Morgan Stanley (NYSE:MS) reported first-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Operator
Good Morning. Welcome to Morgan Stanley’s first quarter 2026 earnings call on behalf of Morgan Stanley. I will begin the call with the following information and disclaimers. This call is being recorded during today’s presentation. We will refer to our earnings release and financial supplement, copies of which are available at morganstanley.com Today’s presentation may include forward looking statements that are subject to risks and uncertainties and that may cause actual results to differ materially. Morgan Stanley does not undertake to update the forward looking statements in this discussion. Please refer to our notices regarding forward looking statements and non-GAAP measures that appear in the earnings release. This presentation may not be duplicated or reproduced without our consent. I will now turn the call over to Chairman and Chief Executive Officer Ted Pick.
Ted Pick (Chairman and Chief Executive Officer)
Thank you and good morning. Thank you for joining us. Morgan Stanley entered 2026 from a position of strength amidst increased geopolitical uncertainty. The firm generated a record quarter with revenues of 20.6 billion and EPS of $3.43. The top and bottom line results are an ongoing demonstration of the capabilities of our integrated firm in periods when clients and markets are active. The first quarter’s return on tangible equity of 27% evidences the operating leverage of Morgan Stanley’s business model. A leading wealth and asset manager alongside a leading global investment bank. The consistent execution of the last two years plus is the proof of Morgan Stanley’s ability to deliver on a higher plane of performance against different mini and macro backdrops of uncertainty. Wealth management demonstrated continued momentum with growing durable fee based revenues and increasing margins. Our client acquisition funnel remains unrivaled in driving industry leading growth with $118 billion of net new assets and $54 billion of fee based flows. With long standing relationships across banking and markets, the investment bank was well positioned to serve clients around the world underscored by a record $10.7 billion in quarterly revenues and inclusive of $5 billion plus in equities. A well diversified investment management business continues to attract strong demand for parametric across wealth and investment management. Total client assets exceed 9 trillion on the road to 10 trillion plus in the first quarter. We deployed resources to support client activity and opportunistically bought back stock. Our reported CT1 ratio of 15.1% against a capital requirement of 11.8% translates into a capital buffer of over 300 basis points. We’re encouraged by this period of enhanced regulatory transparency and balance as we move through rulemaking Comments toward the finalization of Basel it’s worth noting that over the last nine quarters we’ve accreted 15 billion of capital during the quarter. We also closed our acquisition of of equity Zen. As discussed in our annual letter, we remain mindful of the known unknowns of 2026, the accelerating adoption of AI at the enterprise level, and the ongoing military conflict in the Middle East. Against this backdrop, our approach is one of measured confidence. Our institutional wealth clients demonstrate continued resilience and as much as ever, seek the depth and breadth of content and market access that Morgan Stanley provides. At the same time, we remain vigilant in the context of higher asset prices, tight credit spreads and interest rate path uncertainty. We will endeavor to navigate the upcoming period with the same level of intensity and execution that has defined our performance over the last nine quarters. The end of the end of history is now at hand and alongside accelerating AI development, we’re committed to staying in our strategic lane to execute with rigor, humility and partnership and to be prepared to tactically pivot when the ongoing military disruption or technology adaptation warrant Morgan Stanley’s strategy and client centric culture is set to raise, manage and allocate capital with excellence, to invest in our clients and technology across the integrated firm and to grow assets and compound earnings in a capital efficient way. Now I’ll turn it over to Sharon to discuss the quarter. Thank you Sharon,
Sharon Yeshaya (Chief Financial Officer)
thank you and good morning. The firm produced record revenues of $20.6 billion and record EPS of $3.43. Our Return on Tangible Common Equity (ROTCE) was very strong at 27.1%. The results this quarter demonstrated the strength of our integrated model and the scale of our global platform. Clients increasingly turned to our trusted advisors across the firm, particularly when market volatility became more pronounced. For the quarter, our efficiency ratio was 65% reflecting strong operating leverage and disciplined execution. As we continue to invest strategically across the firm, Improved efficiency includes $178 million of severance charges now to the businesses. Institutional securities delivered record revenues of $10.7 billion. Strength was broad base across asset classes in both banking and markets and in all regions. The year began with optimism supported by solid economic growth in the us significant strategic and financial assets waiting to transact and AI driven transformational opportunities. AI themes followed by