Earnings Call Transcript
MORGAN STANLEY (MS)
Earnings Call Transcript - MS Q4 2024
Operator, Operator
Good morning. Welcome to Morgan Stanley's Fourth Quarter and Full Year 2024 Earnings Call. On behalf of Morgan Stanley, I will begin the call with the following disclaimer. This call is being recorded. During today's presentation, we will refer to our earnings release, financial supplement, and strategic update, 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 and strategic update. Within the strategic update, certain reported information has been adjusted as noted. These adjustments were made to provide a transparent and comparative view of our operating performance. The reconciliations of these non-GAAP adjusted operating performance metrics are included in the notes to the presentation or the earnings release. This presentation may not be duplicated or reproduced without our consent. I will now turn the call over to Chairman and Chief Executive Officer, Ted Pick.
Ted Pick, Chairman and CEO
Good morning, and thank you for joining us. First, we would like to acknowledge our colleagues, clients, shareholders, friends, and family in Los Angeles. Our hearts go out to all those impacted and dealing with the horrific devastation from the wildfires. We're grateful to all the firefighters and first responders, we are thinking of you. Over the last several years, we've been faced with two central themes. One, the end of financial repression, namely the passing of the era of ultra-low interest rates and the reemergence of inflation. And two, the end of the end of history with the resumption of geopolitical uncertainty. These paradigm shifts juxtaposed against renewed investor and corporate confidence present opportunities to support clients with exceptional advice and market access. Morgan Stanley is well positioned to execute against these opportunities. The firm's consistent execution is demonstrated by the cadence of top-line and bottom-line in 2024. Revenues across the four quarters of $15.1 billion, $15.0 billion, $15.4 billion, and $16.2 billion, and earnings per share of $2.02, $1.82, $1.88 and $2.22. The fourth quarter was a top-line record with the highest earnings per share in over 15 years, capping off one of Morgan Stanley's strongest years. For the full year, the firm delivered a return on tangible of 19% and earnings per share of $7.95, making significant progress toward our long-term goals. The results reflect consistent durable earnings across the firm, evidencing that Morgan Stanley can deliver during this period of continued macroeconomic and geopolitical uncertainty. As we do every January, let's begin with our 2025 strategic update entitled Four Pillars of Morgan Stanley: The Integrated Firm. The slides can be found on our website. On Slide 3, we introduce the four pillars of Morgan Stanley to support our integrated firm, strategy, culture, financial strength, and growth. Strategy is about consistently serving our clients and raising, managing, and allocating capital. Culture is about rigor, humility, and partnership. Financial strength is about strong capital and liquidity alongside durable earnings and growth is about smart strategic investments across the firm, which generate new opportunities to capture client share. The investment thesis for Morgan Stanley rests on our ability to deliver the integrated firm supported by these four pillars. Slide 4. First, to reiterate, Morgan Stanley's clear strategy to raise, manage, and allocate capital for corporations, individuals, asset managers, and asset owners around the world. In the past year, our engagement advice across the full range of institutional and individual clients drove results. Slide 5. Morgan Stanley culture is defined by rigor, humility, and partnership. The leadership group on the operating and management committees have an average tenure at the firm of more than 20 years, many of them across business segments and regions. More broadly, our leadership body of 2,312 Managing Directors, 173 of whom we recently promoted to the partnership have been with Morgan Stanley for an average of 15 years. 30% of our Managing Directors have been at the firm for two decades. Our partnership is defined by Morgan Stanley leaders who embody this homegrown culture, joined by acquisition and lateral talent who bring an incremental skill set to the platform. Morgan Stanley's culture of first-class business in a first-class way forged over many years of trial and success is a competitive advantage and will contribute to the success of the integrated firm. Slide 6 highlights our position of financial strength, the third pillar of the integrated firm, and is the output of a clearly defined strategy and a tightly knit culture. Our consistently strong capital position over recent years is a standout. In 2024, we accreted over $5.5 billion of CET1, while continuing to return capital to our shareholders. We will continue to prudently grow the dividend, continue to invest in each of our three businesses and across our infrastructure, and continue to opportunistically repurchase the stock. In 2024, we effectively deployed capital to support clients and translated that