Morgan Stanley (MS.US) Q3 Earnings Call: Management Says Market Sentiment Is Mixed, "Double Overweight" on AI Opportunities

Morgan Stanley (MS.US) reported its third-quarter 2026 results before the U.S. market opened on Wednesday, followed by a conference call. Morgan Stanley delivered strong third-quarter results, with revenue of $20.3 billion, earnings per share of $3.03, and return on tangible common equity (ROTCE) of 22.6%, marking the fifth consecutive quarter above 20%. Wealth Management set a record, with total client assets reaching $10.5 trillion, net new assets of $232 billion, and fee-based asset flows of $80 billion; Institutional Securities revenue was $10 billion, up 18% year-over-year, including Equities revenue of $5.8 billion, up 41% year-over-year. Management noted that current market sentiment is split between optimism and caution, and believes that two "known unknowns"AI acceleration and GEO Group Inc political conflictwill dominate investor and corporate behavior through year-end and the first half of 2027. The firm believes the AI capex cycle remains early, with hyperscaler annual spending at roughly $1 trillion, contributing about 50 to 70 basis points to U.S. real GDP, and said it is "double overweight" on AI opportunities. In Wealth Management, the firm relies on a funnel comprising E*TRADE, Workplace, and financial advisors, having generated $1 trillion in net new assets over the past three years. On capital, standardized CET1 was 14.9%, with about 300 basis points of excess capital, maintaining buyback capacity and flexible deployment. The following are the specific contents of Morgan Stanley's third-quarter earnings call. Management Statements Ted Pick (Chairman and Chief Executive Officer): Third-quarter revenue $20.3 billion, EPS $3.03, ROTCE 22.6% Ted Pick said Morgan Stanley delivered strong performance on both revenue and profit in the third quarter, with firmwide revenue of $20.3 billion and earnings per share of $3.03. Return on tangible common equity (ROTCE) was 22.6%, the fifth consecutive quarter above 20%, reflecting the continued strength of the global business platform. Total client assets in Wealth Management and Investment Management grew by nearly $400 billion in the quarter to a record $10.5 trillion. Against a complex backdrop, the quarter's overall performance reflected the momentum of the integrated firm. Wealth Management continued to scale, with clients entrusting more assets to Morgan Stanley and deepening relationships. Wealth Management set a record in the quarter, with revenue exceeding $9 billion, net new assets of $232 billion, and fee-based asset flows of $80 billion. This sustained performance reflects the strength of financial advisors, unique capabilities and breadth of product offerings, and the trusted partnerships that an integrated firm provides. Institutional Securities revenue was $10 billion, up 18% year-over-year. Equities led with another outstanding quarter at $5.8 billion. Clients remained active overall, with deepening engagement across global businesses. Looking ahead, the investment banking backlog remains elevated, strategic dialogue at corporate board levels is active, and there is a general willingness to act. Clients are seeking advice to capitalize on the current dynamic growth environment while accepting some additional structural volatility. Pent-up demand, catalysts driving scale and productivity, and a more constructive regulatory backdrop support a continued favorable outlook for investment banking. In short, Morgan Stanley remains positive on the continued monetization of the corporate finance lifecycle. The third quarter divided into two distinct phases. July and August were exceptionally active, with risk appetite led primarily by hyperscaler investment in the AI ecosystem. Conversely, as Labor Day approached, Middle East tensions reignited, global rates rose, and central banks were busy containing inflation. As investors and institutional participants assessed risk-reward for the fourth quarter and year-end, market volumes slowed across asset classes. Entering October, the two "known unknowns" Morgan Stanley referenced in its March shareholder lettercorporate-level AI acceleration and GEO Group Inc political conflict riskhave reached critical junctures. In the "glass mostly full" camp, the AI ecosystem continues to raise and deploy enormous capital, driving efficiency, resilience, and productivity, contributing 5% to 6% to U.S. nominal GDP growth. Large corporate earnings continue to rise. The economy is at full employment. The Fed is focused on managing long-term inflation expectations, and the positive effects of common-sense regulation are emerging. In the "glass half empty" camp, ongoing conflicts in the Middle East and Ukraine, significantly higher developed-market benchmark rates and energy prices, elevated asset prices in the fourth year of a stock market bull