geopolitical uncertainty and market dispersions continued to contribute to strong client engagement. Throughout our quarter, our global team across the integrated investment bank led as a trusted and long standing partner to advise clients in an increasingly complex environment. Investment banking revenues increased year over year to $2.1 billion led by growth in the Americas. Investments in our talent are yielding results and despite ongoing geopolitical volatility Capital market activity remains resilient and boardroom dialogue remains active accrued carried interest in our private funds. Long term net flows were $3.3 billion driven by ongoing demand for our parametric solutions and fixed income strategies which help offset equity flows. Total AUM now stands at $1.9 trillion. Turning to the balance sheet, total spot assets were $1.6 trillion. We strategically deployed leverage based capital this quarter to help facilitate client activity in our markets. Franchise standardized RWAs increased quarter over quarter as we actively supported clients. We ended the period with a standardized CET1 ratio of 15.1%. During the period we opportunistically bought back $1.75 billion of common stock. Our first quarter tax rate was 19.6%. The lower rate was driven by share based award conversions which largely take place in the first quarter. We continue to expect our 2026 tax rate to be between 22 and 23% which similar to prior years will exhibit some quarterly volatility. Our integrated firm has proven critical through this period. Clients are engaged, relying on our advice in an increasingly complex environment. We are well positioned to continue to support clients as they navigate fast moving markets and we have the capital and the resources to do so. With that, we will now open the lineups to to questions.
Operator
We are now ready to take in questions. To get in the queue, you may press STAR and the number one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the cue, you may press STAR and the number two on your touchtone telephone. You are allowed to ask one question and one follow up and then we’ll move on to the next person in the queue. Please stand by while we compile our Q and A roster. We’ll take our first question from Ibrahim Punawala with Bank of America.
Bank of America Analyst
Good morning, Ibrahim. Hey, good morning, Ted. So maybe I guess we can start with all things private credit. So heard your prepared remarks. There were two things given kind of where Morgan Stanley interacts with private credit. You had the fund that you talked about where we had some redemptions during the quarter. But just talk to us, Ted. Your perspective on what’s going on with the private credit market. How does that change or inform your view on how you deal with the business and specifically if it’s caused you to rethink how you distribute some of these products through the retail channel in wealth? Thanks.
Ted Pick (Chairman and Chief Executive Officer)
Well, I think what’s important over the last number of days is that there’s more balance in the conversation. As you know, private credit as a sub asset class has come of age over the last number of years as a new set of lenders has stepped in post the financial crisis in the place of Wall Street. While its still a growing class, its having a learning moment, we’ll call it an adolescent moment where both the lenders and the borrowers are being looked at carefully. But the reality is its credit. And credit is going to broadly perform when the economy is in the kind of good shape its in right now. And the fact that its called private credit has sort of taken on a bit of its. Took on a bit of a life of its own for a while. But now I think now we’re all seeing that there’s resiliency in the underlying product, that the structures and the terms on collateral are very well thought through and that this is a market that over the long term has extraordinary growth potential. It’s just a question of time and working through economic cycles. Our own participation in this is in line with the street as a distributor. Bear in mind, Ibrahim, as you know, alts are about 5% of our total FA facing wealth management pile, so quite small. That’s all alts that would include real estate, private equity, private credit infrastructure and then private credit is 1% so even smaller there. And in fact, as you’ve seen spreads widen a bit, there’s been an institutional bid and others from the highly sophisticated institutional community on the private wealth side have come in and stepped in and we’ve seen net buying across the sub asset classes in the first quarter. And then with respect to investment management, private credit is less than 1% of our total AUM well under 20 billion of a trillion 9. So our exposures are small, are modest, but it is an asset class that I think there was a lot of learning around over the last couple of weeks. I think that is very healthy. But we just need to sort of remember the headline point here, which is credit should perform during periods when the economy is performing. This will be no different. Some portfolios may be overloaded in a particular sector or in a particular type of name, in which case they’ll be winners and losers among asset managers. But credit generally is going to perform as the economy performs. And right now we’re not talking about the R word and that’s positive for broad credit.
Operator
We’ll move to our next question from Dan Fannin with Jefferies.
