Earnings Call Transcript
MORGAN STANLEY (MS)
Earnings Call Transcript - MS Q1 2021
Operator, Operator
Good morning. I will be reading a statement on behalf of Morgan Stanley. Today's presentation will refer to Morgan Stanley's 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. 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, James Gorman.
James Gorman, CEO
Hi, good morning, everyone, and thank you for joining us. The first quarter of 2021 was a significant record for the firm and for many of our businesses. It was marked by some truly extraordinary highs; numerous performance records; the closing of the Eaton Vance deal, our second strategic transaction in the last year; and one very complex event relating to the collapse of the hedge fund, Archegos. In summary, we generated record revenues of $15.7 billion and an ROTCE of 21.4%. The higher revenues reveal the operating leverage in our business and the quarter's efficiency ratio was 66%. Wealth Management generated revenues of approximately $6 billion. Net new assets were $105 billion, which is easily our best-ever quarterly flows and concrete evidence of the growth trajectory of this business. These flows represented an annualized increase of over 10% of beginning period assets. Pre-tax margin was 27.9%. This margin should only improve in future years, and we expect will exceed 30% as rates tick up. Daily trades reached a new record, with heightened levels of retail client engagement. ETRADE, and particularly the strength of the self-directed channel, has exceeded our expectations. In addition, assets continue to migrate towards advice. Fee-based flows for the quarter were a record $37 billion. We're adding new clients at a record pace, creating more opportunities to consolidate wealth held away and provide advisory services. Our workplace business is adding corporate plans, and as a result, the number of participants we reached increased to 5.1 million. Institutional securities revenues of $8.6 billion were also a record as clients remain highly engaged. Fixed income had the strongest first quarter of the last decade and has consistently gained share in recent years. Investment banking revenues reached a record, driven by record equity underwriting. Our Equities division also had its best quarter in over a decade. Turning to Investment Management. On March 1, we closed our acquisition of Eaton Vance, bringing together two high-performing asset managers. Our teams at both Eaton Vance and Morgan Stanley executed the close ahead of schedule while prioritizing client service. The momentum Eaton Vance and MSIM demonstrated between announcement and close only strengthened our conviction of this combination. Since we announced the transaction in the beginning of October, pro forma assets grew by nearly $200 billion, and pro forma net flows were approximately $100 billion. In the first quarter, pro forma net flows were $53 billion, representing an annualized organic growth rate of 16%. Our industry-leading organic growth signals that clients are very supportive of the combination and increasingly recognize the highly differentiated value offering solutions that we offer across the global platform. Investment Management now has assets under management of $1.4 trillion and is very well positioned in key secular growth segments. Let me discuss the loss we incurred navigating the collapse of Archegos. First, we liquidated some very large single stock positions through a series of block sales, culminating on Sunday night, March 28. That resulted in a net loss of $644 million, which represents the amount the client owed us under the transactions that failed to pay us. Subsequently, we made a management decision to completely derisk the remaining smaller long and short positions that are not especially problematic, but might have been. We decided we would be out of the risk as rapidly as possible, and in so doing incurred an incremental loss of $267 million. I regard that decision as necessary and money well spent. The results are all reflected in Q1. I'm very pleased with how the institution came together and responded to this very complex situation. Let me close with an early readout from our acquisitions of ETRADE and Eaton Vance. The performance of both businesses is significantly exceeding our expectations. As importantly, the integration so far is proceeding without major incident. These acquisitions, when combined with our existing wealth and investment management businesses, drove our client assets to $5.7 trillion, of which approximately $150 billion represented net new client assets to the firm this quarter. We are more convinced than ever that both deals help position Morgan Stanley for growth in the years ahead. I'll now turn it over to Jon to discuss the quarter in detail, and together we'll take your questions.
