Form 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Executive Summary

Morgan Stanley, a leading global financial services firm, has reported strong financial results for the second quarter and first half of 2024. The firm delivered balanced performance across its Wealth Management and Institutional Securities business segments, with net revenues of $15.0 billion in the second quarter, up 12% from the prior year. Net income applicable to Morgan Stanley was $3.1 billion, an increase of 41% compared to the same period last year. Diluted earnings per share grew 47% to $1.82.

For the first half of 2024, net revenues were $30.2 billion, an 8% increase from the prior year period. Net income applicable to Morgan Stanley was $6.5 billion, up 26%, while diluted earnings per share increased 31% to $3.85. The firm’s expense efficiency ratio improved to 72% for both the second quarter and first half of the year, reflecting strong expense management.

Overview of Financial Results

Morgan Stanley reported robust performance across its business segments. Institutional Securities net revenues grew 23% in the second quarter and 12% in the first half, driven by strong results in Equity, Fixed Income, and Investment Banking. Wealth Management delivered a pre-tax margin of 26.8% and net revenues increased 2% in the quarter and 3% in the first half, reflecting higher asset management fees. Investment Management net revenues rose 8% in both the quarter and first half, primarily due to higher asset management and performance fees.

The firm’s capital position remained strong, with a Standardized Common Equity Tier 1 capital ratio of 15.2% as of June 30, 2024. Morgan Stanley accreted $1.5 billion of Common Equity Tier 1 capital during the quarter while supporting clients and executing capital actions.

Consolidated Results

For the second quarter of 2024, Morgan Stanley reported net revenues of $15.0 billion, a 12% increase from the prior year quarter. Net income applicable to the firm was $3.1 billion, up 41%, and diluted earnings per share grew 47% to $1.82.

In the first half of 2024, net revenues were $30.2 billion, an 8% increase from the prior year period. Net income applicable to Morgan Stanley was $6.5 billion, a 26% increase, and diluted earnings per share rose 31% to $3.85.

The firm’s expense efficiency ratio, which measures total non-interest expenses as a percentage of net revenues, improved to 72% in both the second quarter and first half of the year, compared to 78% and 75% in the respective prior year periods. This reflects the firm’s disciplined expense management and the benefits of its scale.

Business Segment Results

Institutional Securities Institutional Securities net revenues were $6,982 million in the second quarter, up 23% from the prior year quarter. This was primarily driven by higher Equity, Fixed Income, and Investment Banking results. For the first half of 2024, Institutional Securities net revenues increased 12% to $13,998 million.

Investment Banking revenues grew 51% in the second quarter and 32% in the first half, reflecting increases across Advisory, Equity Underwriting, and Fixed Income Underwriting. Equity and Fixed Income trading revenues also increased, up 18% and 16% respectively in the second quarter.

Wealth Management Wealth Management net revenues were $6,792 million in the second quarter, a 2% increase from the prior year quarter. For the first half of 2024, net revenues grew 3% to $13,672 million. The business delivered a pre-tax margin of 26.8% in the second quarter.

The increase in net revenues was primarily driven by higher Asset Management revenues, which rose 16% in the quarter and 14% in the first half, reflecting higher fee-based asset levels. This was partially offset by lower Net Interest Income, which decreased 17% in the quarter and 15% in the first half, due to changes in deposit mix and the impact of higher interest rates.

Investment Management Investment Management net revenues were $1,386 million in the second quarter, an 8% increase from the prior year quarter. For the first half of 2024, net revenues also grew 8% to $2,763 million.

The increase was primarily driven by higher Asset Management and related fees, up 6% in the quarter and 7% in the first half, reflecting higher average assets under management (AUM) on improved market levels. Performance-based income and other revenues also increased.

Provision for Credit Losses

The Provision for credit losses on loans and lending commitments was $76 million in the second quarter, primarily related to provisions for certain specific commercial real estate loans, mainly in the office sector, and modest growth in the corporate loan portfolio. This compares to $161 million in the prior year quarter.

For the first half of 2024, the Provision for credit losses was $70 million, down from $395 million in the prior year period. The decrease was primarily due to improvements in the macroeconomic outlook, partially offset by provisions for certain specific commercial real estate and corporate loans.

Capital and Liquidity

Morgan Stanley maintained a strong capital position, with a Standardized Common Equity Tier 1 capital ratio of 15.2% as of June 30, 2024, unchanged from December 31, 2023. The firm accreted $1.5 billion of Common Equity Tier 1 capital during the second quarter.

The firm’s Liquidity Coverage Ratio was 131% as of June 30, 2024, well above the regulatory minimum of 100%, and its Net Stable Funding Ratio was 120%, also exceeding the 100% requirement. Morgan Stanley’s total Liquidity Resources, which include high-quality liquid assets and cash deposits, were $319.6 billion as of the end of the second quarter.

Outlook and Key Risks

The economic environment, client and investor confidence, and overall market sentiment improved in the first half of 2024. However, geopolitical risks, inflation, and uncertainty regarding the U.S. political cycle and future interest rate path present ongoing risks that could impact capital markets and the firm’s businesses.

Morgan Stanley remains focused on disciplined expense management, prudent risk-taking, and delivering balanced performance across its diversified business model. The firm’s strong capital and liquidity positions provide a solid foundation to navigate potential market volatility and support its clients.

Analysis

Morgan Stanley’s second quarter and first half 2024 results demonstrate the firm’s ability to deliver consistent, high-quality performance across its diversified business segments. A few key takeaways:

Balanced Business Mix The firm’s balanced revenue streams from Institutional Securities, Wealth Management, and Investment Management allowed it to capitalize on favorable market conditions and client activity. No single business segment dominated, reducing concentration risk.

Expense Discipline Morgan Stanley’s expense efficiency ratio improved significantly, reflecting the firm’s focus on disciplined expense management. This helped drive higher profitability despite ongoing macroeconomic uncertainties.

Strong Capital and Liquidity The firm maintained robust capital and liquidity positions, providing a cushion against potential market disruptions. Its capital ratios exceeded regulatory minimums, and its Liquidity Resources were ample to meet funding needs.

Prudent Risk Management Morgan Stanley’s provision for credit losses declined year-over-year, indicating effective risk management practices. The firm was able to navigate the commercial real estate and corporate lending environments without significant deterioration.

Outlook Tempered by Risks While the economic and market environment improved in the first half, Morgan Stanley highlighted ongoing risks related to geopolitics, inflation, and interest rates. Prudent risk management will be crucial to navigating these challenges.

Overall, Morgan Stanley’s strong second quarter and first half 2024 results demonstrate the firm’s ability to execute on its diversified business model, control expenses, and maintain a robust capital and liquidity position - all while managing risks in a complex macroeconomic environment. These strengths position the firm well to continue supporting its clients and delivering value to shareholders.