Jefferies Analyst
Morning, Dan. Good morning. Sharon was hoping you could expand around your comments on organic growth within the wealth channel. You highlighted Workplace, but any additional context around that strength would be helpful.
Sharon Yeshaya (Chief Financial Officer)
Sure. I think that that’s a fantastic question, mainly because I think what you’ve seen is quite encouraging over the course of this quarter. Sometimes we call out numbers over $100 billion of NNA and we talk about a single driver or something that’s really changed the profile of that particular quarter. In this quarter, there was no one single driver that you can really point out. You still had really high levels of engagement across the advisor led platform. But what I tried to point out in my prepared remarks is that workplace is becoming a bigger and bigger contributor and a more effective sort of thoughtful way of where we’re actually seeing new client engagement specifically with this quarter. You’ll see that often and not surprisingly that in the first quarter you’ll see unvested assets best and what we saw in workplace this quarter is greater retention of the assets that vested. So that’s the first step right in this kind of funnel concept of what’s going on with workplace. The first is we retain those assets and we’ll see in this particular quarter we saw greater asset retention from workplace which translated into NNA and then over time and this is what I was highlighting at the start sort of conclusion of my wealth management comments is we are seeing channel migration and that’s with technology and investment where those workplace assets are now actually seeking advice. And that migration is something that has helped to contribute to over $1 trillion of total assets in our advisor led strategy. Thanks, that’s helpful. And then sticking with wealth, there’s been a lot of discussion around client cash optimization and so longer term was hoping you guys could talk about how you think about your ability to earn NII on client cash as there are more tools available to move cash around more efficiently. Yeah, I think that’s a great question and certainly very topical. The wealth management team with Jed and Andy at the helm have always been there sort of thinking about ways to disrupt and continue to think about disrupting ourself. And what tools will be available in the new frontier do you know from for us? And as you think about the current client sweeps, balances, those sweeps we’ve largely said have behaved, there are certain places that are similar where they’re looking for yield seeking behavior but then there’s also a transactional nature to that cash itself and that’s what you’ve seen bottom out. So that’s right now in the near term, over the long term we’re moving towards thinking about ways that in this new world you actually have value of advice. So if you talk all you know, where do you work through a tokenized world, how do you think of an on chain world where you can move assets quickly? The same way you’d be able to move those liabilities quickly, we would be there to offer different types of products on the asset side. So what type, what kinds of things might exist on the lending side for on chain, you know, on chain advice. And then how do you also move and think about all of those digital assets be that things that are yield seeking or like we said on the asset side that you’re also able to get advice. So how do you actually act and execute? So I think that as things move on there’s a lot of creative space in terms of the advice driven model and we do, as you know, currently also offer ways to move around cash that’s currently yield seeking in nature.
Operator
We’ll move to our next question from Steven Chubock with Wolfe Research.
Wolfe Research Analyst
Hey, good morning and thanks for taking my questions. So, Sharon, I was hoping you could speak to the Fed’s new Basel III capital proposal. And given you should benefit from long overdue changes, notably to the G Sib surcharge calculation, removal of double counting in the stress test, how that might inform where you could be comfortable running on CT one longer term versus say the older legacy framework.
Sharon Yeshaya (Chief Financial Officer)
Yeah, so let’s just take a step back and just talk about what’s actually been proposed. There are three proposals that I think about. One, the models that obviously we’ve put comments in. Two Basel and 3G SIB. So first taking G Sib, since that’s the most obvious question, quantitative metric, if you look at the 3.5% g sib bucket buffer that we were in at the end of the fourth quarter, that number in the new framework as proposed currently would be 2.2%. So that gives you a sense of just the base in terms of the rebase from where you would be from G Sib. But as you know very well, Steve, you’d also be in a position that you’d see RWA inflation associated with the Basel proposal. And we would hope that there will also be some comments to taken from the stress testing models in terms of PPNR and the way you think about income based modeling, sort of for fee based assets and the wealth management business as well as expenses. If you take all of that together, we would expect that we’re, you know, modestly up here either where we are today, from capital neutral to modestly positive in terms of the overall amount of capital that we should have. But we’ll have to see to quantify that really where all three of those land and the interplay between them. In terms of the actual CET1 metric, you’ll see that we are using excess capital. We did see. Specifically we had the relaxation or the change, I should say the overall change of slr. We deployed SLR and leverage based capital over the course of the quarter and we continue to increase our architecture RWAs to support our client base.
