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MS

MORGAN STANLEY (MS)·Q1 2025 Earnings Summary

Executive Summary

  • Record quarter: Net revenues $17.74B, Diluted EPS $2.60, ROTCE 23.0%, expense efficiency 68% .
  • Broad-based strength: Institutional Securities revenue $8.98B with record Equity $4.13B; Wealth $7.33B with 26.6% pre-tax margin and $93.8B NNA; Investment Management $1.60B revenue on higher AUM .
  • Beat vs S&P Global consensus: EPS +$0.39 (+17.7%) and revenue +$1.19B (+7.2%) versus $2.21 and $16.55B, respectively (S&P Global estimates)*; drivers were record Equities, robust FICC underwriting, and solid Wealth activity .
  • Capital and returns: CET1 (Std.) 15.3%, $1.0B buyback, common dividend maintained at $0.925; firm accreted ~$1.9B CET1 in the quarter .
  • Setup: Management emphasized “pause not delete” on banking pipelines amid tariff/macro volatility; WM NII to see seasonal Q2 headwind from tax-related sweep declines, with mix the key driver .

What Went Well and What Went Wrong

What Went Well

  • Record Equities performance: “Equity reporting a record $4.1 billion in revenues” with strength across prime brokerage and derivatives, particularly in Asia, on heightened client activity .
  • Wealth momentum and durability: $93.8B net new assets (6% annualized) and fee-based flows of $29.8B; WM pre‑tax margin 26.6% despite severance and DCP headwinds .
  • Management tone on resilience: “We just delivered a top line and bottom line record quarter... five clean quarters” and “delivering an average of 20% ROTCE over the last 5 quarters,” underscoring earnings power through volatility .

What Went Wrong

  • Underwriting mix: Equity underwriting fell YoY as issuers evaluated uncertainty; near‑term deal activity disrupted by tariff headlines despite robust pipelines .
  • Credit costs: Provision for credit losses rose to $135MM (vs release a year ago), with net charge‑offs ~$23MM mainly in office CRE; macro forecast (GDP) marked lower to 1.5% embedded in CECL .
  • Expense pressure: Compensation ratio rose to 42% of revenues and included $144MM severance tied to a ~2% RIF; total non‑interest expense up 12% YoY .

Financial Results

Firm-Level Metrics vs Prior Periods and Estimates

MetricQ1 2024Q4 2024Q1 2025
Net Revenues ($B)$15.14 $16.22 $17.74
Diluted EPS ($)$2.02 $2.22 $2.60
Pre-tax Margin (%)29% 30% 31%
Expense Efficiency Ratio (%)71% 69% 68%
ROTCE (%)19.7% 20.2% 23.0%

Actuals vs S&P Global Consensus (Q1 2025)

MetricConsensusActualSurprise
Revenue ($B)$16.55*$17.74 +$1.19B (+7.2%)
Diluted EPS ($)$2.21*$2.60 +$0.39 (+17.7%)

Values marked with * are retrieved from S&P Global.

Segment Breakdown (Net Revenues)

Segment / LineQ1 2024 ($B)Q4 2024 ($B)Q1 2025 ($B)
Institutional Securities$7.02 $7.27 $8.98
– Investment Banking$1.45 $1.64 $1.56
– Equity$2.84 $3.33 $4.13
– Fixed Income$2.49 $1.93 $2.60
Wealth Management$6.88 $7.48 $7.33
Investment Management$1.38 $1.64 $1.60
Intersegment Eliminations$(0.14) $(0.17) $(0.17)
Total Net Revenues$15.14 $16.22 $17.74

KPIs

KPIQ1 2024Q4 2024Q1 2025
WM Net New Assets ($B)94.9 56.5 93.8
WM Fee-based Flows ($B)26.2 35.2 29.8
WM Deposits ($B)347 370 375
WM Loans ($B)147.4 159.5 162.5
IM AUM ($B)1,505 1,666 1,647
IM Long-term Net Flows ($B)7.6 4.3 5.4

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Wealth NII (mix-driven)Q2 2025N/AExpect “seasonal decline in sweeps” to modestly lower NII; recent rise in sweeps could offset; deposit mix remains key driver Lower (qualitative)
Investment Banking Pipeline2025N/APipelines “remain robust”; timing sensitive amid tariff/volatility; “pause not delete” Maintained (qualitative)
Operating Expenses2025N/A$144MM severance in Q1; continued discipline; automation/AI and talent reallocation discussed N/A (color only)
Tax Rate2025N/AQ1 ETR 21.2% aided by share-based comp benefit N/A (actual)
DividendOngoing$0.925/qtr $0.925/qtr declared for May 15, 2025 Maintained

Note: Morgan Stanley does not provide formal quantitative revenue/EPS/margin guidance; commentary above reflects management qualitative outlook.

