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 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: 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 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 2 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, 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 CET1 ratio of 15.1% against the capital requirement of 11.8% translates into a capital buffer of over 300 basis points. We are encouraged by this period of enhanced regulatory transparency and balance as we move through rule-making comments toward the finalization of Basel. It is worth noting that over the last 9 quarters, we have accreted $15 billion of capital. During the quarter, we also closed our acquisition 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 9 quarters. The end of the end of history is now at hand and alongside accelerating AI development, we are committed to staying in our strategic lane to execute with rigor, humility and partnership and to be prepared to tactically pivot on the ongoing military disruption or technology adaptation warrant. Morgan Stanley 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 will turn it over to Sharon to discuss the quarter. Thank you, Sharon.
Sharon Yeshaya: Thank you, and good morning. The firm produced record revenues of $20.6 billion and record EPS ex DVA of $3.43. Our 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 advisers 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-based across asset classes in both banking and markets and in all regions. The year began with optimism supported by solid economic growth in the U.S., significant strategic and financial assets waiting to transact and AI-driven transformational opportunities. AI themes followed by geopolitical uncertainty and market dispersions continued to — contributed rather, 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. Advisory revenues of $978 million increased 74% versus the prior year, driven by higher completed activity in the Americas. Building on the momentum in the back half of last year, M&A activity broadened across sectors with notable strength in technology and industrials. Equity underwriting revenues were solid at $396 million, led by higher issuance across IPOs and convertibles compared to the prior year. Fixed income underwriting revenues were $742 million. Outperformance was driven by record issuance in the investment-grade market on the back of higher event-driven activity. Looking ahead to the remainder of the year, investment banking pipelines remain steady, supported by ongoing strategic activity from both corporates and sponsors and increasing needs for strategic capital formation. Our integrated investment bank remains global, diversified and well positioned to effectively support clients. Turning to equity. Revenues surpassed previous records reaching $5.1 billion for the first time. The performance reflected year-over-year growth across businesses and regions on the back of very strong levels of client activity. Our continued investment in technology is supporting scale and access across our global franchise. Prime brokerage revenues increased versus the prior year, driven by higher average balances that outperformed market indices, particularly in Asia with investor interest across the region. Cash results increased against the prior year, driven by higher volumes across regions. Derivative results were also a standout, up versus the prior year, driven by robust client activity across products and regions. Fixed income revenues were postcrisis record at $3.4 billion. Our performance this quarter highlights our business mix and our ability to capture market opportunities. Micro results increased meaningfully year-over-year, driven by securitized products and credit corporates. Macro results were solid, reflecting declines in foreign exchange, which benefited from a more favorable trading environment last year. Results in commodities increased significantly compared to the prior year. The business navigated elevated volatility in energy markets well, benefiting from increased flow and structured client activity. Turning to Wealth Management. Record revenues and robust margins in the first quarter reflected the scale of our platform that continues to drive exceptional performance. Retail clients were engaged across channels. Net new assets of $118 billion, fee-based flows of $54 billion and growth of bank lending balances all showcased that our investments supporting both advisers and clients are working. Revenues reached a record of $8.5 billion. The business delivered a PBT margin of 30.4%. Asset Management revenues grew year-over-year to $5.1 billion, reflecting higher market levels and the cumulative impact of consistently strong fee-based flows. We are setting the industry standard in fee-based flows, generating $54 billion this quarter, a new record, excluding prior acquisitions. Transactional revenues were $1.1 billion, Daily average trades reached the second highest level on record as clients remained active in volatile markets. Results were supported by ongoing demand for our diversified alternative offering, which had record sales this quarter. This was driven by significant growth in private equity and real assets highlighting the benefits of our scaled alternatives platform. Bank lending balances increased $5 billion quarter-over-quarter to $186 billion, driven by securities-based lending and steady growth in mortgages. Household penetration of lending products is now at 18%. This is up from 14% just 5 years ago. Through ongoing investments in technology, adviser and client education and an expanded product set. Sequentially, total period end deposits grew to $419 billion and net interest income increased to $2.2 billion. NII growth in the quarter was supported by both lending balances and higher average sweeps, which more than offset the impact of the 2 rate cuts in the fourth quarter. Continued growth in lending has supported a steady build in NII over the past 6 quarters. Looking ahead, we expect NII to build over the course of the year, with a modest increase in the second quarter compared to the first. Net new assets were very strong at $118 billion, the growth showcases our diverse asset gathering capabilities, which benefited from contributions across channels. Workplace stood out as having sourced clients who continue to aggregate assets onto our platform and benefit from stock [inaudible] investing events. Finally, while driving exceptional quarterly results, we remain focused on long-term growth opportunities. We closed the acquisition of Equity Zen, enhancing our leadership position in the private credit markets ecosystem and further deepening market access for clients. We launched our digital asset pilot through our partnership with Zero Hash, enabling select clients to buy and sell several major digital currencies through eTrade and we are investing in the development of our agendic infrastructure. Most importantly, our investments in the funnel are servicing client needs and illustrating the value of advice. Since 2020, we have generated over $400 billion of new adviser-led assets from relationships that originated from either workplace or E-TRADE. Today, inclusive of workplace assets on our platform prior to the acquisition of E-TRADE, the total value of adviser-led assets sourced from Workplace and E-TRADE exceeds $1.2 trillion. This represents roughly 20% of our current $5.8 trillion of adviser-led assets. The scale of our client acquisition funnel is already powerful and combined with our ability to invest in the future, uniquely positions us as a category of one. Moving to Investment Management. Revenues were solid at $1.5 billion. Asset management and related fees that were up 3% year-over-year on the back of higher AUM were offset by declines in 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 [inaudible] 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 line up to questions.