into earnings growth. High capital levels protect us in challenging climates and sustain us for long-term growth. Slide 7 brings us to the fourth pillar of the strategy, revenue and earnings growth. Earnings expansion in 2024 reflects a return on multiyear investment to support clients. We will continue to invest heavily across the firm, in our talent, our clients, in E*TRADE and in parametric, in our bank, across resiliency in technology and infrastructure, and in the development of the integrated firm. In the past year, expense growth was tempered by our focus on rolling off initial integration spend and taking opportunities to consolidate our real estate footprint. Investments for growth will continue to be supported by ongoing disciplined prioritization of our expense base. Slide 8. The last six years shows step function change in the firm's growth across our businesses. In the Wealth and Investment Management segments, combined revenues have grown from $20 billion to $34 billion and total client assets have nearly tripled to $7.9 trillion. This growth has been achieved both by way of acquisition and through organic execution. You will also note that institutional securities wallet share has grown by nearly 100 basis points. These results reflect not only constructive markets, but also a sharpened focus on key client relationships and an expanded coverage of corporates and asset managers. Morgan Stanley scale positions us over the long term to deliver growth in each of our three business segments. We win both through an expanding denominator of global securities, banking, wealth, and investment management activity and by increasing our numerator as in our wallet share in each segment. In short, we seek to gain durable share in the secular growth businesses in which we participate. Slide 9 goes a level deeper into institutional securities. First, the growth in institutional securities has been both broad based and crucially is global. It is important that we are relevant in all the major regions around the world. Amidst geopolitical and interest rate uncertainty, each region grew revenues by roughly 20% in 2024. These results follow multiple years of investment in talent and leadership, as well as efficient and disciplined RWA growth. In 2024, we saw institutional securities deliver an operating margin of 31% and revenue growth that was significantly higher than our RWA growth. We are in a leadership position and can offer trusted advice and market access into the investment banking new issue and M&A cycle, which just lies ahead. Slide 10. In Wealth Management, investments in our self-directed and workplace channels drive our differentiated client acquisition funnel. Today, with our expanded offering, we reach over 19 million relationships and have added net new assets of over $250 billion in each of the past two years on track to delivering over $10 trillion of total client assets. An important indicator of Wealth Management momentum is fee-based flows, which reached an exceptional $123 billion in 2024. Delivering on new relationships and net new asset growth creates opportunities for our team of world-class financial advisors to tap into the integrated firm for their clients. Slide 11 highlights the breadth and tenure of wealth management's client relationships as 60% of advisor-led assets are associated with clients who have an average duration of 20 years. We retain 99% of our clients reflecting their enduring trust in Morgan Stanley. The slide illustrates our multichannel model, which continues to drive new assets to the platform. 30% of our advisor-led assets are associated with clients who have a Morgan Stanley relationship of less than 10 years, and 10% of advisor-led assets are with clients of less than two years. The client acquisition funnel supports durable growth, namely as clients mature with our financial advisors, they become the foundation for the continued growth of recurring fee-based revenues. Slide 12. In Investment Management, we continue to focus on the secular growth areas of customization and alternatives. Our industry-leading parametric platform, inclusive of overlay has grown to $575 billion. In alternatives, our investable assets have more than doubled in size to $240 billion. Investments in these secular growth areas have brought more balance to our investment management business and supported fee-based revenues. Additionally, the integrated firm, particularly the relationship with wealth management continues to benefit the investment management platform with the enhancement of retail-oriented distribution offerings and additional product capabilities. Slide 13. An area of investment is in the incremental growth of our U.S. banks. Since 2018, the firm has significantly grown deposit balances and continues to source deposits from wealth management clients with an expanded product offering. On the asset side, we will continue to grow our wealth management lending capability by covering clients holistically as their financial needs evolve. In addition, we will continue to utilize the bank platform to support growth in eligible institutional businesses. As we continue to grow our capabilities