Jonathan Pruzan, CFO
Thank you, and good morning. The firm produced record revenues of $15.7 billion in the first quarter. Across businesses and regions, performance was incredibly strong as clients remained highly engaged and markets were constructive. Excluding integration-related expenses, our EPS was $2.22, our ROTCE was 21.4%, and our efficiency ratio was 66%. First, some housekeeping. To improve the transparency and comparability of our external financial reporting, we made several enhancements to our disclosures this quarter. You can find more details and three years' restated data on pages 12 and 13 of the supplement. The more significant items are as follows. For the firm, the provision for credit losses for HFI loans and lending commitments is now presented as a separate line in the income statement versus being in other revenues and expenses. In Institutional Securities, sales and trading net revenue have been reclassified into equity and fixed income, which now includes certain investments and other revenues that are directly attributable to those businesses. And other revenues, notably contained corporate loans and lending commitments and related hedges, as well as the impact of deferred compensation plans. In Investment Management, following the closing of the Eaton Vance transaction, we have simplified reporting by breaking revenues into two lines. Asset Management has been renamed Asset Management and Related Fees, although the historical numbers remain the same. We have also combined the remaining revenue categories under a new line named, Performance-Based Income and Other, notably carried interest. We have also updated our AUM disclosures, Alternatives and Other has been updated to Alternatives and Solutions, to reflect the addition of most of the Parametric AUM, excluding Parametric's portfolio services for institutional investors that have been included in a new line called Liquidity and Overlay Services. Now to the businesses. The momentum in Institutional Securities witnessed through the back-half of 2020 continued as clients remained highly engaged. Several performance records were set as revenues were broad-based and balanced across businesses and regions. Revenues were $8.6 billion, representing a record and a 66% increase compared to the same period last year. The integrated investment bank continues to serve clients across the complex. Regionally, Asia remained a standout, building on the four best quarters of the last decade in 2020. The first quarter of this year set a new record. Europe's performance was solid across investment banking and fixed income and was the strongest in over a decade. Investment banking generated revenues of $2.6 billion, more than doubling the prior year, driven by record underwriting results. Advisory revenues were $480 million, reflective of higher completed M&A industry volumes versus the prior year. Equity underwriting continues to be exceptionally active. Record revenues of $1.5 billion reflect its strength across products and sectors. IPO activity was extremely strong, with blocks, follow-ons, and convertibles also notable. Fixed income underwriting revenues, of $631 million, were the second highest only to the second quarter of last year, as companies continue to take advantage of the attractive borrowing environment. We saw strong activity across non-investment grade financing spread across sponsors and corporate issuers. Investment Banking pipelines remain healthy across products. Strategic dialogues are active. Equity markets should support issuance, and conditions remain favorable for borrowers. And we are seeing a broadening across sectors beyond technology and healthcare. Equity revenues reached $2.9 billion, the strongest in a decade, as global equity market volumes remained elevated. Derivative results were the best in the decade, reflecting heightened client activity and a constructive trading market environment. Both cash and Prime Brokerage revenues declined versus the same period last year. Revenues associated with higher volumes and higher Prime Brokerage balances, respectively, were offset by the losses James discussed. Fixed income revenues of $3 billion were the highest for our first quarter in a decade. Performance was broad-based across products. The debate around the speed and strength of the global recovery, the passage of U.S. fiscal stimulus, and the movement in passive rates supported client activity. Micro performance continues to be strong. A meaningful increase versus the prior year was driven by securitized products and municipals. Macro results were robust that were reflected a decline from the very strong prior year as bid-ask spreads were more stable this period. And commodities also had solid results. Other revenues of $323 million improved significantly versus the prior year. The increase primarily reflects gains related to deferred cash-based compensation plans compared to losses in the prior year and lower mark-to-market losses on corporate loans and related hedges. Turning to ISG lending, our credit portfolio continues to perform well. Improved confidence in the economic outlook and paydowns on corporate relationship loans, particularly non-investment grade resulted in a release of $93 million. Net charge-offs in the quarter were $10 million. And our allowance for credit losses on ISG and lending commitments now stands at $1 billion. Total ISG loans were up $2.5 billion while lending commitments increased by approximately $5 billion relative to 4Q as we continue to support our clients. Our vulnerable sector portfolio continues to represent less than 10% of the overall ISG loans and lending commitments. We saw some velocity in the book with new commitments for investment grade clients that were largely offset by paydowns. Approximately 90% of this portfolio, like our entire ISG portfolio, is either investment grade or secured. And lastly, forbearance for the ISG portfolio continues to decline and now stands at approximately $300 million. Turning to wealth management, given the timing of the close of the ETRADE acquisition, I will make comparisons to the prior quarter which will serve as a more relevant benchmark than prior year. Revenues were $6 billion with strength in every area. Excluding the impact of DCP, which declined by approximately $300 million versus the prior quarter, revenue increased 11%. Integration-related expenses were $64 million. And excluding these costs, pre-tax profit increased 28% to a record $1.7 billion. And the PBT margin was 27.9%. The underlying growth drivers in this business remained extremely strong. Net new asset growth was $105 billion driven by net new clients, asset consolidation from existing clients, and stock plan retention. Fee-based flows were a record $37 billion and self-directed channel net new households grew by a record $500,000 or 7%. Financial advisors also recognized the value of our platform, demonstrated in continued strength in net recruiting and retention which also benefited M&A. Elevated client activity across both advisor-led and self-directed channels drove strong transactional revenues. Excluding the impact of DCP, revenues increased 19%. Client engagement in the market was high, putting more cash into equities in the quarter. Self-directed engagement was particularly robust, reflecting record net buying