Ted Pick (Chairman and Chief Executive Officer)
Yeah. The only thing I would add is that the firm view is that we hope to work well with the regulator along with the rest of the group to get Basel finalized. We have a window here and the big picture is let’s put the puck on the ice once and for all and not everyone’s going to get everything they want. That’s by definition the way these things would be. But that take as much of the loaf that is reasonable to balance that which ensures ongoing stability amongst these firms but also allows us to play the pivotal role that we do in helping to power the real economy. So with that in mind, it’s absolutely critical that we keep the momentum going and we land this. That’s great. And for my follow up, if I could just double click a little bit more into some of the organic growth opportunities. You talked about leaning more heavily into markets. We certainly saw a nice uptick in loan growth in the quarter. Just want to get a better sense as we start to look under the new proposal. What are some opportunities that might be more compelling just given the strength of your capital position that you might be more inclined to lean into here? I think you just have to go to the business model as it exists. The three segments, the TAMs are all growing at two times GDP organically and our share depending on the space is somewhere between 10 and 15%. So that alone knowing what we do and getting after it is critical. It’s interesting when Sharon gave the earlier answer with respect to how the funnel is working, that’s an accelerating phenomenon inside of wealth but it also gives cause for the corporate coverage officer in investment banking to talk to the CEO or talk to CFO and ask her how the stock administration plan is going and how employees feel about that. And now they’re coverage under the wealth management model. So there is a lot of really interesting work that can be done within the frame of the integrated firm. I think the decisions with respect to how we deploy capital really has to be around client selection where we think that there is a long term reward and wallet set up that is appropriate against our risk parameters. I’d also point out that the investment bank is really a global investment bank coming of age. Now if you see the growth that’s been experienced in Asia, not just in Greater China and of course Japan where as you know we have a special relationship with our partners mufg who own a quarter of the firm but also the growth we’ve seen in the re equitization of India and then of course the AI connectivity that exists in Korea and Taiwan. So too we are now putting in incremental management strength in places like Germany and the core of continental Europe which is looking to re industrialize given everything that’s going on. So being a global firm and doing it the way we’ve done it, but also to stick it’s why I reiterated very simply in the opening that we stick to our strategic knitting, which is that we raise, manage and allocate capital for institutions and individuals, and that we keep it, keep it that way. And on the organic front, assuming the economy continues to grow, we think we’ve got a ton of opportunity to put top line up and continue to carry margin.
Operator
We’ll move to our next question from Brennan Hawken with BMO Capital Markets.
BMO Capital Markets Analyst
Morning, Brennan. Good morning, Ted. Good morning, Sharon. Thanks for taking my question. I’d love to circle back on some of the comments, Sharon, you made on cash. You spoke to Onchain. I don’t know if you guys saw, but a competitor in the annual report JP Morgan put out that they’re planning to reduce some of the friction on brokerage cash. Is it right that in your comments around on chain that that’s the direction you guys are thinking of going as far as reducing that friction? And then relatedly, today’s the 15th tax day tends to be a big event seasonally for you in your wealth business. How should we think about cash and then net new and what the expected impact is on that this year?
Sharon Yeshaya (Chief Financial Officer)
Thanks so much, Brennan. So going first just to cash, we continue to offer our clients different ways to access cash, talk about cash, talk about the cash management. And as we’ve talked about before, there are a lot of different places for people to think through and we have been talking to our clients around various cash management over time, just given what’s gone on over the course of the last five years. But we’re obviously, as you know, always looking at ways to continue to enhance conversations that we have with various clients as it relates just to tax day and what we’ve seen so far this quarter. So far right now, taxes are as we would have expected. But it’s worth noting that from an SBL perspective we’ve started so the lending growth that we’ve talked about even at the beginning of this year continues and we’ve put in a lot of resources towards lending products more broadly. So digital tools, digital enhancements and using automation to be able to help with the paper backlog associated with some of the various lending products more broadly.