Operator: [Operator Instructions] We will take our first question from Ebrahim Poonawala with Bank of America.
Ebrahim Poonawala: Maybe, I guess we can start with all things, private credit. So heard your prepared remarks, there were 2 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 is 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 has caused you to rethink how to distribute some of these products through the retail channel in wealth?
Ted Pick: Well, I think what is important over the last number of days is that there is 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 it is still a growing class, it is having a learning moment. We call it an adolescent moment where both the lenders and the borrowers are being looked at carefully. But the reality is it is credit and credit is going to broadly perform when the economy is in the kind of good shape it is in right now. And the fact that it is called private credit has sort of taken on a bit of it — took on a bit of a life of its own for a while. But now I think now we are all seeing that there is 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 is 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, Ebrahim, as you know, alts are about 5% of our total FA phasing wealth management pile. So quite small, that is 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 have seen spreads widen a bit, either there has 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 have seen net buying across these 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 $1.9 trillion. 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 a particular type of name in which case, there will be winners and losers among asset managers but credit generally is going to perform as the economy performs. And right now, we are not talking about the R word, and that is positive for broad credit.
Ebrahim Poonawala: Super clear. And I guess maybe one for you, Sharon, just around liquidity management. To the extent you can — if you can help us understand the reorg that was approved by the Fed for the German bank into the U.S. entity, like what does that mean in terms of adding liquidity and there are things that you may be able to do going forward? Just how should we think about the impact of that to the P&L.
Sharon Yeshaya: Sure. I would say — remember, it is a bank reorg and in terms of the bank reorganization, basically, we moved over $100 billion of assets over the course of the quarter on to the bank. When looking at that, that will allow us to fund assets more effectively and make us more competitive, more broadly like our peer set and make us sort of fit for purpose as you think about how we play versus our peers in being able to distribute various products. The 100 [inaudible] that we moved over, over the course of the quarter, you can think of about 30% of those assets at this point, being able to be better funded from — you can compare unsecured funding to sort of a wholesale deposit rate. The math in being able to think about what the opportunity is that you will see just for that asset — those assets over the course, say, starting in 2027, but it is really not just a 2027 story. This is something that over time, as I said, we were formed differently as a bank than some of our peers, and we are playing now at a different playing field with our peer set. And we should be able to see more assets and more growth and more competitive pricing and certain types of product sets that we offer to our clients, which should enable us to grow within our risk envelope in the same way with just a better funding structure.
Operator: We will move to our next question from Dan Fannon with Jefferies.
Daniel Fannon: 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: Sure. I think that that is a fantastic question, mainly because I think what you have seen is quite encouraging over the course of this [inaudible]. Sometimes there we call out numbers over $100 billion of NNA, and we talk about a single driver or something that is 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 adviser-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 are actually seeing new client engagement. Specifically, with this quarter, you will see that often and not surprisingly, that in the first quarter, you will see unvested assets vest. And what we saw in workplace this quarter is greater retention of the assets invested. So that is the first right, in this kind of funnel concept of what is going on with Workplace. The first is we retain those assets, and we will 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 sort of conclusion of my Wealth Management comments is we are seeing channel migration, and that is 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 adviser-led strategy.