across the integrated firm, we are well-positioned to provide a full suite of solutions to our clients. Slide 14. A dividend that is aligned to the growth of fee-based earnings has been a leading priority. Our durable results demonstrate consistent execution of our strategy, and we have raised our quarterly dividend by $0.075 for three years in a row to $0.925 per share. Slide 15. As you've heard us discuss during the past year, the integrated firm brings together our world-class wealth and investment management franchises with our world-class institutional securities franchise. We are consistently strengthening the pillars underlying the integrated firm to deliver on our strategic goals. Across the integrated firm, Morgan Stanley is relevant to our clients, spanning from the advice dispensed and corporate boardrooms to our financial wellness programs for that company's employees. We are also the premier holistic partner to asset managers partnering with them to grow their businesses and to generate alpha. We can deliver institutional capabilities to our clients alongside sophisticated wealth management advice and distribution in an integrated service model. And in so doing, be mindful of potential conflicts. To open 2025, we have formalized the integrated firm by positioning leadership talent at the center of client coverage, integrated data, risk management, and infrastructure to drive growth as we serve more clients across their full suite of needs. This effort will be led by Mandell Crawley, a three-decade Morgan Stanley executive and a member of our operating committee. Together with Co-Presidents Dan Simkowitz and Andy Saperstein, the integrated firm organization is aligned to scale client opportunities across Morgan Stanley. Slide 16. The Morgan Stanley investment thesis is robust. In 2024, we delivered top-line and bottom-line strength and consistency. The full year results are strong relative to our long-term firm-wide goals. We ended 2024 with total client assets at $7.9 trillion, wealth management pre-tax margins of 27%, a firm efficiency ratio of 71%, and a return on tangible of 19%. Of note, we added a new goal to achieve durable wallet share gains in institutional securities. The additional metric for institutional securities is an appropriate reflection of the expected contribution of this business segment to the firm's growth narrative. The key word is durable. There will always be market and business cycles in each of these businesses. Morgan Stanley's trusted relationships over the very long-term lead to superior results. Against the four pillars of strategy, culture, financial strength, and growth, delivering the integrated firm is foundational to durable earnings growth and 20% returns through the cycle. Thank you. Now Sharon, will review our fourth quarter and annual results, then together we will take your questions.
Sharon Yeshaya, CFO
Thank you, and good morning. The firm produced revenues of $61.8 billion in 2024 and ended the year with fourth quarter revenues of $16.2 billion. For the full year, ROTCE was 18.8%, and EPS was $7.95. For the fourth quarter, ROTCE was 20.2%, and EPS was $2.22. The full year efficiency ratio was 71.1%. Improved efficiency not only demonstrates our ability to grow revenues, but also to prioritize our controllable spend. Occupancy and equipment costs held flat, benefiting from the prior year's consolidation of our real estate footprint. During 2024, we took real estate charges of $62 million, which impacted full year EPS by $0.03. Professional services declined year-over-year, aided by the roll-off of integration-related expenses and discipline across project spend. These savings helped self-fund investments across infrastructure to support growth such as expanding data center capacity, renovations, and technology modernization efforts. Self-funding investments remains a priority. In the short run, similarly sized additional modernization efforts focused on decommissioning legacy technologies may result in higher amortization costs. This alongside business-enabled innovation and process optimization with AI should support the firm's future efficiency path. Now to the businesses. Institutional securities delivered very strong annual results across business and regions, demonstrating the high quality breadth and depth of our world-class global franchise. Full year revenues of $28.1 billion included our highest reported equity revenues and the highest results across combined equity and fixed income markets. The strong annual performance showcases our global footprint and our ability to capture client share amidst an increasingly constructive backdrop. Fourth quarter revenues were $7.3 billion as markets remained active, bucking the typical seasonal slowdown. We supported clients throughout the quarter and ended the year with momentum. Investment banking revenues were $6.2 billion for the full year, reflecting growth across regions and products. 