activity. Daily average trades on the ETRADE platform reached record highs of $1.6 million, almost 50% higher than the fourth quarter record of $1.1 million. Importantly, revenue related to the ETRADE platform transactional activity is highly accretive to the PBT margin. Asset management revenues were $3.2 billion, up 7% sequentially benefiting from higher asset levels and record fee-based flows. Fee-based assets are now $1.6 trillion and have grown over $400 billion from last year, greater than the cumulative growth of the prior six years and revenues were up nearly 20% from the prior year. Loan growth remains extremely robust, with balances reaching $105 billion. Demand across products with particular strength in securities-based lending led the quarterly balance sheet of $7 billion, north of the 10% full-year guidance we gave earlier this year. Continued use of data analytics to understand customer needs is contributing to the strong growth. Net interest income was $1.4 billion including prepayment amortization which turned positive, and was approximately $100 million. Excluding prepay, NII was up 6%, and in line with our prior guidance. The increase reflected the realization of funding synergies, driven by the onboarding of $20 billion of deposits that were previously swept off ETRADE's balance sheet, rose in bank lending balances, and increased margin lending in the self-directed channel. We have now completed the onboarding of approximately $25 billion of deposits since we closed the ETRADE transaction, and we remain on pace to realize approximately $200 million in NII funding benefits in 2021. We would also expect to run off additional $16 billion of wholesale deposits through the remainder of the year. We expect that NII will continue to build on the full impact of the onboarded deposits and continued growth in lending. We're even more excited about ETRADE today than when we announced the deal as momentum on the E*TRADE platform is robust. Additionally, we are beginning to see early successes from the combination. The business continues to benefit from increased client engagement across channels as evidenced by this quarter's NII. And while we expect these flows will be lumpy and should be looked at over the course of the year, rather than individual quarters, we are encouraged by the strong start. We continue to prioritize client experiences as we progress with their integration. The rest of 2021 will be focused on analyzing the comprehensive datasets, which cover advisor-led and self-directed clients to help better understand investment behaviors and needs, and refining the tools required to connect financial advisors to service those needs. Over time, we expect to learn from these insights to effectively serve clients across their entire wealth journey. Workplace will serve as an important growth engine going forward, and we are building on the investments we have made to date. Our workplace offering is resonating with corporate clients. We are adding new B2B clients and participants at a record pace, and our current pipeline is as strong as it's ever been. Equity plan wins increased by approximately 70% versus 1Q last year, and this led to the addition of 75,000 participants to the Morgan Stanley at work platform. The number of participants now stands at 5.1 million. We are also focused on ensuring that each workplace participant has a companion brokerage account to capture vested award proceeds. Today, approximately 50% have one, and we expect 90% of participants will have a companion account within 18 months. This will further enhance our ability to capture workplace flows. On the expense side, we're on track to realize $100 million of cost synergies in 2021 and have made progress in the first quarter towards this end. On a run rate basis, we expect to achieve 35% to 40% of the targeted $400 million expense synergies by the end of the year. Moving to investment management, on March 1, we closed the acquisition of Eaton Vance. We issued 69 million shares and $5 billion of common equity. We created approximately $9 billion of goodwill and intangibles, including $4 billion of intangibles, half of which will amortize over approximately 15 years. Our CET1 ratio is impacted by approximately 80 basis points. This quarter's results include one month of the buying businesses, so comparisons to prior periods are difficult. I will focus mainly on the quarter and our positioning moving forward. We're pleased that the businesses retain their strong momentum from announcements closed, and total AUM now stands at $1.4 trillion, an increase of 40% or $400 billion on a pro forma basis versus the prior year. Upon close, Eaton Vance added approximately $590 billion to our total AUM. The underlying fundamentals of this business remain extremely strong. Positive net flow momentum continued across both businesses. Total net flows on a pro forma basis were $53 billion for the full quarter. Long-term pro forma net flows of $22 billion were broad-based across products and regions. We saw a particular strength in MSM global equity strategies, which continue to attract robust flows following strong investment performance. Our metric customized portfolios continued very strong organic growth in the alternative and solutions line. We believe customization is a long-term secular trend, and parametrics is the market leader in this space. Eaton Vance is leading a floating rate loan business, recovered to strong positive flows, and Calvert saw strong growth as ESG investing accelerates. In the quarter, revenues were $1.3 billion. Consistent with strong growth in AUM, the contribution from more durable management fee revenue has significantly increased, and asset management and related fees were $1.1 billion with just one month of Eaton Vance contribution. Performance-based income and other revenues were $211 million in the quarter. We saw broad-based gains across our alternative funds. The increase versus the prior year was primarily driven by gains in our real estate funds, which continued their recovery from 1Q '20. Total expenses were $944 million, of which integration-related expenses were negligible. Turning to the balance sheet, total spot assets increased to $1.2 trillion, reflecting higher client activity levels and the addition of Eaton Vance. Standardized RWAs were flat to the prior quarter at $454 billion. Our standardized CET1 ratio declined from the prior quarter to 16.8. Our tax rate was 22% for the quarter, and we continue to expect our full-year 2021 tax rate will be approximately 23%. We are pleased with our results in the first quarter as our three world-class businesses of scale delivered exceptional performance and growth. Pipelines are healthy, institutional and retail client engagement is strong, and our global positions have improved. With the successful closing of the Eaton Vance deal, we continue to drive our business model toward more durable, more recurring, and less capital-intensive businesses. While it's very early in the integration, the combination of breadth and depth of product offerings and services within our large customer base has led to approximately $150 billion of net new client assets to the franchise. Our unique business model is well-positioned for growth through a variety of market backdrops. With that, we will now open the line to questions.