run, and uncertainty around U.S. and global elections and policy responses are all reasons for greater caution. Entering the fourth quarter, how these two known unknowns interact, and which narrative prevailed in the third quarter, will drive investor and corporate behavior into year-end and the first half of 2027. Regardless of the backdrop, financial strength remains a key pillar for Morgan Stanley. The firm continues to actively support clients while maintaining capital adequacy. The 300 basis points of excess CET1 capital contributes to financial strength and provides enormous flexibility. The firm looks forward to continued dialogue and transparency as regulators finalize the bank capital regulatory framework. Entering the final quarter of the year, Morgan Stanley remains united and focused on achieving higher highs and higher lows through the cycle. Especially in complex environments, it must continue to execute a clear and consistent strategy as a trusted advisor to clients, raising, managing, and allocating capital within an integrated firm. Sharon Yeshaya (Executive Vice President and Chief Financial Officer): Revenue $20.3 billion, EPS $3.03, ROTCE 22.6% Sharon Yeshaya said the firm delivered strong third-quarter results, with revenue of $20.3 billion, earnings per share of $3.03, and ROTCE of 22.6%. Second-quarter growth momentum carried into early third quarter, with the market focused on AI investment and continued economic expansion. But after Labor Day, September was shortened, with rising energy prices and rates weighing on market activity. Despite market uncertainty, corporate activity remained strong, reflecting ongoing strategic dialogue. Continued client engagement reinforced opportunities for the integrated firm to deepen relationships and support future activity. Year-to-date, the firm's efficiency ratio was 66%. Strong revenue drove operating leverage, sufficient to offset higher execution-related costs versus the prior year. The firm continues to invest in its technology stack, adopting AI tools to support infrastructure, business and personnel. Together, these investments reinforce the integrated firm's competitive moat. Institutional Securities Institutional Securities revenue was $10 billion, up 18% year-over-year. The year-over-year increase was driven by leading Equities and a recovery in Advisory. Second-quarter exit momentum carried into July, after which client activity and markets slowed in September, but boardroom dialogue remained strong throughout the quarter, supporting strategic backlog and future capital markets financing. Investment banking revenue was $2.2 billion, up 2% year-over-year, reflecting strength in the Americas and Asia, in line with expectations for sequentially broadening global activity. Advisory revenue of $887 million drove results. The year-over-year increase reflected higher completed activity across most industries. Equity underwriting revenue was $525 million, below the broad-based strength of the prior-year period, when a few large transactions dominated the market. Fixed income underwriting revenue remained strong at $747 million, supported by an active new issue market. The backlog remains strong and diversified across products, industries, and regions. Strategic activity is healthy, supported by continued corporate investment, portfolio repositioning, and capital allocation priorities. AI continues to drive advisory and capital markets momentum, but activity is broad across industries and products. Equities Equities revenue was $5.8 billion, up 41% year-over-year, reflecting growth across products and in Asia. As client needs become more complex and global, the integrated platform is well positioned. Investment in technology and talent strengthens capabilities, enabling the firm to serve at greater scale and manage risk more effectively in fast markets. Prime brokerage led, with financing revenue growth and higher average client balances. Derivatives results increased year-over-year, driven by increased client activity early in the quarter and strong risk management. Cash results rose year-over-year, driven by increased client volumes across regions. Fixed income revenue was $2 billion, reflecting lower structured activity in credit and commodities. Macro results increased slightly year-over-year, helped by foreign exchange. Micro results declined year-over-year, dragged by lower securitized product performance. Commodities results were solid but declined from a strong comparable period that benefited from structured transactions. ISG Lending and Provisions ISG provisions were $141 million in the quarter, driven primarily by portfolio growth. Net charge-offs were $105 million, mainly related to certain corporate and commercial real estate loans that had been largely reserved previously. Wealth Management Wealth Management set records on key growth metrics, including net new assets of $232 billion