2024 commenced with strong debt underwriting activity, followed by M&A announcements that picked up in the second half, and ended with increased equity underwriting activity as the IPO market posted its highest volumes since 2021. Fourth quarter investment banking revenues were $1.6 billion. Results were largely driven by accelerating strength in equity underwriting as follow-on and IPO issuance saw meaningful improvements across the comparison period. We also saw corporates and sponsors take advantage of constructive markets in the quarter. Advisory revenues improved year-over-year on higher completed M&A transactions. Looking ahead to 2025, our M&A pipelines are healthy and diversified, outpacing recent years. Financial sponsors are joining corporates to drive activity, evaluating exit opportunities for long-held assets. CEO and boardroom confidence continues to improve as valuations stabilize and financing markets remain strong. Our business is well positioned for a strong continued rebound in deal-making activity. Turning to equity. We continue to be a global leader in this business, evidenced by record full-year revenues of $12.2 billion. These results reflect year-over-year growth across regions with record performance out of Asia, demonstrating the importance of having a global footprint. Full year results were supported by increased prime brokerage balances and our agility as we navigated the market well. Revenues were $3.3 billion in the fourth quarter. Following the U.S. elections, clients re-risk quickly, given shifting market dynamics. Additionally, third quarter strength in Asia carried into the fourth quarter with renewed investor interest across the region. Prime brokerage revenues were a record for the business as clients remained engaged and balances rose to peak levels. Cash results increased year-over-year, consistent with higher levels of client engagement and volumes. Derivative results increased versus last year's fourth quarter on the back of higher activity across a variety of products, in line with improved risk appetite from clients. Fixed income revenues were $8.4 billion for the full year, driven by consistent quarterly performance across the businesses. The full year results demonstrate our multi-year efforts to recenter our fixed income business around the integrated firm, improved trading performance, growth in durable lending revenues, and servicing corporate and sponsor relationships all contributed to results. Quarterly revenues were $1.9 billion, driven by credit products and commodities. Micro revenues were above historical quarterly averages. Results were driven by securitized products, which benefited from higher loan balances and an increase in securitization activity. Macro performance was relatively flat versus the prior fourth quarter. Commodity revenues improved year-over-year. Results were led by our North America power and gas business, where structured opportunities for corporate clients leveraged the integrated firm. Turning to ISG lending and provisions. For the full year, ISG provisions were $202 million and $78 million for the quarter. The quarterly provision was driven by portfolio growth and a build in a handful of individual assessments. For the full year, ISG net charge-offs were $210 million. For the quarter, net charge-offs were $62 million, primarily related to several commercial real estate loans, which were largely provisioned for in prior quarters. Turning to Wealth Management. 2024 was a strong year for wealth management. Full year highlights include record revenues of $28.4 billion, pre-tax profit of $7.7 billion, and a reported margin of 27.2%. The strength of our scaled and differentiated client acquisition funnel continues to set us apart. Fee-based flows were $123 billion, exceeding $100 billion for the fourth consecutive year. Clients continue to seek Morgan Stanley's advice, supporting our thesis that as assets move through the funnel, incremental revenue growth and margin expansion will follow. For the fourth quarter, revenues were $7.5 billion and the reported PBT margin was 27.5%. DCP and real estate related charges negatively impacted the quarterly margin by approximately 140 basis points. Asset management revenues in the quarter set a new record of $4.4 billion, showcasing the progress we have made to durable fee-based revenues. With each quarter this year, asset management revenues saw sequential improvement, powered by constructive markets and consistently strong fee-based flows. Fourth quarter fee-based flows were $35 billion. Importantly, over the last two years, we have seen an increase in the number and the pace of assets migrating from advisor-led brokerage accounts to fee-based accounts. We remain an industry leader in organic growth. Net new assets for the quarter were $57 billion. Full year NNA of $252 billion represents approximately 5% annual growth of beginning period assets. This year, our advisor-led channel drove the results, benefiting from both existing clients and new clients coming to the firm. Transactional revenues for the quarter were $1 billion. Excluding the impact of DCP, transactional revenues represent the highest level of activity we have seen since the peak in 2021. Higher retail engagement in equity-related products and demand for alternative products supported results. These revenues will continue to benefit from the breadth and depth of our growing