Daniel Fannon: That is helpful. And then sticking with Wealth. There has been a lot of discussion around client cash optimization and — so longer term, I 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?
Sharon Yeshaya: Yes. I think that is 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 ourselves and what tools will be available in the new frontier. As you know, for us, and as you think about the current client sweep balances, those sweeps we have largely said have behaved — there are certain places that are similar where they are looking for yield-seeking behavior. But then there is also a transactional nature to that cash itself. And that is what you have seen bottom out. So that is right now in the near term. Over the long term, we are moving towards thinking about ways and in this new world, you actually have value of advice. So if you talk all — 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 would 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 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 are also able to get advice. So how do you actually act and execute. So I think that as things move on, there is a lot of creative space in terms of the advice-driven model. We do, as you know, currently also offer ways to move around cash that is currently yield-seeking in nature.
Operator: We will move to our next question from Steven Chubak with Wolfe Research.
Steven Chubak: 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 accounting in the stress test, how that might inform where you could be comfortable running on CET1 longer term versus, say, the older legacy framework?
Sharon Yeshaya: Yes. So let us just take a step back and just talk about what is actually been proposed. There are 3 proposals that I think about. One is — one, the models that obviously, we have put comments in II Basel and III G-SIB. So first, taking G-SIB and [inaudible], that is the most obvious 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%, and that gives you a sense of just the base in terms of the rebates from where you would be from G-SIB. But as you know, very well, Steve, you would also be in a position that you would see RWA inflation associated with the Basel proposal. And we would hope that there will also be some comments 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 are 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 will have to see to quantify that, really where all 3 of those land and the interplay between them. In terms of the actual CET1 metric, you will 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 RWAs to support our client base.
Ted Pick: Yes. 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 us put the puck on the ice once and for all. And not everyone is going to get everything they want that is, by definition, the way these things would be. But that take as much of the lot that is reasonable to balance that, which ensures ongoing stability amongst these firms, but also allows us to the pivotal role that we do in helping to power the real economy. So with that in mind, it is absolutely critical that we keep the momentum going and we land this.
Steven Chubak: That is 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?
Ted Pick: I think you just have to go to the business model as it exists. The 3 segments, the TAMs are all growing at 2x 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 is interesting when Sharon gave the earlier answer with respect to how the funnel is working. That is an accelerating phenomenon inside of wealth. But it also gives cause for the corporate coverage Officer and 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 their 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 setup that is appropriate against our risk parameters. I would also point out that the Investment Bank is really a global investment bank coming of age now. If you see the growth that has 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 one quarter of the firm, but also the growth we have 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 reindustrialize given everything that is going on. So being a global firm and doing it the way we have done it, but also to stick — it is 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 that way. And on the organic front, assuming the economy continues to grow, we think we have got a ton of opportunity to put top line up and continue to carry margin.
Operator: We will move to our next question from Brennan Hawken with BMO Capital Markets.
Brennan Hawken: I would love to circle back on some of the comments 1 you made on cash. You spoke to on-chain. I do not know if you guys saw, but a competitor in the annual report, JPMorgan put out that they are planning to reduce some of the friction on brokerage cash. Is it right that in your comments around on-chain that that is the direction you guys are thinking of going as far as reducing that friction? And then relatedly, it is — today is 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: 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 have 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 is gone on over the course of the last 5 years. But we are 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 have seen so far this quarter, so far, right now, taxes are as we would have expected, but it is worth noting that from an SBL perspective, we have started the quarter strong. So the lending growth that we have talked about even at the beginning of this year continues. And we have put in a lot of resources towards lending products more broadly. So digital tools, digital enhancement and using automation to be able to help with the paper backlog associated with some of the various lending products more broadly.
Brennan Hawken: Got it. And Ted, you spoke to an adolescent moment for private credit, which I thought was an interesting way to put it. You also flagged 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 of the FA population or the investor side? And is there any emerging signs of looking at other asset classes besides credit?
Ted Pick: Yes. Adolescent I mean to say sort of coming of age. The asset clients did not exist. And 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. We have to remember that this class is real. It is at anywhere between $1.5 trillion, $1.7 trillion, high yield, similar size, levered lending, similar size. But the IG market, obviously, is enormously bigger at $13 trillion to $15 trillion. So it is 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 have seen this now in the last week where a number of the top asset managers have underwritten, and we have been very happy to act as underwriter on some benchmark issuances, they have been actually 2 over the last couple of days, wherein the — at the asset manager level, at the BDC level, our 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 is 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 alt being introduced into the system. This is going back to the financial crisis, through COVID through BREIT 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 is material. On the other hand, it is still an area of growth. And the key is to be selective in how you have put that capital across different alternative selections, whether it is PE, private credit infrastructure, and do — or just straight private equity and then real estate, the 4 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 have 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 or — less well will underperform, and that becomes part of the asset manager selection dynamic.
