Morgan Stanley’s 2025 Q4 Earnings Call: Capital Return Urgency, Growth Priorities, and Market Cycle Views Clash

Date of Call: Jan 15, 2026

Financials Results

• Revenue: Full-year record of $70.6 billion; Q4 revenues $17.9 billion. Institutional Securities full-year record $33.1 billion; Q4 $7.9 billion. Wealth Management full-year record $31.8 billion; Q4 $8.4 billion. Investment Management full-year record $6.5 billion.
• EPS: Full-year EPS of $10.21; Q4 EPS $2.68. ROTCE was 21.6% for full year and 21.8% for Q4.
• Gross Margin: Wealth Management Q4 reported margin expanded to 31.4%. Institutional Securities full-year margin 34%. Firm-wide efficiency ratio improved to 68.4% for full year.
• Operating Margin: Wealth Management Q4 margin 31.4%. Institutional Securities full-year margin 34%. Firm-wide efficiency ratio 68.4%.

Guidance:

• NII for Q1 2026 expected to remain roughly flat quarter-over-quarter, offsetting rate cuts with higher sweeps and loan balances.
• Assuming current forward curve, incremental loan growth, and deposit mix, NII expected to trend higher through 2026.
• 2026 tax rate expected between 22% and 23%.
• Wealth Management pipeline healthy, with continued focus on scaling fee-based flows and technology investments.
• Institutional Securities pipeline healthy and global, with strategic activity accelerating; positioned for capital markets cycle.
• Investment Banking pipelines healthy, diversified, with strong activity in debt underwriting and advisory.
• Wealth Management margins expected to continue expansion driven by fee-based revenues and technology/efficiency gains.
• Firm-wide operating leverage expected to continue if markets are constructive and execution remains strong.

Business Commentary:

Strong Financial Performance in 2025:

• Morgan Stanley reported record revenues of $70.6 billion for the full year 2025, with a return on tangible equity (ROTCE) of 21.6% and earnings per share (EPS) of $10.21.
• The firm's performance was driven by expanding markets, increasing client demand for advice, and multi-year investments in talent and technology.

Growth in Institutional Securities:

• The Institutional Securities division delivered record full-year revenues of $33.1 billion, with a notable increase in investment banking revenues to $7.6 billion.
• This growth was attributed to a strong macro backdrop, improving corporate confidence, and open capital markets, which positioned the firm well for continued share gains.

Wealth Management Success:

• Wealth management achieved record revenues of $31.8 billion with a reported margin of 29%, and net new assets reached $356 billion.
• The success was driven by the firm's strategic client acquisition model, increased client engagement, and the migration of assets to financial advisors.

Global Presence and Revenue Contribution:

• Morgan Stanley's global operations contributed significantly, with 25% of revenues coming from outside the U.S., and EMEA and Asia regions showing revenue growth of 40% and 50% over the last two years.
• The growth was due to the firm's established global footprint, leading businesses in regions like Japan and Hong Kong, and strong international client relationships.

Investment Management and Asset Growth:

• The investment management segment reported record revenues of $6.5 billion, with assets under management reaching $1.9 trillion.
• The growth was supported by strong demand for Parametric and fixed income strategies, as well as ongoing investments in technology and global distribution.

Sentiment Analysis:

Overall Tone: Positive

• Executives described 'exceptional year,' 'deliberate execution,' and 'record' results across businesses. They noted 'resilient' economy, 'ideal' macro setup, and 'strong' client engagement. Statements include 'the firm is running at a higher run rate' and 'we are executing from a position of strength.' They also expressed optimism for 2026 tailwinds and ongoing growth.

Q&A:

• Question from Glenn Schorr (Evercore): Why no change for the targets given business success? Are there pieces at peak, or is it cyclical caution?
  Response: Decision to maintain targets reflects confidence in compounding earnings through cycles, not chasing 'higher highs' but ensuring 'higher lows' for durability; targets will be revisited later.

• Question from Dan Fannon (Jefferies): What drives Wealth Management margin expansion going forward?
  Response: Margin drivers are scaling fee-based revenues/assets and operational/technological efficiencies (e.g., AI tools like LeadIQ) in both revenue generation and cost management.

• Question from Brennan Hawken (BMO Capital Markets): Is the target framework shifting to central tendency through cycle, not just floors?
  Response: No philosophical shift; focus remains on demonstrating ability to generate operating leverage (e.g., 17.5% ROTCE) in tougher environments, supported by past performance in uncertain quarters.

• Question from Devin Ryan (Citizens Bank): Can Institutional Securities wallet continue expanding in 2026 given strong growth?
  Response: Yes, tailwinds like global equitization, AI-driven consolidation, and private credit institutionalization support continued wallet growth of 5%-10% annually, with share gains from less complete firms.

• Question from Mike Mayo (Wells Fargo Securities): How do you characterize Trading inning and AI opportunities/risks?
  Response: Trading may be in 'middle innings' due to high asset prices; AI presents opportunities in capital markets/structuring but carries teething pains and regulatory/client adaptation challenges.