alternatives platform. Bank lending balances were $160 billion. Loan growth of $4 billion was driven by securities-based lending, where we saw demand for new lines and a decline in the pace of paydowns. Total deposits increased 3% sequentially to $370 billion, driven by higher sweep balances. End-of-period sweep deposits have increased for two consecutive quarters, supporting the view that as rate dynamics change and markets turn to be more constructive, sweep balances will be increasingly transactional in nature. While clients deployed more sweep cash in the rising markets, particularly in December, balances held strong as clients showed less rate sensitivity with their transactional cash. Net interest income was $1.9 billion in the quarter. The sequential increase was primarily driven by higher sweeps. Looking ahead into 2025, the combination of a more stable deposit mix, higher lending balances, and the rate outlook suggests that first quarter NII should not fluctuate materially from our fourth quarter results. We are intently focused on driving additional growth across channels. In our advisor-led channel, our effectiveness in deepening relationships is evidenced by our consistently strong fee-based flows. In Workplace, our recently announced partnership with Carta, puts us at the center of new client stock plan opportunities as private companies consider going public. And in self-directed, the number of active traders on the E*TRADE platform grew, ending the year at levels higher than 2022. Moving to Investment Management. The business reported annual revenues of $5.9 billion and quarterly revenues of $1.6 billion. Our AUM reached a new peak at year-end of $1.7 trillion, supported by market gains and net inflows. Long-term net inflows were $4.3 billion in the quarter, driven by continued demand for our fixed income strategies and parametric customized portfolios. This brings 2024 long-term net inflows to $18 billion. Within Alternatives and Solutions, Parametric remains a key differentiator for MSIM. Growth of the brand will be supported by investments in technology, ongoing education for retail clients on the benefits of customization, and tailored solutions for asset managers. Liquidity and overlay services had inflows of $67 billion on the back of strong fund performance and seasonality, some of which may reverse in the first quarter. Fourth quarter asset management and related fees of $1.6 billion increased 11% versus the prior year, driven by higher average AUM. As a reminder, performance fees are recognized on an annual basis, largely in the fourth quarter, which drove the increase sequentially. Quarterly performance-based income and other revenues were $88 million. Gains were concentrated in infrastructure, U.S. private equity, and private credit. In parallel with Wealth Management, MSIM is helping to deliver our asset-led strategy. Our efforts to build a business that is well diversified and focused on secular growth areas, as well as global opportunities give us confidence to drive incremental growth. Turning to the balance sheet. Total spot assets were $1.2 trillion. Over the course of 2024, we demonstrated the velocity of resources. Standardized RWAs declined sequentially to $473 billion, driven by year-end seasonality and market dynamics. Lower RWAs at period end have already begun to reverse as we enter a new calendar year. During the year, we accreted over $5.5 billion of common equity Tier 1 capital and our standardized CET1 ratio ended the year at 15.9%. For the full year, we bought back $3.3 billion of common stock. Our tax rate was 23.1% for the full year. The quarterly tax rate was 24.1%, reflecting the level and the mix of earnings. We expect our 2025 tax rate to be approximately 24%, and consistent with prior years we expect some quarterly volatility. As we look ahead into 2025, our franchise is well positioned for growth, exiting the year with momentum across all of our businesses with a strong capital position to invest in our clients and our businesses. We enter the year with record asset levels, healthy and diversified pipelines, an engaged and institutional retail client base, and a strong global brand. We are focused on disciplined execution as we progress towards our goals. With that, we will now open the line up to questions.
Operator, Operator
We are now ready to take questions. We'll take our first question from Glenn Schorr with Evercore.
Glenn Schorr, Analyst
Hey, thanks very much.
Ted Pick, Chairman and CEO
Good morning, Glenn. How are you doing? Glenn, how are you?
Glenn Schorr, Analyst
Thank you for that. Where should I start? Let's discuss trading. There is significant potential in trading. We've experienced strong trading conditions, and this was certainly a beneficial period. However, could you clarify how you differentiate between a strong trading environment and the more sustainable aspects you mentioned, such as higher client balances, record private banking, and market share gains? How will you evaluate the success of these sustainable gains? I'm trying to distinguish between your actions and the overall market conditions. Your performance has been impressive. Thank you.