Operator, Operator
Thank you. [Operator Instructions] Our first question comes from Brennan Hawken with UBS. Your line is now open.
Brennan Hawken, Analyst
Good morning, and thanks for taking my questions. I'd like to ask maybe first on Wealth Management. The net new asset growth rate implying double-digit organic is really impressive, not something that the narrative around wirehouses tailing to be able to grow really jives with. So, I'm curious, I know we've seen these trends accelerate in Morgan Stanley before over a year now. But how much of this remarkable quarter was attributable to E*TRADE versus full-service Wealth Management at Morgan Stanley? And how should we think about sustainable organic net new asset growth going forward?
James Gorman, CEO
Well, Brennan, let me have a go at that. Historically, the growth rate in the full-service, as you call it, wirehouses has been, I don’t know, 0% to 2% over the last 15 years, with loss of financial advisors, some loss of assets into the RAA channel, and clearly loss to some of the direct distributors, and generally just not having in place significant growth plans. This quarter reflects a very different view of that Wealth Management business. Number one, we needed to have a compelling direct channel, and we have that through ETRADE. Number two, we needed to have a compelling workplace platform, we have that through Solium and ETRADE. Number three, we needed to have net positive FA growth in terms of recruiting—not just in numbers of bodies, but actual people who are bringing in assets—and we're doing that. Lastly, you need a compelling platform of ideas which links to our institutional business and quality research and product. You're just operating at a different level. I think it's a culmination of many factors; ETRADE is clearly a factor in it, but it's by no means the only factor. If you took out ETRADE, the organic growth was tremendous in the core business, which we've started to see in the last couple of years. Last year we reported numbers around 4%. Our target is 4% to 6%. Now this at 10%—well, Q1 is probably going to be your best quarter. Q2 usually has some tax flows going on. The growth rate is real. If we annualize 10% a year for the next several years, that would be spectacular, but that's not what we're planning on, and we have to be realistic. To be outgrowing some of our nontraditional competitors, even for a quarter, is just a wonderful green shoot to have planted out there.
Brennan Hawken, Analyst
No doubt. Thanks for that color, James. And then thinking about NII within the Wealth Management business, Jon, you made some comments on NII, but I wasn't sure if those were just purely on the wealth and from wide. When we think about it in the Wealth Management business, thanks for quantifying those prepaid impacts, is this -- you've got strong loan growth. We've got securities yields that have been recovering, yesterday's setback aside. Should we be expecting continued constructive trends in core NII excluding any noise you might have from prepays quarter-to-quarter?
Jonathan Pruzan, CFO
Sure. The short answer is yes. We've really got some nice tailwinds from the loan growth that we've been experiencing, as well as the deposit funding synergies. As I said in the first quarter, we don't expect any movement in policy rates. The short end is really what benefits the NII, so our growth we would expect from the full realization of the onboarding of deposits, which, as you know, was feathered in over the quarter, so that we'll have the full impact next quarter. At $7 billion of loan growth, we're running ahead of plan there, so that's obviously a nice tailwind. We'll continue to see our deposit costs tick down as some of the incremental wholesale deposits run off because of the onboarding. We feel good about the guidance we gave you. The $1.2 billion in the fourth quarter was a good run rate, and then start to add the tailwinds from the deposits as well as the loan growth. We also saw some nice loan growth in margin lending, which is not in the bank, but is part of the wealth management NII story. So again, just a nice quarter, and we expect it to continue to grow from these levels.
Brennan Hawken, Analyst
Thanks for the color.
Operator, Operator
Thank you. Our next question comes from Steven Chubak with Wolfe Research. Your line is now open.
Steven Chubak, Analyst
Hi, good morning.
James Gorman, CEO
Morning.
Steven Chubak, Analyst
So, wanted to start off with a question on the Archegos development. James, you noted that you were pleased with how the firm responded just given the complexity of the situation. What were some of the learnings from that experience? And just maybe more importantly, how does it inform your risk management approach within PB to infer that you can avert a similar situation in the future?