Operator: We will move to our next question from Devin Ryan with Citizens Bank.
Devin Ryan: Question on Wealth Management. Stocks obviously sold off several times during the quarter on AI feature announcements the customer cash sweep optimization. I think to Dan's question was one of the events about other automation tools, I think, and just potential implications on revenue models. So the market seems like it is currently weighing AI as a negative for wealth towards a risk. And I suspect you do not agree with that. So it would 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.
Ted Pick: Yes, 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 are at an important moment. We are working with Claude mythos, 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 is 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 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 transform is super compelling. The efficiency you talked about, but what about the effectiveness where you can have the historical context as between the financial adviser 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 co-piloting, I think, is something that Jed Fin under the leadership of Andy Saperstein is spending a lot of time on where they effectively have corridors or super agents they are going to be working to drive, again, efficiency and effectiveness across the portfolio in wealth. I would also say that this phenomenon is taking place inside of our equities business, where, as you know, we have a leadership business where we are able to take some of the complex questions that are asked, but sort of 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 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 advisers sitting with the client. That is ultimately, again, the secret sauce, whether it is the investment banker, the asset manager coverage Officer or importantly, the wealth management and financial adviser. That is the key.
Devin Ryan: I appreciate that color. As a follow-up, I want to touch just on Asia, 45% of the firm sequential revenue improvement came from Asia. It is only 16% of firm-wide revenues. I know a lot of that delta is 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 have been seeing here?
Ted Pick: Well, it is a question of people. The person who runs Asia for Morgan Stanley is Gogo Leroy, who is a plus or minus 3-decade veteran of the firm. And he is one of the trusted leaders of the firm. He is also the co-head of equities with [inaudible] Thomas, and they have 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, there 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 depths of the financial crisis to be effectively married to our friends at MUFG and the senior management team of the firm travels to Tokyo 3, sometimes 4, times a year to meet with our partners they in turn, join us, they have 2 seats on our board. So we are deeply sconced in Japan with 2 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 monetize 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 Align 3.0 could look like, which is to really tap into the demography and opportunity that is 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 is quietly a $1 billion business. And then the last piece I would 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 region [inaudible], this is a region where we have had a leadership position. Actually, I think we have 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 is 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 a lack of energy independence or where they sit in the AI ecosystem. You can expect some very interesting M&A and hybrid activity. And that is right in the sweet spot for corporate finance coverage. So we like that region very much, and we like the growth potential and it is, of course, also very closely risk-managed.
Operator: We will move to our next question from Glenn Schorr with Evercore.
Glenn Schorr: I wonder if we could talk about and equity pipeline for a second, usually when the markets are this strong. It is a little bit better, but I know it is building, and I know there are 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 that is 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. So appreciate that.
Sharon Yeshaya: Yes. So it is a great question. And I think that you do continue to see the democratization sort of products more broadly. That is one of the reasons when you actually think about the acquisition of Equity Zen and what we are trying to do, right? So a place where there is stuff within the private domain that is 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 is growing. There are a lot of places within the retail channel, the different companies are looking to attract, and we have that channel and those capabilities. you have it already existing on the adviser side, you have an 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 necessarily before you see an IPO come through the marketplace that you are 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 is not just one thing. I would say that it is 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.
Glenn Schorr: And do you have any numbers that you could throw at the pipeline or some soft details, we have been 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.
Ted Pick: Yes, Glenn, what I would say on that is, as you know, the PE firms are sitting on $1 trillion plus of dry powder. There are 1,500 companies plus that are privately held with an average duration of 5 years that are worth $1 billion plus. And the entire ecosystem of private companies, hard to know. Is it — are they worth $3 trillion or $5 trillion, but they are — there were 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, 7,000 S&P and NASDAQ working its way back to. 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. Some — there is going to be some selection. And what we are 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 would give you is that there are increased numbers of bake-offs with sponsors. And again, think of it the way Dan Simkowitz would describe it is think about sort of corporates think about public asset managers, private asset managers. There is effectively competition and horizontal to see where capital clears is the way I would 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 to 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 will see is effectively the resumption of pipeline hitting the marketplace, whether it is through outright sales to other sponsors or likely to strategics or partial sales through IPOs, which is kind of a 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 are not going to be ready to make it as public companies because the reality is that the bar is very high for public manager and investors, as you know, against the resiliency that has 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 to 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.