Ted Pick, Chairman and CEO
I appreciate that. Our emphasis on institutional securities in recent years has been aimed at delivering a comprehensive product set to key clients, integrating various divisions such as equities, fixed-income, capital markets, and investment banking. This integration allows us to understand the experience of colleagues in different areas, which is essential since you only truly grasp the dynamics when you are part of that business. Now, six years later, under Dan Simkowitz’s leadership in ISG, we find ourselves in a favorable environment that supports many businesses, characterized by significant corporate finance activity and active markets influenced by central banks. By being well-organized, we can navigate this effectively. Over this period, under Sharon's leadership in the CFO office, we have been cautious with the deployment of risk-weighted assets, ensuring we don't overlook client interactions across the integrated firm or the key factors that contribute to a client's value. After several years of focusing on this, we feel prepared to increase our share as the overall market continues to grow. It has been challenging to scale our client base during periods of stagnant interest rates, where we struggled to set prices and faced concentrated risks. Now, with the market cycle shifting, we have been able to strengthen our position, particularly in equities, offering significant returns on equity above capital costs across our various services. In fixed income, which is generally stable despite its inherent volatility, our leaders have successfully managed a business that generates consistent revenue through well-planned financing and structuring. As we enter this investment banking cycle, where we anticipate increased activity in primary and secondary offerings, we are already engaged in related business activities within sales, trading, and lending. Furthermore, we are seeing momentum in M&A opportunities, which represent our highest margin offerings and benefit the entire organization. Our pipeline for these deals is very robust, likely the strongest it has been in five to ten years, and we are eager to leverage this across the investment bank. I want to emphasize that we aim for durable gains in our ISG wallet share, which is why we have not specified a target number. Our focus is on achieving gains without incurring excessive concentration or counterparty risks, as we are committed to elevating ISG and creating a strong link between our wealth management and investment banking services. The outcomes reflect this strategy, as we've seen a notable increase in our investment banking wallet share to approximately 15% in a growing market, while maintaining discipline in risk-weighted asset growth and demonstrating operating leverage in our financials. Overall, the institution is in an exciting position.
Glenn Schorr, Analyst
That was a very full answer. I really appreciate it. I'll cede my follow-up to the group. Thanks.
Ted Pick, Chairman and CEO
Thanks, Glenn.
Operator, Operator
We'll take our next question from Ebrahim Poonawala with Bank of America.
Ted Pick, Chairman and CEO
Good morning, Ebrahim.
Ebrahim Poonawala, Analyst
Good morning. I know you've touched on this in previous calls, but could you provide an update on the firm's investments in systems related to AML and BSA within wealth management? Specifically, how are we positioned in terms of meeting the highest regulatory compliance standards? Additionally, as we explore growth opportunities in international wealth, do we need to ensure that our AML and BSA processes are fully aligned to pursue those opportunities more aggressively? Thank you.
Sharon Yeshaya, CFO
Thank you for the question. I would answer it comprehensively rather than focusing on just one sector. The results in this business are self-evident. Regarding the investment, our ability to attract clients, both from existing assets and new clients across the wealth management platform, is a key point. Additionally, over the years, we have been investing in our processes and systems to ensure we have a strong infrastructure that supports our growth objectives. This includes advancements in technology, better data understanding, and enhanced client servicing related to investment dollars and infrastructure. Our goal is to ensure that we can service and impact all our clients across the firm, not just in wealth management. You can see this reflected in our capacity to continue attracting assets, and we will make all the necessary investments to maintain a world-class standard, both in our personnel and technology.
Ebrahim Poonawala, Analyst
Thank you. I have a separate question regarding Slide 13 about the investment in the bank. Can you provide an update on the integration of the bank? Considering that some of your peers have fully integrated their bank and wealth businesses, are we at that point yet? Additionally, what opportunities do you see for deposit growth from your wealth management clients that we can leverage?