James Gorman, CEO
I think my comment about the way this team has worked together now for a decade. We all went through the financial crisis, most of us in sort of a job or level below where we are now. The accumulated, both scar tissue and experience is very real. We have a philosophy; we cauterize bad stuff and deal with it as soon as we possibly can. This was, as you know, a very unusual event. It was a family office, actually, no outside money. It got to enormous size by the growth in their single stock position, heavily concentrated single stock loan positions that had exposed to growth. And they're offset by the various shorts in the indices that they were short. So, the lessons are still unfolding, if you will, or learnings. It's not going to change how we feel about the Prime Brokerage business at all. This is a gem of a business that we've probably generated, I don't know, something close to $40 billion in revenue in a decade. It's a core part and backbone of the equities business. It doesn't change that at all. But we'll certainly be looking hard at family office-type relationships, where they're very concentrated and you have multiple prime brokers. The transparency and lack of disclosure relating to those institutions is just different from the hedge fund institutions. That's something I'm sure the SEC is going to be looking at, and that's probably good for the whole industry. Better information is always good in rooting out where potential problems can be. Our job is to deal with the facts as reality and get on top of it and get it done, and that's what we did. We took the extra bit, frankly, just to clean it up by quarter-end; we didn't want this thing to be lingering.
Steven Chubak, Analyst
No, that's helpful color, James, and certainly appreciate your candor on the topic. Just for my follow-up, another one on NII, Jon. I just wanted to get a sense, looking at the cost of deposit disclosure, nice to see that come in from 24 bps to 18 basis points. One of the things that we're thinking about just given some of the funding benefits from E*TRADE as well as just some higher-cost wholesale deposits that start to roll off. Where should we expect that number to ultimately bottom? Is that what informs those benefits, at least your expectation that we should be able to grow or build an NII from here going forward?
Jonathan Pruzan, CFO
The weighted average cost of deposits is 18. It will clearly continue to tick down over the course of the quarter, assuming short-term rates don't move. We're not expecting policy rates to move as the wholesale higher-cost wholesale deposits roll off. I think, as you recall, when we originally announced the transaction, I think we talked about $150 billion of funding synergies. We've revised that to $250 billion given the growth in deposits. We said that we would realize that in $200 billion of which will be realized this year. So the movement in the cost of deposits is sort of factored into our funding synergy calculation. The way we've generally been thinking about it is that the policy rates aren't going to move, so there won't be necessarily a big plus or minus from rates, and NII will grow because the quantum will grow based on loan growth, and then we pick up the funding soon.
Steven Chubak, Analyst
That's great color, John. Thanks for taking my questions.
Operator, Operator
Thank you. Our next question comes from Glenn Schorr with Evercore ISI. Your line is now open.
Glenn Schorr, Analyst
Hi, thanks. James, I think you've covered some of the stuff that I wanted to cover on Archegos, sort of a couple of quick follow-ups. So I still want to get to what was so complex about this one. Is it really just the family office nature and the less disclosure on multiple primes and the leverage of employees where because obviously what's been great about your PB businesses. I mean, you didn't even lose money in '08, you had the assets; when they historically, when you have the assets and things break, you look for more collateral or you blow out the positions. What was different about this one? What do you think, why wasn't it disclosed? Why didn't this meet the materiality past, and then what do you think regulators want to change going forward?
James Gorman, CEO
I'll try to touch on a couple of them. To be honest, there was a lot going on in this quarter, and so I don't want to spend too much time talking about a specific line situation, which is now done in history, but let me touch on a couple of things going to the reverse. We were having a record quarter. The business was having a record quarter; the equities business, where this resided was having a record quarter. So, you're going to be at a level where it's material to the overall quarter and I'll leave that up to the lawyers, but we're comfortable with that. Given how the firm was performing, I think we generated $2 billion more in revenues than our previous record quarter out of, I don't know, 340 quarters that we've had since our origination. Focus on the big picture on that one. What was different about this situation relative to our weight, and yes, you're right; we went back through the records, and I don't think we've ever had a loss in the PB business in a long time. This was a very unusual incident. The family office situation was complicated by the fact that they had enormous positions because of the rapid growth of the fund. They followed their own set of rules, which made it hard to connect with other banks. The disclosure rules, made it more difficult to understand exactly who was holding what, where, and that's something that we'll work through and is part of the learning experience. I will say last comment on this, by the fact that one of the large single stock positions related to a security in which we had been an underwriting; we thought the right thing to do was to close that previous underwriting, which happened on that Friday. So, we had to hold off, which caused us to be later than others if you will. We were aware of what was going on; we just felt we had an underwriting obligation to deal with.
Glenn Schorr, Analyst
I appreciate that. And then on workplace, it's such a good growth and good margin business on its own. How do you execute? You mentioned that the companion accounts over the next 12, 18 months, how do you execute on that, and then how do you execute on morphing them into full Wealth Management Advisory relationships?
Operator, Operator
Please standby. It is disconnected, the call will now end. Goodbye. Please standby. The conference will resume momentarily. Again, please standby. The conference will begin now. Otherwise please hold. This line is now muted. I'm passing it to the line. Hold on, I'm passing in.