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 & Q4 2024)Current Period (Q1 2025)Trend
Markets & TradingStrong Equities and FICC; Asia strength; ROTCE momentum Record Equities ($4.1B), elevated client activity across regions and products Improving
Investment BankingRecovery off trough; better underwriting/more IPOs/FNs Robust pipelines; equity underwriting muted; FICC underwriting strong; “pause not delete” Steady but timing sensitive
Asia FocusNotable strength in Asia within Equities Emphasized strategic partnership in Japan; bullish long-term on Asia Strengthening
Regulation/CapitalCapital strength highlighted; CET1 ~15.9% YE SLR reform could be positive; focus on holistic capital regime (G-SIB, CET1, SLR) Constructive
Wealth Flows & MixRecord/strong fee-based flows; NNA strong $94B NNA; $30B fee-based; Q2 sweeps seasonal pressure; mix key driver of NII Durable flows; NII mix watch
Credit/CREProvisions down vs prior year; some CRE charge-offs Net charge-offs ~$23MM primarily office CRE; provisions reflect macro caution Stable/managed

Management Commentary

  • “The Integrated Firm delivered a very strong quarter with record net revenues of $17.7 billion and EPS of $2.60, and an ROTCE of 23.0%.” — Ted Pick, CEO .
  • “Institutional Securities delivered a record quarter... AI dynamics, monetary policy uncertainty and U.S. trade debates created bouts of volatility... leading to high levels of client activity.” — Sharon Yeshaya, CFO .
  • “We’re seeing ‘pause not delete’ on strategic activity; pipelines remain robust” — Ted Pick .
  • “WM NII to see seasonal decline in Q2 with tax-related sweeps; deposit mix remains the key driver” — Sharon Yeshaya .

Q&A Highlights

  • Durability of Equities/trading: Activity broad-based across nine “boxes” (cash, PB, derivatives x 3 regions); share gains and technology investments underpin sustainability absent a “risk-off” turn .
  • M&A/Underwriting outlook: Stability more important than valuation for execution; pipelines intact; timing can shift amid policy uncertainty—“pause not delete” .
  • Asia strategy: Multi-decade MUFG partnership; continued build in India and Hong Kong; commitment to be a global winner in ISG .
  • Regulation: Potential SLR reform seen positively but should be viewed within total capital framework (G‑SIB, CET1, SLR, Basel Endgame) .
  • Expenses and workforce: ~3% headcount reduction ex‑FAs; ongoing investments in automation/AI; disciplined reallocation of human capital .
  • Credit/provisions: Q1 CECL macro overlay reflects GDP expectation reduced to 1.5% for 2025; loan sale gains freed up event book capacity .

Estimates Context

  • EPS and revenue beat S&P Global consensus by ~18% and ~7%, respectively, driven by record Equities, strong FICC underwriting, and solid transactional activity in Wealth .
  • Street may lift FY run-rate assumptions for Markets and tweak WM NII trajectory given Q2 seasonality/update on sweep balances; continued ROTCE >20% supports multiple resilience .

Values marked with * are retrieved from S&P Global.

Key Takeaways for Investors

  • Quality beat with high-visibility drivers: Record Equities and broad client engagement suggest sustainable Markets revenue run-rate barring “risk-off” regime change .
  • WM engine intact: $94B NNA and $30B fee-based flows validate durable asset-gathering; watch Q2 NII seasonal downtick and deposit mix .
  • Banking pipeline is there; execution timing is the swing factor: “Pause not delete” amid tariff/macro volatility; equity underwriting softer, but FICC underwriting robust .
  • Capital return capacity strong: CET1 15.3%, $1.0B buyback, dividend maintained; capital accretion creates flexibility .
  • Credit risks manageable: Provision build reflects macro caution; CRE office losses modest and largely provisioned .
  • Operating leverage path credible: Efficiency ratio improved to 68% despite severance; continued discipline plus tech investments should support margins through cycles .
  • Narrative moving the stock: Record ROTCE and estimate beats, plus resilient client activity in volatile markets, are near-term catalysts; monitor policy path and deal windows for next leg .

Notes:

  • All figures are GAAP unless noted; DCP impacts and severance called out per company disclosures .
  • Values marked with * are retrieved from S&P Global.