Ted Pick (Chairman and Chief Executive Officer)
Got it. Thank you. And Ted, you spoke to an adolescent moment for private credit, which I thought was an interesting way to put it. You also flag as a distributor, 1% of client assets in private credit. Obviously very small but curious, but you do have great touch points across your wealth management business. And clearly all the attention here is around wealth, specifically given these vehicles what are you hearing from the field around the temperature on some of these non traded BDCs? Is the concern coming from more the FA population or the investor side? And is there any emerging signs of looking at other asset classes beside credit? Yeah, adolescent, I mean to say sort of coming of age. You know, the asset class did not exist. And when the, when the private lenders stepped in effectively in the place of the traditional Wall street firms, it was new and of course became part of the story for private and also public asset managers. You know we have to remember that this class is real. It said anywhere between trillion 5 trillion 7 high yield, similar size, levered lending, similar size. But the IG market obviously is enormously bigger at $13 to 15 trillion. So it’s just one piece of the credit stack. And the reality is that with spreads having widened out a bit, there is an institutional bid and we’ve seen this now in the last week week where a number of the top asset managers have underwritten and we’ve been very happy to act as underwriter on some benchmark issuances. There have been actually two over the last couple days wherein at the asset manager level, at the BDC level, real capital has been raised at quite reasonable rates to help get at the refinancing phenomenon that will exist in the years ahead. Now the reality is some asset managers are going to outperform other asset managers and that’s just the nature of product selection and diversification. Part of the reason that the FAs do such a brilliant job with our clients is that they very much preach this idea of durably growing your portfolio in a risk managed way, taking into account your liquidity needs in every imaginable scenario. And then importantly, to think about how alts over time, over decades, generations and even lifetimes can be an additive part of your portfolio. And even with that, through the decades of alts being introduced into the system, this is going back to the financial crisis. Through Covid, through B Read a number of years ago, these products have sort of sustained the test of time and even now the penetration is only 5%. So on the one hand it’s material, on the other hand it is still an area of growth. And the key is to be selective in how you’ve put that capital across different alternative selections, whether it’s pe, private credit infrastructure or just straight private equity. And then real estate, the four big ones. And how you have selected managers on a diversified basis, on the basis of where they have expertise by sector, what their history is of deployment, what their History is of return on capital and that is part of the learning. And I think that has been taking place. And the data point that I would put to you, which we’ve heard elsewhere too, is that during the quarter, notwithstanding all of the press and discussion, the system was a better buyer of alts. And so that is an important indicator that folks want to be participating at the right price with the right manager. And then over time, the asset managers that perform will generate terrific results and the ones that perform less well will underperform and that becomes part of the asset manager selection dynamic.
Operator
We’ll move to our next question from Devin Ryan with Citizens Bank.
Citizens Bank Analyst
Morning, Devin. Thanks. Good morning. Good morning, Ted. Good morning, Sharon. Question on wealth management. You know, stocks obviously sold off several times during the quarter on AI feature announcements, the customer cash sweep optimization. I think the Dan’s question was one of the events, but other automation tools I think, and just potential implications on revenue models. So the market seems like it’s currently weighing AI as a negative for wealth or it’s a risk. And I suspect you don’t agree with that. So just be great to hear more about your view on some of the biggest implications of AI on the business. I know you guys have been investing for a number of years here. Thank you.