Sharon Yeshaya, CFO
We're definitely not there yet. We still have a lot to do regarding the bank. I've always believed that the bank is an incredible growth engine for the institution. We started our bank much later than many of our peers, and we have a very different deposit mix. Interestingly, over 70% of our deposits come from our wealth management clients, primarily from sweeps and savings accounts. There's much more we can do with our deposit franchise, and we can also discuss the other side of the balance sheet. We're investing in those deposit opportunities. Remember, we didn’t have banking capabilities until we acquired E*TRADE, which was part of our strategy to offer real checking and savings accounts. Additionally, as we invest in banking products within Workplace, we’re providing different ways for employees to manage cash and cash alternatives, as Ted mentioned. There’s a lot more we can do to service and grow that deposit base over time. On the lending side, we see opportunities to help our wealth clients as their lending needs expand and we gain a better understanding of their portfolios. Furthermore, we are still working to move eligible ISG assets onto the bank, which should benefit institutional securities by improving the funding profile of those assets. Overall, the bank plays an important role in the integrated firm, and we have the capacity to facilitate its growth.
Ted Pick, Chairman and CEO
Ebrahim, I'd like to add to that. On the deposit side, we will service clients through all three channels in wealth management, including the financial advisor channel and the everyday transaction offerings like cash plus in ETRADE. Our focus will continue to be on checking accounts with competitive rates, integrating products into the client journey as they transition within ETRADE, potentially moving to a classic financial advisor model. As you know, we've been actively engaging with workplaces to partner with companies and reach their employees. Regarding loans, as Sharon mentioned, we've been steadily increasing our lending. The loan volume in wealth management was around $80 million in the fourth quarter of 2018 and has now doubled to $160 million. We've seen growth each quarter in 2024. As a bank, lending is essential, and we aim to strengthen our relationships with clients. Currently, we lend to about 16% of our households, while top peers typically lend to around 25% to 30%. As Sharon pointed out, there's significant opportunity here. In the Institutional Securities Group, we've also been enhancing our lending capabilities, with a year-over-year growth of about 15%. We are committed to making strategic advancements in both deposits and loans and, over the next five to ten years, you can expect these figures to continue to grow.
Operator, Operator
We'll move to our next question from Brennan Hawken with UBS.
Ted Pick, Chairman and CEO
Good morning, Brennan.
Brennan Hawken, Analyst
Hey, Ted. Good morning. How are you?
Ted Pick, Chairman and CEO
Good.
Brennan Hawken, Analyst
I would like to follow up on that last discussion and talk about loan growth. It seems that loan growth trends were better than many expected last year. Given the anticipation for capital markets to reopen and improving risk appetites, we should continue to see that momentum building. Could you share more details about what you’re observing in the loan sector? You previously addressed it at a high level, but I would appreciate deeper insights into your recent observations. Also, where do you stand in terms of capabilities? Do you need to continue expanding in that area, or do you feel fully equipped from a competitive standpoint?
Sharon Yeshaya, CFO
Thanks, Brennan. I'll take that. As I mentioned earlier, since interest rates began to rise, we observed a decrease in the use of the SBL product, along with an increase in paydowns. However, this quarter, we've noticed that the pace of paydowns has slowed and there has been an increase in the use of the lines. It's important to understand that this product is typically utilized by our clients during rising markets. I wouldn't be surprised if we also see some effects related to taxes as we move into the latter part of the quarter. Regarding our capabilities, I believe we have what we need, though there are still areas we can explore from a tailored perspective. We can also consider moving certain assets from the ISG side to the bank. This addresses a different aspect of the question regarding our legal entity. Overall, we are very satisfied with our wealth management position and anticipate that the changing environment will drive an increase in loan growth as we progress.
Ted Pick, Chairman and CEO
And I think integrated firm matters here because there is the ability for us now in our risk committee sessions to look at tailored lending as a form of sophisticated structured product that has some institutional qualities to it. So it's not so much the classic bifurcation of division-by-division, but more of a firm lens across what the commitments are at a time when we should see acceleration in both of the major sides of the house.
Brennan Hawken, Analyst
It's interesting to consider how we're using the balance sheet. I appreciate that. I'm glad to ask this next question given our focus on cash over the past year, and I won’t have to worry about upsetting Sharon with my inquiry. It seems we're likely to see a shift in cash trends, with some stability and even slight growth in the sweep. Reflecting on previous easing cycles, how long does it typically take before we observe a transition from yield-oriented cash equivalents like CDs and money market funds, which have lower margins, to higher-margin market-oriented products? What’s the best way to think about that timeline? Thanks.