Unidentified Company Representative, Company Representative
Hello, this is the speaker of the call. Can the Operator hear us, please?
Operator, Operator
Yes, confirmed.
Unidentified Company Representative, Company Representative
Okay, great. Can you present, please?
Operator, Operator
You are in the main conference ready to proceed.
James Gorman, CEO
Can we have the next question, please?
Operator, Operator
And our next question comes from Christian Bolu with Autonomous. Your line is now open.
Christian Bolu, Analyst
Good morning. Hope everyone can hear me.
James Gorman, CEO
We can now, sorry about that.
Christian Bolu, Analyst
Perfect. No worries, okay. Just circle back to the Wealth Management business. The organic growth there was pretty spectacular, north of 10%. I was wondering if you'd give more detail on the Legacy Fresh advisor business. I hear you on each one of workplace, but the vast majority of the business is still the FA business. It's really surprising to see this level of growth. So just curious how much of recruiting, for example, drive growth. Have you made any changes to the recruiting incentives that you're paying out to drive local, just trying to understand some of the core drivers of the strengths here?
Jonathan Pruzan, CFO
Sure, Christian, it's Jon. I'll take that. I would say just first on net recruiting. I think you've heard us talk about this for the last several quarters; we've been very active; we've become a destination of choice. All the comments that James made about the breadth of the platform, the intellectual capital, and the technology investments that we've made have made our platform and our company a place where FAs want to do business. We’ve seen higher levels of recruiting pipeline; as we bring in FAs, they're successful, and they like the platform. They're obviously talking to their previous colleagues, and therefore it's sort of accelerating. We've seen really nice net recruiting. We’re bringing in bigger teams, better teams and attrition has dramatically slowed down. Net recruiting aided in the NNA; the E*TRADE platform contributed to the contribution, new clients in the FA channel bringing in existing clients away—just broad-based activity, very active. We talked about client engagement being quite spectacular this quarter, and it really aided those numbers, but broad-based.
Christian Bolu, Analyst
Okay, thank you. And then to your point, it's been a while since I've seen this level of revenues in that business, and you called out securitized products as a real strength, which I think has always been a bigger business for Morgan Stanley; maybe any more details on that business and what's driving growth? Is it anything to do with the state of the mortgage markets and the strength there, just trying to get more color on sort of, if you have business and what's driving the strong growth there?
Jonathan Pruzan, CFO
Sure. And again, I think that as I said, the Fed business was really every business in all geographies contributed to that quarter $3 billion of revenue. The team is working extremely well together; we're gaining share in that business. The depth of the franchise continues to improve, as you can imagine, in this environment where the debate around rates and inflation and credit yields. So, generally speaking, the credit products have been quite active and volumes have been quite elevated. The primary calendar agency issuance has a healthy influence and so just a lot of good activity going on in credit. I think as you saw, this quarter, a lot of debate around rates, inflation, reflation, which really added to those results.
Christian Bolu, Analyst
Okay, thank you.
Operator, Operator
Thank you. Our next question comes from Mike Mayo with Wells Fargo Securities. Your line is now open.
Mike Mayo, Analyst
Hi, well, great timing with your E*TRADE acquisition. Retail volumes are some two to three times higher than historical from what I can tell. Are you seeing those trends continue through the end of March? And do you expect that to reverse as we get out of the pandemic and people get out of the house and stop trading as much, or maybe this is secular?
Jonathan Pruzan, CFO
Sure, Mike. No, we're really pleased with the timing of the transaction, as you highlight. If you look at the number of clients, volumes, trades, all of the metrics that we historically looked at in that business, they're dramatically higher today than they were when we announced the transaction back in February of last year. We’re also seeing that same engagement across the FA-led channel, so it's not just related to the E*TRADE. Client engagement is very strong at 1.6 million average trades, that’s on top of a 1.1 million average trade in the fourth quarter, which was a record, it was less than a million over the course of last year. We're clearly at elevated levels. I think we go back to the 200,000 or 300,000 trades they were doing in '19, no. But can we sustain this level? No one's got a crystal ball. But right now, clients are extraordinarily engaged. We'll have to see how this plays out over time.
James Gorman, CEO
The two kickers are, there will be some obviously; these markets won’t sustain this kind of activity forever. The two strategic kickers behind this business are yet to really impact this. Obviously, the deposits and as rates rise, that will be a phenomenal additive. Secondly, the whole workplace, we're integrating with Solium. That’s proving; we had some stats in there, I think about 5 million plus clients in there. But that's a huge growth business for us. I think that'll be sort of the story of the next five years, as much as the elevated activity will be.