and fee-based asset flows of $80 billion. In the first nine months of the year, the firm achieved approximately $500 billion in net new assets and approximately $175 billion in fee-based asset flows. These results demonstrate the reach of the multi-channel model and the ability to connect clients with trusted advice. Revenue of $9.1 billion and pre-tax profit of $2.8 billion were also records. The pre-tax margin was 30.4%, demonstrating sustained strength while the firm invests in technology, marketing, and banking capabilities to support future growth. Asset Management revenue increased 16% year-over-year to $5.5 billion, benefiting from higher markets and the cumulative impact of strong fee-based asset flows. Fee-based asset flows of $80 billion set an organic record, nearly half of which came from a single corporate retirement mandate. The firm continues to expand retirement capabilities, deepen engagement with plan participants, and create more opportunities to build advice-based relationships. Transactional revenue was $1.2 billion, up 6% year-over-year, excluding prior-year DCP gains. While trading activity slowed versus the second quarter, retail client engagement with differentiated product offerings remained healthy, with alternative products setting consecutive records. Bank loan balances grew $5 billion sequentially, driven by securities-based lending and mortgages. Total deposits grew nearly $3 billion sequentially to $465 billion, reflecting investments to strengthen banking offerings. Net interest income was $2.2 billion, declining slightly due to changes in deposit mix. Looking ahead, modest growth is expected in the fourth quarter, depending on rates and client behavior. Net new assets of $232 billion reflect core business strength and differentiated growth opportunities created by Workplace and the integrated firm. IPO-related flows again contributed slightly more than half of overall NNA. With an active IPO calendar, funnel momentum is accelerating and client interest in advice is increasing. While lock-up expirations, fund distributions, and personal consumption of assets will cause flow volatility, the pipeline and cross-channel connectivity enable the firm to build relationships early and deepen them over time. Since acquiring E*TRADE six years ago and expanding Workplace, the firm has added more than $2 trillion in net new assets. The multi-year record demonstrates the differentiated client acquisition funnel and its durability. The firm now has $8.4 trillion in client assets, serving nearly 21 million client relationships. The platform and broad product offerings enable the firm to serve a wide range of client needs, and scale supports continued future investment in technology, including AI and digital tools. Together, these advantages provide a strong competitive edge, enabling the firm to lead the future of wealth management. Investment Management Continued strength in Parametric and fixed income drove long-term inflows of $15.8 billion. Parametric continued to benefit from distribution through the scaled Wealth Management platform, and fixed income was supported by strong performance. Revenue was $1.5 billion, reflecting steady growth in asset management and related fees. A carry reversal primarily related to two investments in a private fund weighed on overall results. Looking ahead, the firm continues to invest in global distribution and opportunities related to connecting with financial advisors. Balance Sheet Total spot assets at quarter-end were $1.7 trillion. Standardized RWA increased sequentially to $596 billion as the firm actively supported market business clients and continued to grow corporate lending. The firm repurchased $1.5 billion of common stock in the quarter, with a standardized CET1 ratio of 14.9%. The quarterly tax rate was 23.3%. For the fourth quarter, the tax rate is expected to be slightly higher than the third quarter, with full-year guidance unchanged. Amid changing rate environments and GEO Group Inc political uncertainty, the firm remains a trusted advisor to clients. This environment highlights the value of the integrated firm, leveraging capabilities across businesses to address clients' evolving needs. Total client assets in Wealth and Investment Management were $10.5 trillion, laying the foundation for a strong year-end finish. Q&A Session Steven Chubak (Wolfe Research): Digital Infrastructure Capex and Future Revenue Growth Q: GlobalFoundries leads in digital infrastructure financing, as seen in ECM and DCM league tables. Can future digital infrastructure-related investment banking fees continue to grow from current levels, even as more equity and debt financing shifts from public markets to private? Also, beyond core investment banking, what ancillary revenue streams come from digital infrastructure buildout? SpaceX and NNA tailwinds should be durable sources for the wealth businessare there other