Ted Pick (Chairman and Chief Executive Officer)
Yeah, yeah, I want to weigh in on that one. AI is our friend. Okay. It is just the latest generation of technology that is going to be part of the ecosystem. And we’re at an important moment. We’re working with Claude, the beta version, and we are looking at different places inside of infrastructure where we will just continue to there will just be continuous improvement and that’s going to go on with the firms that have the history that we have of cybersecurity infrastructure as the number one priority. This is not a new phenomenon. What is new is that we are beginning to evolve from pure efficiency exercises where you could have effectively replacements of what might have been a call center or what might have been an operational function to automate routine tasks like moving money to something that over time becomes a productivity phenomenon. And that efficiency and effectiveness transom is super compelling, the efficiency we talked about. But what about the effectiveness where you can have the historical context as between the financial advisor and the client, where she is well aware of the past interactions and how that might drive against certain market dynamics, future action. And so that copiloting, I think is something that Jed Finn, under the leadership of Andy Saperstein, is spending a lot of time on where they effectively have corridors of super agents that are going to be working to drive again efficiency and effectiveness across the portfolio in wealth. I’d also say that this phenomenon is taking place inside of our equities business where as you know we have a a leadership business where we are able to take some of the complex questions that are asked but sort of the technical type and they can be answered directly by a client agent inside of the electronic trading platform. And then of course there are the numerous examples inside of core infrastructure where efficiency around classic operational flow and and surveilling is afoot. So there will be the continuous arms race of one AI platform versus another. But this is not new and this is something we consider to be additive to what we have which is world class technology, world class cyber defense and then the best trusted advisors sitting with the client. That is ultimately again the secret sauce. Whether it’s the investment banker, the asset manager, coverage officer or importantly the wealth management financial advisor that is the key. Thank you Ted. Appreciate that. Color As a follow up want to touch just on Asia? 45% of the firm sequential revenue improvement came from Asia. It’s only 16% of firm wide revenues. I know a lot of that delta is from from prime brokerage but can you just expand a bit on the momentum in Asia? How sustainable is it further growth opportunity in the region just given the big step up we’ve been seeing here? Well, it’s a question of people. The person who runs Asia for Morgan Stanley is Goko Laroya who is a plus or minus three decade veteran of the firm and and he’s one of the trusted leaders of the firm. He’s also the co head of equities with Alan Thomas and they’ve done a phenomenal job in equities. But the Asia strategy has been one where we have really integrated the effort as between the bankers and the sales and trading unit inside of institutional securities for the last many years. This is a firm that has been a leader in Hong Kong from the 90s right through SARS and the handover and through recent years. But the game changer for us of course was during the depth of the financial crisis to be effectively married to our friends at mufg. And the senior management team of the firm travels to Tokyo three, sometimes four times a year to meet with our partners. They in turn join us. They have two seats on our board. So we are deeply ensconced in Japan with two ventures that were formed 20 years ago. We expanded our capability across our research integrating the research and equities trading platform. Now we help MUFG Monetized through the old bank of Tokyo foreign exchange spot flow, which is incredibly powerful. So this is one of the classic cases where a great idea, somewhat out of necessity was nurtured through management teams through the years of Mr. Gorman. And now this management team has really gone even further to think about what Alliance 3.0 could look like, which is to really tap into the demography and opportunity that’s inside of Japan. So the ecosystem works. We also have a world class wealth business inside of Hong Kong that caters to the Asia PAC region. That’s quietly a billion dollar business. And then the last piece I’d say is some of this is location strategy. We decided years ago to exit a number of places. We exited the Russia ecosystem, we lightened up on non core parts of the emerging world, but we really doubled down on places like Korea and Taiwan. And then importantly in India where we not only have 15,000 people as an infrastructure phenomenon, but we have a world class investment banking trading business. So this is not sort of the, the region du jour. This is a region where we’ve had a leadership position actually. I think we’ve attracted some incremental competition into the space. So in a way that actually makes the challenge harder now because I think people have seen the success, but that’s the nature of our business and we just keep on going. As these countries re equitize, they take great companies and they want to list them and they want to effectively also deal with the issues around lack of energy independence or where they sit in the ecosystem. You can expect some very interesting M and A and hybrid activity and that’s right in the, you know, in the sweet spot for corporate finance coverage. So we like, we like, we like that region very much and we like the growth potential and it’s of course also very closely risk managed.
Operator
We’ll move to our next question from Glenn Shore with Evercore.
Evercore Analyst
Good morning Glenn. Hello there. I wonder if we could talk about ECM and equity pipeline for a sec. Usually when the markets are this strong it’s a little bit better but I know it’s building and I know there’s some really big ones out there that might, that are talked about coming but thought one of the interesting angles on this was also that it seems like some of these big IPOs are very partial towards having a big retail allocation. And just curious if you thought, if you thought that’s true, how you use E trade as part of your selling process and then just talk about the overall pipeline in general would be helpful.
Sharon Yeshaya (Chief Financial Officer)
So appreciate that yeah, so it’s a great question. And I think that you do continue to see the democratization sort of of products more broadly. That’s one of the reasons when you actually think about the acquisition of equity, Zen and what we’re trying to do. Right. So we see a place where there’s stuff within the private domain that’s actually already beginning to transact. We see that as a technology that can help us. We have already begun to see offerings come through that platform and we would expect that to continue. So that is a market as you know, it’s growing. There are a lot of places within the retail channel that different companies are looking to attract. And we have that channel and those capabilities. So you have it already existing on the advisor side. You have it existing to some degree when you think about the underlying E trade side. But what you really need is to make sure that you also have the private market ecosystem, even necessarily before you see an IPO come through the marketplace, that you’re able to have different access and different corporate relationships. And those are the pieces that Jed and Andy have really begun to lay the foundation and build over time. So it’s not just one thing. I’d say that it’s a build across the other. And I think we have that offering to many of these companies that are looking for ability to transact within retail.