Mike Mayo, Analyst
And then my separate question goes back to Archegos. If I heard you correctly, the $900 million in losses compare to record equities revenue, anyway, $40 billion of revenues over the past decade in prime brokerage. A press report said that you didn't have losses. I think it's a little bit of a surprise and does speak to risk management. How much of your prime brokerage business relates to family offices since you're saying you're taking another look at that, and why do you think it was that you were the only large bank to call out losses of this magnitude, when others didn't? Did you do something differently versus Citibank, America, JPMorgan, or Goldman Sachs? I just don't know if you can share some color on that; that would be great.
James Gorman, CEO
We're in a quiet period. So those things, there are times when you can't comment unless you pre-announce earnings, which we weren't going to do given that it was a record. Secondly, I'm not going to comment on other firms. Some of them weren't even prime brokers to this institution; each of them has their own bid. The context is the business is a phenomenal business. It's been risk-managed very well. This was a very unusual incident. Family offices are not bad per se; we have some phenomenal family office clients. This is a very idiosyncratic event. Jon might have those numbers, but I suspect family offices are less than 10% of the prime brokerage business, very small. We don’t like to take losses ever. Unfortunately, when you intermediate flows of capital, you sometimes see losses. The question is how does the team come together to deal with it? I think they did a really good job.
Mike Mayo, Analyst
All right. Thank you.
Operator, Operator
Thank you. Our next question comes from Michael Carrier with Bank of America. Your line is now open.
Michael Carrier, Analyst
Good morning, and thanks for taking the questions. To me first, just on the trading front. Obviously, a robust quarter gauging with those losses; I realized it's difficult to gauge the outlook. Could you -- what drivers are you seeing that could continue to drive activity versus normalize it? And how is your market share trending during this environment?
Jonathan Pruzan, CFO
It's a great question. Without the crystal ball, I'll just give you some perspective on what we saw in the first quarter, and then we can collectively decide where we think that'll persist for some time. We still have strong asset values. I mentioned healthy pipelines and clients are significantly engaged both retail and institutional; markets are open and there's a lot of liquidity. We're seeing a continuation of the accelerating economic data around the globe. We're confident that we have the ability to deliver on the objectives we set out earlier this year in terms of our strategic goals. Data shows we're gaining market share across all businesses, so that's something we would expect to persist. This year is really going to be focused on growing our market share and integrating these two very important acquisitions.
Michael Carrier, Analyst
Okay, great. And then just as a follow-up on the wealth and investment management, organic growth got to be very strong. The retail activity can moderate, but on the flip side, both E*TRADE and Eaton Vance, they're very early; it's early innings in terms of integrating it and getting to the maximum potential. What are some of those initiatives over the next one to two years that could partially offset any normalization that we eventually get?
Jonathan Pruzan, CFO
What we've said all along is we’re being very deliberate with the integrations; these deals were not about costs, they were about growth. We do not want to, we don't want to disrupt the client experience; we want to enhance it over time. We're investing in the platforms, service model and gathering data. For example, we're running pilots around lead generation. We're defining the FAs that will be part of that program. We're looking at data analytics and scoring models. We're making the investments in the engine that will help us match the FAs to the client based on their specific needs. The goal this year is to make sure that we have the pipes, the people, and the processes to support our clients in the coming year. There’s huge potential in this channel as we drive growth across the platform.
James Gorman, CEO
I can't tell you how excited I am about the combination of these four businesses—the Eaton Vance, our investment management business, our traditional wealth management business in ETRADE, and how this is transforming by providing so many growth verticals. Look at the parametric product in Eaton Vance; it's extraordinary. They’ve excelled there. Calvert funds are excellent, and everything going on in the sustainability space is great. The workplace with ETRADE and what we've done with Solium—becoming one of the top two workplace providers in the world—these are all growth opportunities for us, and I couldn't be more excited about it.
Operator, Operator
Thank you. Our next question comes from Glenn Schorr with Evercore ISI. Your line is now open.
Glenn Schorr, Analyst
Hi, thanks very much. Maybe just a little more color on workplace. I feel like it's a good growth and good margin business on its own, but nirvana is the ability to transition them over to full wealth management advisory relationships over time. The question is, how do you execute on that? You mentioned companion accounts, but do you make research available? What products do you push across? How do you pre-market to them to convert them because it takes time?
Jonathan Pruzan, CFO
You're highlighting some of the things that will drive growth going forward. We want more corporate accounts, and the pipeline is very strong. The product is resonating. We want to grow the participants. Once those participants are in the system, we need to build trust and relationships with them through content, education, and services, because the ultimate goal is to convert them to broader clientele. When we first convert them, we're reasonably indifferent whether they go into the self-directed channel, the FA channel, or a virtual channel. That gives us an opportunity to deepen the relationship as clients' requirements and needs change, allowing us to grow with them. The key is to achieve that integrated experience across the platforms for clients.
Operator, Operator
Thank you. Our next question comes from Aijaz Abdul Hussain with JP Morgan. Your line is now open.