Operator: We will move to our next question from Mike Mayo with Wells Fargo Securities.
Michael Mayo: Can you elaborate more on the financing business within trading? I assume that is for both private credit and liquid markets, and that is just been growing so much 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: Sure. Thank you so much, Mike, for the question. There is a stabilizer, I would say, over the course of the last 10 years. I mean you have been covering us nearly 2 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. It is, to some degree, 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 counter-party 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 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 is a lot there within the ecosystem. But yes, that has been a stabilizing factor within our fixed income revenue results.
Ted Pick: What I would add to that is I think the durability of the lending business is good. Of course, it kind of speaks to the proposition around valuation is repeatable P&L. But one of the things that Sharon and I have observed over the last number of quarters, 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 Katy 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 Vol 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 is to be on the cash desk where the equities guys did a fantastic job. And then importantly, in the derivatives business, that has really grown into a classic market-making, risk management business around Morgan Stanley's content. Similarly, in fixed income, again, contain risk 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 are looking very closely at DARTs and other indicators of just transaction activity, whether it is 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 sort of set in what they want to do, in which case, the financing revenues are the kind of durable P&L that allow you to sort of sustain the balance of the firm. But at the same time, we want to have the right levels of activity around times when Morgan Stanley content matters. When we are 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 is an excellent question because I think one does not 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.
Michael Mayo: Sticking — sticking to that topic of risk and following up on the other question. all I have are the headlines in the paper about Anthropic and the [inaudible] model. And the article said only a few players had that model. It sounds like you said you have the beta version of the Anthropic [inaudible] model. And again, the articles said that you guys were summing 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 am just wondering about the cyber risk and how that may have increased and what extra steps you are taking now that you are looking to the model if you are allowed to disclose what you have learned?
Ted Pick: Well, we have the regular way meetings in Washington, the Financial Services Forum. So we happen to have been down there, and the press as reported, we all got together. This is not new. We have gotten together before cyber resiliency, as you know, has been a top priority at this firm and other firms. And yes, we are permissioned on — I think the official name is Claude Mythos preview. And certainly, the reality is that cyber risk is in the ecosystem, Mike, as you know, an increasing threat broadly. And so our ability to, along with others, I assume, continue to act a stalwart defense in our industry is important. So we will, I would imagine, collectively get better via that, and then there will be other competitive products. This is another step in kind of the long tail technology transformation that we have been talking about that is once in a generation, and now it is here. And as you have heard others say, cyber resiliency is a top priority at institutions like ours across all of our businesses. And if the ecosystem risk is likely increasing because of the quality and muscularity of the model than we do need to get our gloves up and take it to another level, and that is exactly what you would expect, and we very much intend to do so. But I want to say on the back end, that a lot of the good that AI is going to bring both as an efficiency and effectiveness matter should not get dismissed because that is an important phenomenon that is going to continue to transform this firm.
Operator: We will take our last question from Erika Najarian with UBS.
Erika Najarian: Sorry to prolong an already long call, but just wanted to ask one question?
Ted Pick: Erika, for you. We are very happy to take that last question. You stepped in there, you stepped in there. What was that $25 ago.
Erika Najarian: Hopefully, some people are still listening. So anyway, can you hear some my question.
Ted Pick: It may just be you and me, but I am going — I know exactly. We are good. We are good.
Erika Najarian: 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 advisers really being empowered by AI. As we think about the pretax margin of 30% in a quarter where wealth comp had some upward pressure. Should we think about the low 30s as sort of a high level where you can sustain? Or is there potential for upward pressure given all of the dynamics that you mentioned?
Sharon Yeshaya: Yes. Thank you so much for the question, Erika, and thank you for noting all the places that we are investing. We reaffirmed our targets at 30% 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 have never really managed the margin quarter-by-quarter. We have said that multiple quarters. We always said when we were below 30% that could cut our way very quickly to a 30% margin. But for us, what is most important is that we are constantly investing and there are so many places within this best business to invest and it is paying off. And over time, we will continue to move up the margin on its own organically. The most important thing for us is to continue to put dollars to work to service both our clients and advisers 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.