Ted Pick (Chairman and Chief Executive Officer)
And do you have any numbers you could throw at the pipeline or some soft details? You know, we’ve all been waiting for years on the sponsor LED pipeline, but in general, it feels like a backdrop that should be improving. Just curious on your take.
Sharon Yeshaya (Chief Financial Officer)
Yeah, Glenn, what I’d say on that is, as you know, the PE firms are sitting on a trillion plus of dry powder. There are 1500 companies plus that are privately held with an average duration of five years that are worth a billion plus. And the entire ecosystem of private companies, you know, hard to know are they worth $3 trillion or $5 trillion? But they’re worth multiple trillions. And so the question now is, do they come and how do the markets feel? And I think the reality is, I give you a balanced answer on this. I think that on the one hand, you see the earnings power of the large cap group, the balance sheets and the earnings growth. And of course now if the war is contained, 7000s and P and NASDAQ working its way back too. So pretty constructive backdrop. The fact is that the sponsors, as you know, would like to crystallize some of this portfolio, especially the publicly traded ones, so they can keep this process going of effectively Deploying and raising. I do think that not every company is going to be able to make it as an IPO in this environment. There’s going to be some selection. And what we’re seeing is that the largest asset managers, the largest private equity firms, some of whom have very high quality companies, are likely to be the first to move. And the data point I’d give you is that there are increased numbers of bake offs with sponsors. And again, think of it the way Dan Simkowicz would describe it is think about sort of corporates, think about public asset managers, private asset managers. There’s effectively competition and a horizontal to see where capital clears is the way I’d put it. And a number of these bake offs are two track can we make a sale or can we list? And I think if we can get through a period now where we resume some of the narrative that we had going into 2026, which was a very strong one, I think what you’ll see is effectively the resumption of pipeline hitting the marketplace, whether it’s through outright sales to other sponsors or likely to strategics or partial sales through IPOs, which is kind of the call that we collectively made going into the year. But I do think there is some selection. There are going to be mid cap or small and mid cap companies that aren’t going to be ready to make it as public companies because the reality is that the bar is very high for public manager investors, as you know, against the resiliency that’s been demonstrated across sectors in the C suite through Covid and now this period. So the comps in a sense are tougher. But I do think that the desire for private equity sponsors to begin steadfastly to liquefy chunks of their portfolio in order to get to the next, which is deploy capital into the next leg of the cycle, I think that has increased and I think what you should expect to see is a reasonable drumbeat of leading sponsor and leading companies hitting either the private or public markets. If the macro environment permits.
Wells Fargo Securities Analyst
Hi, can you elaborate more on, hey, can you elaborate more on the financing business within trading? I assume that’s for both private credit and liquid markets and that’s just been growing so much for the last year for this decade. And a comment on the resiliency of that. Does that mean trading is less volatile than it used to be? Or if and when we get a bear market, does this shrink back down?
Sharon Yeshaya (Chief Financial Officer)
Thanks. Sure. Thank you so much. Mike, for the question that is a stabilizer, I would say over the course of the last 10 years, I mean you’ve been covering us for nearly two decades. I think the last decade in fixed income has been marked by refocusing our business on clients and also creating durable sources of revenue. What you point out to is one of those sources of revenue that is to some degree, you know, the intent is to be more stable on a balanced business. But as Ted said, it is a credit risk business. So overall all of those types of products are looking at underlying credit, looking at counterparty risk, understanding both risk limits as well as the diversification, the structural protections that you might have, the various haircuts. What I think is important specifically about the private credit business as we started the call is that you also have this ability to look down on a loan by loan basis and we have the ability to both mark and margin across that. So there’s a lot there within the ecosystem. But yes, that has been a stabilizing factor within our fixed income revenue result.