Aijaz Abdul Hussain, Analyst
Yes, thanks for taking my questions. The first one is on fixed income as you know. You are a very credit key player, and clearly that's been performing extremely well. I just wanted to see how you're thinking about that business more in a longer-term, more stable environment around credit and with macro pieces being a bit weaker. So can you talk a bit about the mix and if you're happy about the mix or what opportunities do you see to further grow the rates and FX area?
Jonathan Pruzan, CFO
The short answer is that we're very pleased with the performance from the fixed income business. We've deepened the breadth of the franchise as you said, credit has historically been a strong point, but we're seeing good results and good penetration in both the macro and commodity space. We think we've gained market share since we've restructured this business. We were probably a 6% or 7% player before. We're now probably a 10%, maybe even 10% plus player. We expect to maintain that market share going forward, potentially increase it a little bit more. We've been very pleased with the balance of the business and the results over the last several years in this.
James Gorman, CEO
Family offices are not bad per se. I want to be very clear about that. We have phenomenal family office clients in various regions around the world. Let's not throw the baby out with the bathwater here. This is not a judgment call on family offices; this is a very idiosyncratic event. I want to make that distinction very clear.
Jonathan Pruzan, CFO
Yes, I would just make a couple more observations. We are looking across all portfolios. We're reviewing our stress testing methodology and recalibrating where it's appropriate to do so. Your comment about margin and collateral. The way we think about it is we had collateral based on a set of facts that turned out not to be true. We haven’t found anyone that has similar fact patterns or copycat strategies and we'll continue to be diligent around those points.
Aijaz Abdul Hussain, Analyst
Thanks for your answers.
Operator, Operator
Thank you. Our next question comes from Devin Ryan with JMP Securities. Your line is now open.
Devin Ryan, Analyst
Okay, great. Good morning. I wanted to ask a question about the recent announcement to offer a few specific bitcoin-related funds to wealth management clients and appreciate you have to walk before you run here and it's pretty small. Given how fast the ecosystem is developing and the interest in the space, could you give some thoughts on, I guess, one, what the reaction was so far, and then, two, more broadly, how you're thinking about the crypto space across the organization?
Jonathan Pruzan, CFO
It's a fast-growing space. There's a lot of interest. We've had significant demand from our wealth clients to get access to this new asset class. We tried to facilitate that. We've allowed qualified investors to access this through two specific passive funds that access cryptocurrency. The uptake and interest level has been strong, and we expect people to continue to be interested in this space. We'll continue to monitor it and evolve; we are providing services and investment opportunities that interest our client base. As we continue to see stronger interest, we will work with regulators to provide appropriate services.
Devin Ryan, Analyst
Okay, perfect. Let me squeeze in a quick follow-up here. Just on the SPAC market, clearly has played a role, I think there. The record amount of investment banking activity in the market really started to lock up a bit over the past month on the PIPE side. Now the SEC is adding some more scrutiny here. I'd love to know your thoughts on backlogs and expectations moving forward to work through those backlogs, and then, in the IPO market, can you do a handoff the latter, if the SPAC market slows?
Jonathan Pruzan, CFO
The SPAC, or the product itself is just another financing vehicle like a private placement or a direct listing. The traditional IPO product has been very active and strong. There are over 200 SPACs on file so I expect we will see more issuance. There seems to be a pause as the market is digesting this and the regulators are looking at it. I don't want to get in front of that. There's clearly interest from both an issuer and a buyer perspective. I think it also adds to the momentum in the M&A product. There’s a considerable amount of SPAC money that can be leveraged and put into the M&A environment. Additionally, there is about $1.5 trillion of dry powder with private equity firms. If you leverage and multiply those, there’s a lot of buying power—this bodes well for the M&A market going forward.
Operator, Operator
Thank you. Our next question comes from Jeremy Sigee with BNP Exane Paribas. Your line is now open.
Jeremy Sigee, Analyst
Hi there. Thank you. I'd like to carry on the discussion about the revenue growth drivers in wealth management. I agree with you, I think the upside is huge from that. Is it too early to see signs of revenue synergy between E*TRADE and the workplace channel and the advisor channels, whether it's customers bringing in assets held away or starting to cross over into other channels and use other services? Can you see signs of that yet, or is it too soon?
Jonathan Pruzan, CFO
Yes. We are seeing some anecdotal signs of that. We are running some private programs. We think we are capturing some of the traditional ETRADE clients who might have left that platform for advice; they are now staying with us and working with our financial advisory platform. I think there are very good early signs, and you see some of that obviously in the NNA. We’ve targeted a 15% retention rate for the workplace when we announced the transaction. We are pleased with the progress we are making. ETRADE’s platform retention rate is still well above 15%. So, we feel confident about delivering on that. We will start to give you more color as we progress, but early anecdotes are quite positive.
Operator, Operator
Okay, thank you very much. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.