revenue sources investors are overlooking? Ted Pick A: The AI capex cycle remains relatively early. Whether it ultimately is $10 trillion or more or less remains to be seen, but hyperscaler capex is currently about $1 trillion per year. Morgan Stanley's role as advisor across all parts will be a key differentiator. The firm advises clients on strategy and capital markets alternatives across the entire ecosystem, helping innovate and finance the full lifecycle, working with chip, data center, or power providers. Activity may not accelerate, but AI's power as a tool for efficiency, productivity, and resilience is indisputablea generational technological leap. The relationships and innovation Morgan Stanley brings are critical. Friends may become friends in certain situations, perhaps not permanent friends, but permanent interests depend on who trades with whom, how it is structured, in which market, and where in the capital structure. This requires real structural knowledge, expertise, and trust. The Morgan Stanley team has demonstrated exceptional differentiation, and what matters is what clears the market. Sometimes technology leads market acceptance, sometimes the opposite, and one must recognize what the market will accept at a given point. Experienced judgment is critical. On net new assets, IPO events bring substantial growth, but beyond the IPO channel, Workplace and presence with numerous private companies give the firm confidence that there are many more years in this cycle. NNA will fluctuate in any given quarter, but looking back six years to the E*TRADE acquisition, the funnel was completed. The funnel includes an extraordinary self-directed channel, Workplace, and financial advisors. Three years after the E*TRADE acquisition, $1 trillion in net new assets was generated. Over the past three years, another $1 trillion was attracted. $1 trillion every three years, for two or three consecutive three-year cycles, demonstrates the ability to scale and reinvest within the funnel. Lock-ups and fund distributions bring further opportunities to retain assets. The firm is excited about attachment points that ultimately bring clients to E*TRADE, being close to clients in company stock plans, i.e., Workplace, and ultimately, where appropriate, fee-based asset flows moving to advisorswhich is why $80 billion in fee-based asset flows is so important. Brennan Hawken (BMO Capital Markets): IPO-Related NNA Tail and Deposit Growth Q: Net new assets of $232 billion are impressive, with IPO proceeds contributing despite a slower issuance pace. How much came from tail of prior transactions versus the current quarter? How should we think about the tail in future quarters? Also, deposit growth was strong, though driven by higher-cost productshow does this relate to banking and ISG financing relationships? When will the benefits show up, and is there a lag? Sharon Yeshaya A: IPO flows are not a one-quarter event; there is a tail. Second-quarter IPO flows were primarily employee-related. This quarter was a continuation of IPO flows. The firm has the full cap table and knows early investors. For example, endowments receiving IPO shares may transfer via transfer agents into Morgan Stanley advice-based relationships. Now flows are entering advice-based channels through different parts of the cap table. There may also be fund distributions to individual accounts, distributed to underlying investors after lock-up expirations. Many parts of the funnel are beginning to convert into advice-based relationships. It will fluctuate in the future; after lock-ups expire, people may sell stock to buy different physical assets. But this is the top of the funnel, continuing to aggregate new assets and new employee relationships. Some IPOs were in the first or third quarter, and now advisor-led relationships are being established. This is just part of the top of the funnel. There are also corporate retirement flows as fee-based assets, which also involve conversations with individuals. This is the big picture of multi-year investment across Workplace, individual, and corporate wealth lifecycles. On deposits, NII declined slightly sequentially, but deposits grew nearly $3 billion sequentially. This is a deliberate strategic choice to grow the bank. Twofold: from the integrated firm perspective and the Wealth Management perspective. The firm discussed banking and is using the bank more strategically as a funding source. Qualifying assets were moved into the bank during the year, and the funding cost benefits will show up next yearnot immediately, but will appear in the numbers over time. Among bank-priority clients, one-third ultimately become digital clients or advisory relationship clients. In addition, they bring multiples of NNA. So the bank growth opportunity comes both from Wealth Management and the top of the funnel, and from the funding side, and will emerge over time. Glenn Schorr (Evercore ISI): Technology's Impact on Wealth Management Q: How are technological changes affecting the wealth business? The firm invested in OpenAI very early. Beyond normal efficiency and advisory productivity, as a wealth leader, how do you see wealth advisory services evolving in a technology context? Investment direction? Ted Pick A: This is a key strategic question for Morgan Stanley. The firm is uniquely positioned in the industry, seeing funnel integration at scale: continuous innovation in self-directed channels; differentiated Workplace continuing to expand and acquire new relationships; and deep, trusted relationships between financial advisors and clients. Building multiple advantages on this platform not only protects the moat but also makes technology a favorable differentiator. Four points: First, unique product capabilitiesthe world's largest distributor and the most important wealth partner in the asset management industry. Alternative platform products and pricing are unavailable elsewhere. Morgan Stanley clients can access research, calendars, private markets through EquityZen, co-investment opportunities, and ultra-high-net-worth family office infrastructure solutions. Scale provides differentiation, even enhanced by agents. Second, unique data. Wealth Management's $8.4 trillion in assets and nearly 21 million households give the firm enormous insight into what works and what doesn't. Clients want to understand risk-reward sentiment on a given day, month, or year, partly guided by others' behavioral data. Scale and volume give financial advisors insight to customize advice and equip tools to help clients achieve goals. Third, the ability to protect client assets. Few firms can continue investing to protect clients. You cannot compete head-on with AI from a garage. The resilience theme is super important for clients with real net worth in the future. Fourth, ultimately it is a people business. Technology is world-class, but people make decisions based on the complexity of their financial needsparents, children, philanthropy, taxes, etc. Technology can help with a lot of upfront work. But ultimately, it comes down to whether they trust the financial advisor. Advisor retention exceeds 99%, and clients are satisfied. So what matters is continuing to scalenot quarter-over-quarter, but over yearsand seeing funnel reinvestment. The funnel not only protects the moat but also makes the firm a technology winner. What the management team is most excited about is further scaling and, over time, achieving operating leverage in the Wealth Management business. Chinedu Bolu (Autonomous Research): IPO Flow Outlook and AI Expenses Q: Do you expect incremental IPO flows in Q4 and 2027? What are the economics of these flowscan they be retained and converted into annuitized fee-based assets? Also, non-comp expenses were flat sequentially despite lower revenue. Details on AI investment? Is it tokens or structural AI investment? Is it a multi-year investment plan? Sharon Yeshaya A: Absolutely, asset retention is visible. Capabilities are improving, and second-quarter IPOs are now building advisor-led relationships. There is opportunity and significant interest. The firm will continue building relationships, not only starting now, but with more opportunities ahead. Retention rates are stable, meaning larger asset amounts. If retention rates hold, more top-of-funnel flows and assets will ultimately help fee-based advisory flows or advisor-led products/relationships. There were no major expectations in the second quarter; assets will fluctuate. Individuals may sell assets to buy things, or may have advisory relationships and begin aggregating external assets. This is a multi-year strategy with significant external asset opportunity. Individuals are just entering wealth, beginning to consolidate assets, and understanding the value of a comprehensive advisory relationship. On expenses, any U.S. company is thinking about AI within technology budgets, improving productivity, and supporting revenue growth on the existing expense base, with some converting into technology itself. Funds are being reallocated. Productivity is significant: financial reconciliation, which typically requires many manual hours, now has fewer errors and fewer checks. Manual processes and EUCs (spreadsheets, etc.) can be automatically written, understood, coded, and moved into the productivity lifecycle. In Equities, salespeople can use different AI tools. Productivity is real, and significant spending is here. Michael Mayo (Wells Fargo): Confidence in AI Capex Supercycle and Resource Allocation Q: Half full, half empty. The half-empty list includes AI capex supercycle overbuilding, power, financing, politics, etc. Confidence in the AI capex supercycle? Last quarter you mentioned $800 billion to $1.3 trillion to $1.5 trillion. Resource allocation: more or less AI opportunity? What about the