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

Executive Summary

Morgan Stanley reported strong financial results for the third quarter and first nine months of 2024. The firm delivered robust revenue growth, improved profitability, and continued to build its capital position.

In the third quarter, Morgan Stanley reported net revenues of $15.4 billion, a 16% increase from the prior year quarter. Net income applicable to the firm was $3.2 billion, up 32% year-over-year. Diluted earnings per share was $1.88, a 36% increase.

For the first nine months of 2024, net revenues were $45.5 billion, up 10% from the prior year period. Net income applicable to the firm was $9.7 billion, a 28% increase. Diluted earnings per share was $5.73, up 32%.

The firm’s expense efficiency ratio, which measures non-interest expenses as a percentage of net revenues, improved to 72% in both the third quarter and year-to-date, benefiting from disciplined expense management. Morgan Stanley also accreted $2.1 billion of Common Equity Tier 1 capital, ending the quarter with a Standardized Common Equity Tier 1 capital ratio of 15.1%.

Business Segment Results

Morgan Stanley’s three major business segments all delivered strong performances:

Institutional Securities: Net revenues were $6.8 billion in the quarter and $20.8 billion year-to-date, up 20% and 15% respectively. The segment benefited from higher Equity and Fixed Income revenues, as well as stronger Investment Banking results.

Wealth Management: Net revenues were $7.3 billion in the quarter and $20.9 billion year-to-date, increases of 14% and 7%. The business saw higher Asset management and Transactional revenues, partially offset by lower Net interest income. Wealth Management’s pre-tax margin was 28.3% for the quarter.

Investment Management: Net revenues were $1.5 billion in the quarter and $4.2 billion year-to-date, up 9% and 8%. The segment experienced higher Asset management and Performance-based income.

From a geographic perspective, the firm saw revenue growth across its major regions - Americas, EMEA, and Asia - driven by strength in various business lines.

Financial Condition and Capital

Morgan Stanley maintained a strong balance sheet and capital position during the period. Total assets increased to $1.26 trillion at September 30, 2024, compared to $1.19 trillion at the end of 2023.

The firm’s Standardized Common Equity Tier 1 capital ratio was 15.1% at the end of the third quarter, well above the regulatory minimum. Morgan Stanley’s Tier 1 leverage ratio was 6.9% and its Supplementary Leverage Ratio was 5.5%, also exceeding requirements.

The firm has ample liquidity, with average daily Liquidity Resources of $342.6 billion in the third quarter, up from $314.5 billion at the end of 2023. This liquidity buffer is maintained to meet the firm’s operational needs and regulatory requirements.

Morgan Stanley’s credit ratings remained strong, with the Parent Company’s long-term debt rated ‘A+’ by Fitch, ‘A1’ by Moody’s, and ‘A-’ by S&P Global. The firm’s U.S. bank subsidiaries also held high investment-grade credit ratings.

Strengths and Opportunities

A key strength of Morgan Stanley is its diversified business model, with leading positions in Institutional Securities, Wealth Management, and Investment Management. This diversification helps the firm navigate changing market conditions and generate more stable revenues and earnings.

The Wealth Management business continues to be a strong driver of the firm’s performance, benefiting from higher fee-based assets and client activity. Wealth Management’s pre-tax margin of 28.3% in the quarter demonstrates the segment’s profitability.

Morgan Stanley’s capital position provides financial flexibility to invest in growth initiatives, make strategic acquisitions, and return capital to shareholders through dividends and share repurchases. The firm’s strong liquidity also positions it well to withstand potential market disruptions.

Additionally, the firm’s global footprint and leading franchises in areas like Equity, Fixed Income, and Investment Banking position it to capitalize on opportunities in the broader financial services industry.

Risks and Challenges

While Morgan Stanley delivered impressive results, the firm faces several risks and challenges that could impact future performance:

Economic and market conditions: Ongoing geopolitical tensions, the U.S. political cycle, and the timing and pace of interest rate changes present risks that could affect capital markets and the firm’s businesses.

Regulatory environment: Morgan Stanley operates in a highly regulated industry, and changes to capital, liquidity, or other requirements could impact the firm’s operations and financial results.

Competition: The financial services industry remains highly competitive, and Morgan Stanley must continue to invest in technology, talent, and innovation to maintain its market position.

Cybersecurity and operational risks: As a large, global financial institution, Morgan Stanley is exposed to the risk of cyber attacks and operational failures that could disrupt its business.

Outlook and Conclusion

Looking ahead, Morgan Stanley appears well-positioned to continue its strong performance. The firm’s diversified business model, robust capital and liquidity, and leading market positions provide a solid foundation for growth.

However, the firm will need to navigate an uncertain economic and regulatory environment, as well as intense competition, to sustain its momentum. Prudent risk management, disciplined expense control, and strategic investments in the business will be critical to Morgan Stanley’s future success.

Overall, Morgan Stanley delivered excellent results in the third quarter and first nine months of 2024, demonstrating the strength and resilience of its franchise. The firm’s focus on serving clients, managing risks, and creating long-term value for shareholders positions it well for the future.