflecting continued strategic dialogue. Ongoing client engagement reinforces the opportunity for our integrated firm to deepen relationships and support future activity. Year to date, the firm's efficiency ratio was 66%. Strong revenues drove operating leverage, more than offsetting elevated execution-related costs compared to the prior year. We continue to invest across our technology stack, embracing AI tools to support our infrastructure, business growth, and people.

Together, these investments position us to strengthen our competitive moats across the integrated firm. Now to the businesses. Institutional securities revenues were $10 billion, up 18% versus the prior year. The year-over-year increase was driven by our leading equities franchise and a pickup in advisory. Exit momentum from the second quarter carried into July, before client activity and markets moderated through September. Boardroom dialogue remained strong through the quarter, supporting the build of strategic pipelines and future capital markets financings. Investment banking revenues were $2.2 billion, up 2% from the prior year, reflecting strength in the Americas as well as in Asia, consistent with our expectations of a sequential broadening out of global activity. Advisory revenues of $887 million drove results. The increase relative to the prior year period reflect higher completed activity across most sectors.

Equity underwriting revenues were $525 million, down compared to broad-based strength in the prior year, with a few large deals driving the market. Fixed income underwriting revenues continued to be strong at $747 million, supported by a new issue market that remained active. Pipelines remain robust and diversified across products, sectors, and regions. Strategic activity remains healthy, supported by ongoing corporate investment, portfolio repositioning, and capital allocation priorities. AI continues to contribute to the advisory and capital markets momentum, but activity is broad-based across sectors and products. Turning to equity, revenues were $5.8 billion, increasing 41% versus the prior year, reflecting growth across products and across Asia. As client needs become more complex and global, our integrated franchise is well-positioned. Our investments in technology and talent have strengthened our capabilities, allowing us to serve at greater scale and manage risk more effectively in fast-moving markets.

Prime brokerage drove results led by growth in financing revenues on higher average client balances. Derivative results increased versus the prior year, driven by higher client activity early in the quarter and strong risk management. Cash results were higher year-over-year, driven by increased client volumes across regions. Fixed income revenues were $2 billion, reflecting lower structured activity in credit and commodities. Macro results increased modestly compared to the prior year, aided by foreign exchange. Micro results declined year-over-year, driven by lower performance in securitized products. Commodity results were solid, though declined against a strong comparative period that benefited from structured transactions. Turning to ISG lending and provisions. In the quarter, ISG provisions were $141 million, driven primarily by portfolio growth. Net charge-offs were $105 million, primarily related to certain corporate and commercial real estate loans, which were largely provisioned for in prior periods.

Turning to wealth management. The business delivered records across key growth indicators, including net new assets of $232 billion and fee-based flows of $80 billion. In the first nine months of the year, we have delivered roughly half a trillion of net new assets and about $175 billion in fee-based flows. These results demonstrate the reach of our multi-channel model and our ability to connect clients with trusted advice. Revenues of $9.1 billion and pre-tax profit of $2.8 billion were also records. The pre-tax margin of 30.4% shows consistent strength as we invest in technology, marketing, and our banking capabilities to support future growth. Asset management revenues grew 16% year-over-year to $5.5 billion, benefiting from higher markets and the cumulative impact of robust fee-based flows. Fee-based flows of $80 billion set a new organic record, with nearly half coming from a corporate retirement mandate.

We continue to expand our retirement capabilities and deepen engagement with plan participants, creating more opportunities to build advice-based relationships over time. Transactional revenues were $1.2 billion, up 6% year-over-year, excluding the prior year's DCP benefit. While trading activity moderated from the second quarter, retail engagement across our differentiated product offering remains healthy, with alternatives delivering another quarter of record sales. Bank lending balances grew $5 billion sequentially, driven by securities-based lending and mortgages. Total deposits grew by nearly $30 billion sequentially to $465 billion, reflected investments to strengthen our bank offering. Net interest income was $2.2 billion, down modestly as deposits grew and the mix shifted. Looking ahead, we expect a modest increase in the fourth quarter, subject to rates and client behavior.

Lastly, net new assets of $232 billion reflect the strength of our core business and the differentiated growth opportunities created by Workplace and the integrated firm. IPO-related flows once again contributed to just over half of the overall NNA. With an active IPO calendar, the pace of our funnel accelerates and client interest in advice increases. While flows will fluctuate as lock-ups expires, funds make distributions, and individuals use assets for consumption, our pipeline and our connectivity across channels allows us to build relationships early and deepen them over time. Since acquiring E*TRADE and expanding our Workplace offering six years ago, we have added over $2 trillion of net new assets. Our multi-year track record demonstrates our differentiated client acquisition funnel and its durability. Today, we have $8.4 trillion in client assets and serve nearly 21 million relationships.