backlog? Ted Pick A: This question will be asked repeatedly because the quantified scale is large, and the U.S. and even global economy are being driven by the AI capex cycle. I don't know if it will accelerate from $1 trillionmaybe $1 trillion or $1.2 trillionbut at 50-70 basis points of U.S. real GDP, it is significant. How many years will it take? Sometimes technology leads financing, sometimes financing leads technology. Efficiency, productivity, and protection are indisputably important for every large institution. The key is that we continue as advisor. As advisor, structurer, and financing partner, effectively serving as a clearing mechanism in a complex ecosystem and being viewed as a fair party. If a transaction cannot clear in public markets, what's next? Private financing? How to satisfy LPs, etc.? There will be moments of uncertainty. Undoubtedly, at times it will feel too fast, with overbuilding in some areas; at times not fast enough, with bottlenecks in different parts of the ecosystem, perhaps power. But capital must provide for a multi-generational change. The S&P 500 is worth $65-70 trillion, and global GDP is about $120 trillion. $1 trillion a year is a lot, but relative to the best modern companies still cash-flow positive, one must participate to win. Over 5 to 10 years, perhaps around $1 trillion annually. The role is to consider what is appropriate when it is too fast and the market is not ready for the next financing/structure/innovation, and to adjust accordingly when it is not fast enough and capital is needed. Continue to be humble and ask whether hyperscaler capex in 2028 will be $1.2 trillion, $1.4 trillion, or $1 trillion. But the number will be around $1 trillion and at some plateau level, continuing to be an important part of capital markets, as an originator, delivering content, and bringing truly sustained efficiency and productivity gains. On resource allocation, the firm was early in overweighting AI in Wealth with OpenAI and other work, and overweighted with other complexes. Now it is "double overweight." AI is existentially important, and the firm is viewed as a trusted advisor in the ecosystem, with a clear strategy: wealth manager, asset allocator, banker. Participating in content, thinking, and evolution is the firm's highest priority, while using it itself and maintaining resilience. Thank you for the question. Daniel Fannon (Jefferies): Fee-Based Asset Flows and NII Q: Fee-based asset flows are key to Wealth margin expansion. As Workplace clients convert to advice, will total flows and fee-based flows converge? Or will there always be a spread? Also NII, Q4 outlook, and whether loan NII growth in 2027 is reasonable? Sharon Yeshaya A: It depends on what kind of advice the flows seek and whether they want to enter the fee-based ecosystem. This quarter, part of fee-based flows came from a corporate retirement mandate. It brought a full corporate retirement mandate and also counted as net new assets because it immediately entered as fee-based flows. In other cases, funds in the large backlog accumulate in brokerage accounts, both advisor-side and self-directed, and then move into fee-based flows. Individual accounts. Stock plan relationships, where people aggregate assets, move directly into fee-based. It depends on the flow. What matters is the value of advice, entering directly as fee-based accounts, or migrating from self-directed, etc. Earlier this year, the firm noted that more than 20% of advisor-led flows were fee-based flows, which still holds and may even be growing. This shows the strength of the fee-based model and advice-led model. On NII, NII expansion is expected next year, driven primarily by loan growth. Ebrahim Poonawala (BofA Securities): Wealth Management Pre-Tax Margin and Tokenized Equities Q: Wealth Management Workplace conversion is excellent. In a world focused on revenue downside risk, how do you think about the pre-tax margin? At 30%, the firm is investing for the future, not pursuing higher near-term. Does conversion lead to better pre-tax margins? If there is a slowdown, does it increase business and firmwide ROE defensiveness? Sharon Yeshaya A: Yes. The pre-tax margin will expand as scale grows. The intent is not to manage quarter by quarter, but to invest long term. Channel investments: Workplace, self-directed, advisors. Broadening the funnel and shifting to fee-based has expanded margins since the larger business model was established more than a decade ago. Ted Pick added: The firm strives to remain disciplined on slides, goals, and objectives, and to achieve and exceed them. ROTCE has exceeded 20% for five quarters, and some ask whether to raise it. The firm is truly in dialogue with a long-term real-money shareholder base. They want multi-year returns, higher highs and higher lows in all seasons. If risk-off and difficult, with the glass three-quarters empty, it will be slower because