Ted Pick (Chairman and Chief Executive Officer)
What I would add to that is I think the durability of the lending businesses is good. Of course it kind of speaks to the proposition around valuation as repeatable P and L. But one of the things that Sharon and I have observed over the last number of quarters, the the leadership groups in both, and this is I think part of your underlying question, Mike as well in equities and fixed income have both really looked to try to build a well governed classic trading business effectively the moving of inventory, market making, taking the world class content that Katie Huberty has and getting it to clients in all kinds of different forms, not just traditional big conferences, but finding curated ways to get institutions to effectively act on bespoke ideas in a moment where you had to take a view when we had so called good volume at the beginning of the year and we have the content available for you to express that view and then we effectively take that content and offer market access. And that market access could be on the cash desk where the equities guys did a fantastic job. And then importantly in a derivatives business that has really grown into a classic market making risk management business around Morgan Stanley’s content. Similarly in fixed income again contained risk along alongside of largely it being a financing business, but doing that around clients wanting to express a view. So one of the things we kind of look at is having enough of the durable financing revenues throughout these businesses. And by the way, similarly in wealth management there is an element of wanting to expand the lending product but also we’re looking very closely at darts and other indicators of just transaction activity, whether it’s in cash form or derivatized form. And the answer is we want both because there are going to be periods where the markets are not going to be conducive to activity where either it will be risk off or just people are sort of set in what they want to do. In which case the financing revenues are the kind of durable P and L that allow you to sort of sustain the battles to the front. But at the same time we want to have the right levels of activity around times when Morgan Stanley content matters, when we’re delivering something that actually is differentiated and importantly can be acted upon. And then we wish to try to find a way to express that through liquid markets and market access. So it’s an excellent question because I think one doesn’t want to go too far to one end of the continuum or the other. But the fact that we really have built this financing business with some of our smartest people throughout the firm and that we have these credits as well structured and focused on as we have over the last number of years allows us to have an interesting activities based business alongside of it. And that again is not just in the institutional securities business, very much in the wealth business as well.
Wells Fargo Securities Analyst
Sticking and thank you for that answer. Sticking to that topic of risk and following up on the other question. You know all I have are the headlines in the paper about anthropic and the Mythos model. Excuse me? And the article said only a few players had that model. It sounds like you say you have the beta version of the Anthropic Nithos motto. And you know, again the articles said that you guys were summoned down to D.C. and that people are extremely concerned and you say AI is your friend and you should be a beneficiary, not a victim. But I’m just wondering about the cyber risk and how that may have increased and what extra steps you’re taking now that you’re looking to the model. If you’re allowed to disclose what you’ve learned.
Operator
We’ll take our last question from Erica Najarian with UBS. Morning, Erica.
UBS Analyst
Morning. Sorry to prolong an already long call, but just wanted to ask one question.
Sharon Yeshaya (Chief Financial Officer)
Erica. For you, we’re very happy to take that last question.
UBS Analyst
You stepped in there. What was that 25 bucks ago? Hopefully some people are still listening. So anyway, here’s my question. It may just be you and me, but I’m good. I know, exactly. We’re good. We’re good. You talked about organic growth opportunities in wealth. You talked about broad based drivers for nna. You talked about AI being your friend and you talked about advisors really being empowered by AI. As we think about the pre tax margin of 30% in a quarter where wealth comp had some upward pressure, you know, should we think about the low 30s as sort of a, you know, high level where you can sustain or, you know, is there, you know, potential for upward pressure given all of the dynamics that you mentioned?
Sharon Yeshaya (Chief Financial Officer)
Yeah, thank you so much for the question, Erica, and thank you for noting all the places that we’re investing. You know, we’ve, we reaffirmed our targets at 30% in the, in the strategy deck. And we did that for good reason, mainly because we want to be in a position that we can invest. And so we’ve never really managed the margin quarter by quarter. We’ve said that multiple quarters. We always said when we were below 30% that we could cut our way very quickly to a 30% margin. But for us, what’s most important is that we’re constantly investing. And there are so many places within this business to invest, and it’s paying off. And over time, we’ll continue to move up the margin on its own organically. But the most important thing for us is to continue to put dollars to work to service both our clients and advisors, and continue to be a category of one in this business.
Operator
Ladies and gentlemen, this concludes today’s conference call. Thank you, everyone, for participating. You may now disconnect and have a great day.
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