• Question from Steven Chubak (Wolfe Research): Can firm deliver higher incremental margins given growth expectations?
  Response: Yes, ongoing operating leverage expected if markets are constructive and execution continues, supported by AI-driven productivity gains and a largely fixed cost base.

• Question from Erica Najarian (UBS): Where are you investing capital to build moats, and is there structural Wealth margin improvement?
  Response: Investing in talent/resources for Investment Banking, Fixed Income, Wealth SBL/mortgages, digital assets, and alternatives—all ROE-accretive. Wealth margins have structural expansion opportunities over time.

• Question from Gerard Cassidy (RBC Capital Markets): With excess capital and potential deregulation, when might you return more capital?
  Response: No rush; high capital surplus (300+ bps excess CET1) allows patient investment in business; acquisition bar is high; will consider alternatives when appropriate.

• Question from Chris McGratty (KBW): Views on international vs. domestic growth and ROE potential?
  Response: International assets growing in Wealth and Investment Management (e.g., 50% of fixed income flows from international accounts); global franchise contributes significantly to revenue and margins, with strong growth in EMEA and Asia.

Contradiction Point 1

Capital Return Philosophy and Timeline

Contradiction on urgency and strategy for returning capital to shareholders.

At what point would future regulatory capital reductions trigger increased capital returns, considering current abundance? - Gerard Cassidy (RBC Capital Markets)

2025Q4: There is no rush to return capital. The focus remains on investing in the business. - Ted Pick(CEO)

With a strong capital position (excess CET1 >300bps) and regulatory developments, are there areas to deploy capital faster for growth, organically or inorganically? - Glenn Schorr (Evercore ISI)

2025Q3: Buybacks will continue opportunistically. The primary use of capital is internal investment... Organic growth is the strong bias. Inorganic opportunities... are considered but must pass strict tests... - Ted Pick(CEO)

Contradiction Point 2

Assessment of Capital Markets Cycle and Risk

Contradiction in characterizing the cycle stage and associated risks.

What is the outlook for Institutional Securities wallet share through 2026, and what are the secular and cyclical drivers? - Devin Ryan (Citizens Bank)

2025Q4: The business is in a strong position... The pipeline looks very good across all three regions. While the world remains uncertain, the investment banking product category is expected to generally trend upward over the next couple of years. - Ted Pick(CEO)

Where are we in the capital market cycle, and are you overearning or underearning? - Michael Mayo (Wells Fargo Securities)

2025Q3: It's difficult to map to a traditional economic cycle... The environment resembles a return to 'back-to-basics' corporate finance... The firm is positioned well for growth over the next 3-5 years but expects periods of procyclicality and potential 'windows' where activity could shut down due to uncertainty. - Ted Pick(CEO)

Contradiction Point 3

Primary Focus for Capital Deployment

Contradiction on whether to prioritize organic or inorganic growth opportunities.

With potential regulatory capital reductions, when would you consider returning more capital given current capital levels? - Gerard Cassidy (RBC Capital Markets)

2025Q4: There are ongoing, ROE-accretive investment opportunities across all businesses... The focus remains on investing in the business. - Ted Pick(CEO)

Where do deposits fit in your inorganic opportunity priorities, and how do you address investor concerns about the teaming business's ongoing optimization? - Erika Najarian (UBS)

2025Q2: The primary focus is on the massive organic runway within the existing strategy... The best use of incremental capital is often to invest organically within these businesses. - Ted Pick(CEO)

Contradiction Point 4

Philosophy Regarding Inorganic Opportunities

Contradiction on the strategic bar and evaluation criteria for potential acquisitions.

Under what conditions would you consider returning more capital in response to potential regulatory changes reducing capital requirements, given your current surplus? - Gerard Cassidy (RBC Capital Markets)

2025Q4: The bar for acquisitions is high due to the integration effort required... The focus remains on investing in the business. - Ted Pick(CEO)

What financial or strategic factors would drive a transaction, and how do M&A priorities, advisory capabilities, and recruiting conditions influence this decision? - Daniel Thomas Fannon (Jefferies)

2025Q2: Acquisitions must fit squarely within the core strategy... Tuck-in deals that add operating leverage without distraction are considered, but the primary focus is on executing the existing strategy. - Ted Pick(CEO)

Contradiction Point 5

Outlook for Institutional Securities and Capital Markets Cycle

Contradiction on the presence and timing of a tailwind M&A/IPO cycle.

How do you project Institutional Securities' wallet share through 2026, considering secular and cyclical drivers? - Devin Ryan (Citizens Bank)

2025Q4: The business is in a strong position... Tailwinds include AI-driven consolidation, sponsors untying assets, and a wave of private companies going public. - Ted Pick(CEO) & Sharon Novak(CFO)

What is the outlook for capital markets activity in the current environment, and how is Morgan Stanley positioned to capitalize on opportunities? - Steven Chubak (Analyst)

2025Q1: The market backdrop is generally favorable but lacks the tailwind of the anticipated M&A and IPO capital market cycle. - Ted Pick(CEO)