there is less one can do. But it is close to all-weather, and over time drives higher through scaling and activating the funnel. That is what the team focuses on most. If there is one in all the CF statistics, it is $1 trillion in net new assets over the past three years, and another $1 trillion in the prior three years. The key is whether these assets ultimately enter fee-based flows with financial advisors. In many cases they do. Monetizing a unique experience with financial advisors and making technology a long-term friend should create incremental operating leverage. The answer ultimately is yes. On the SEC tokenized equities rule, Sharon Yeshaya A: Part of the future of wealth. A tokenized world means assets move faster and more easily, requiring advice on thinking about assets and how to move quickly, the right assets, and token usage. From the firm's perspective, it is an opportunity, and it has invested in the digital space across Wealth and ISG. It will continue to lead, especially as investors and clients need advice. Devin Ryan (Citizens JMP): Institutional Equities Cycle and Structural Q: Institutional Equities revenue is nearly double 2024. Cycle versus structural? Large firms consolidating share, prime business strong, Asia structurally larger. How much is cycle, how much is a bigger pie and share in new areas? Ted Pick A: Still in an equities world. Equities remain an attractive asset class. If rates rise further and squeeze corporate earnings, valuation multiples contract, and equities become less attractive. But it is still an equities world, seeing healthy large-cap corporate capital returns. Add private equity and other private capital underwriters needing to harvest portfolios through public markets, all favorable. Fifteen years ago, created 9 boxes: cash, derivatives, prime brokerage, three regions. After the financial crisis recovery, did prime well early, with MSET world-class technology connecting high-touch cash products. That continues today. In recent years, under Alan and Gokul's leadership, built a world-class derivatives business, the missing link. Global business, connecting cash and prime through derivatives. As a result, the Equities business is more robust than 7-8 years ago. But it would be foolish to say it is immune to cycles and investor sentiment. In September, Asian volumes dried up, becoming a U.S. re-underwriting moment. Volumes were low, and ecosystem output was low. But the firm has found an enviable position as a trusted advisor to asset managers in the 9 boxes secondary scenario. Like wealth, scale is existentially important. Must be faster, better, cheaper, win client trust, and have global presence. London, Paris, Hong Kong, Tokyo, Seoul, India, the U.S. The business favors the largest players, and the firm continues to focus on scaling. It also focuses on capital usage. Beyond $1 trillion every three years, the 300 basis point CET1 buffer is not small. Working with business units to achieve it. There are other usage measures, SLR, etc., but the firm likes the capital buffer, allowing it to deploy more capital to clients at different times through Equities and Fixed Income businesses. Christopher McGratty (KBW): Geographic and Product Capital Allocation Q: Where are you most excited about capital allocation over the next few years? Domestic, international, product? Ted Pick A: The geographic answer is global allocation. You cannot decide to build big in Hong Kong over the past three years; you must have had a world-class team for the past 20-25 years. The firm has been there. Tokyo is very hot, with the MUFG partnership. Japan's largest capital markets franchise, clearing FX and equities among global firms. Europe, many people there in recent weeks. Need to be bigger in the UK and continental Europe. The U.S. remains fertile, especially in a fragmented world, wanting to own new issues and outperform beta. Geography matters. Asia has advantages, but the answer is global. Products are similar, integrated solutions across cash, derivatives, prime brokerage. Cannot just be a preferred prime broker. Need appropriate risk management and margin around the right clients. Need to monetize through financing products, low- and high-touch cash execution, and derivatives. What matters most in the key period is market business integration. Some clients, returning to the AI question, are not just a banking phenomenon but also a fixed income secured lending and securitized lending phenomenon, and the firm has a world-class team. Micro, macro, commodities, and equities are tightly integrated, with people having sat in every seat, wanting to generate the best risk-adjusted returns for clients. It is not just a technocratic exercise but a behavioral one, battle-tested, with people getting along well and clients seeing it. Erika Najarian (UBS): Impact of Higher Rates on Capital Raising Q: Investors worry about persistently higher rates, the Fed, and the 10-year. In conversations with clients across industries and capital needs, how do higher rates and sustained 10-year levels affect capital raising decisions? Ted Pick A: It is not just higher nominal rates but higher real rates. The cost of capital is not like financial repression or the post-pandemic and stimulus years. There must be a real capital structure. If not, sometimes it resembles an investment-grade capital structure, sometimes sub-investment-grade, with sub-investment costs on a traditional basis. If not, the market discovers it immediately. As structurer and underwriter, want to pick winners and advise in the right places. But as a lender committing capital or helping, using one's own balance sheet, that is one meaning of double overweight. Double overweight is not just sending bankers to find business; it is also allocating risk capital with extreme rigor and acuity, where bridge or relationship loans theoretically become equity and ultimately provisions. Imagine mistakes will be made; generational change is inevitable. But the job is to reduce stupidity, ensure being active and helping bridge capital when reasonable. The ultimate value-add is M&A advice, strategic advice, not just putting up balance sheet. You are right that when rates rise, if due to higher productivity and GDP, all is well. Back to pre-financial crisis, real GDP 2% or 3%. If helping stimulate, healthy and necessary. If high rates are due to uncontrolled inflation expectations or GEO Group Inc tail-risk supply shocks, people are unwilling to invest in illiquid risk capital. This is the reality of public and private markets checking each other, so the capital markets business GCM has sharp people working with the ecosystem, seeing what works, not just long term, but market windows opening and closing. Scott Siefers (TD Cowen): Sponsor Backlog and Stalemate Q: State of capital markets, sponsor mandate backlog, how to break the stalemate? Obstacles? Ted Pick A: Two answers. First, ultimately portfolios need to be harvested. Second, a lot of engineering, continuation funds, putting assets into new funds. Fair to say some very smart private equity investors decide to keep some investments on balance sheet; these work in a higher-rate world, and if they can generate low-to-mid-teens IRR with appropriate leverage, maybe they want to keep them or harvest later. That is a positive response. Less positive response: somewhat frustrating. Some sponsors stuck on marks and MOIC that will not be realized because the market is sharp on portfolios and new WACC, country risk, supply risk, AI risk. The question is when and how. Some leading PE firms are very smart and flexible, bringing things that may not have higher marks but are ready, paired with big winners. Portfolio composition is mixed. Others hold on hoping for better. The probability of a low-rate, low-inflation, non-recession environment is lower, and one would not bet on it. Must think old-school corporate finance. The smartest important PE partners will continue to find ways to bring companies to market in a favorable regulatory backdrop, IPO or M&A. In short, conditionally continue to view it as a positive tailwind; perhaps the mistake years ago was thinking it might lead the corporate finance lifecycle. It is clear that strategic entity corporates lead the lifecycle, and sponsors must work hard to keep up with strategic bids and strategic capital needs. Benjamin Gerlinger (Citi): FICC and Equities Investment Opportunities Q: League tables show Equities, FICC, and Investment Banking standing out in strong areas. Relative to peers, FICC appears to have excess capital and unique financing opportunities. Are there significant investment opportunities in FICC to take share, or is the focus more on Equities because global equities expansion opportunities are greater? Ted Pick A: Fixed income was Morgan Stanley's investment banking Achilles' heel for the past 15 years. Jay and Jakob's leadership brought extraordinary stability, generating efficient capital returns against headwinds, $2 billion per quarter. Once wanted to reach $1 billion per quarter. Importantly, the business is integrated with investment banking and the private side of capital markets and Equities in a way institutions have never seen. A lot of time helps advance equity products or banking products, which may not be recorded in the external Fixed Income division but absolutely counts in underwriting, advisory, and Equities lines. World-class business. Not a traditional commercial bank, but by bringing assets into the bank, funding costs comparable to the group, talent, the importance of the AI ecosystem, and global product buildout, the commodities, macro, and micro businesses continue to invest. These people understand the integrated firm proposition and will continue to invest. Closing Host: The conference is over. Thank you for participating.