Sharon Yeshaya, CFO
Brennan, it might be the first time in two years that I'm excited to answer a sweeps question. I am really encouraged by the signs that we see on the underlying sweep dynamic. It often actually plays to the fact that there is a lot that our clients can do and a lot that our clients are interested in right now. You see that in the transactional level of activity and all of the underlying trends as it relates to sweeps are actually playing out in that increase in transactional. So if I can just break it down, what we see, right, we look at sweeps and we look at the underlying sweeps in multiple different layers. So how do you think about where the sweeps are going to products that are under one year? How do you look at sweeps in terms of products over one year in terms of fixed income and how do you look at sweeps going in and out of market? What you saw this particular quarter, which I found to be quite encouraging and fascinating in terms of the sentiment of the retail investor actually changing is that we saw a really strong increase of the flows moving from sweeps into market. So it's not as though they aren't using that cash to invest. They're just using that cash to look at it more transactionally to go into market and asset level products. That's point number one. Point number two is, you begin to see the fixed income products that were over one year mature and just sit there. So it's as though when you think about what is the retail client doing, they're waiting, they're getting those assets, they're letting it mature and it's just sitting in some sort of sweep product until they want to deploy those assets into the market. The final point is, you're just seeing less activity go into various types of cash alternatives. And in my mind, that just means that this cash, now that rates have come down, and markets are going up, it feels to be somewhat more normalized. It's acting transactional, which is what we had always assumed there would be some level of transactional cash. And to your point, as that rate differential goes down and it's no longer, you can earn 5% from a cash product. There are places and decisions of what individuals want to do with that cash, they're letting it sit and they're using it to eventually invest in markets. And what you're seeing is that, that is actually taking place in the transactional line item.
Operator, Operator
We'll take our next question from Mike Mayo with Wells Fargo.
Ted Pick, Chairman and CEO
Good morning, Mike.
Mike Mayo, Analyst
Hi. Well, Ted, last quarter you were pretty built up on the markets and some of that's playing out. But to how much are your backlogs up? Is our backlog a record? I'm not hearing record backlogs anymore here, up, but not record. I'm just wondering, how much you can monetize the backlogs that were in place in some cases, I guess, one, two, or three years ago?
Ted Pick, Chairman and CEO
Depending on the measurement—whether it's by volume, number of units, or added value—our pipelines in the M&A sector are the highest they've been in seven years, which is quite encouraging. However, the initial few months of the new administration will influence how this plays out, particularly on a cross-border level. The pent-up demand we’re witnessing is starting to surface. We've seen some announcements towards the end of the year and significant capital raises that filled large capacities for notable companies in a very short time. This trend hasn’t been seen since 2020, which had a very different interest rate environment. There is evident interest in IPO possibilities, not just as an alternative to selling to other sponsors or corporates, but as a viable option. I remain optimistic about this landscape. It has taken some time, and there may be unpredictability concerning regulations across different jurisdictions. Nevertheless, many corporates are looking to expand and refine their businesses in response to deglobalization, climate issues, and transitions in interest rates. Additionally, sponsors are eager to capitalize on these assets given current pricing, which seems to be aligning with reality. Within investment banking, specifically M&A, ECM, and DCM sectors, we’ve seen shifts in activity over the past few quarters. For example, a few quarters ago, ECM was strong, while the most recent quarter favored DCM, which is a healthy sign. It indicates that the treasury and CFO teams of large corporate clients are considering all options. This is an activity-driven business, and I anticipate that if we have stable markets, predictable interest rates, and a reasonable geopolitical climate, we will see more activity as we progress through 2025.
Mike Mayo, Analyst
So, you said the best backlog in seven years was that for mergers or all investment bank?
Ted Pick, Chairman and CEO
Largely the M&A number, Mike. Globally.
Mike Mayo, Analyst
Okay. So that's a lagging driver to the overall capital markets theme. When you think of a multiplier...
Ted Pick, Chairman and CEO
Yes, Mike, you're right. That's the final component. There have been times when it's been a bit frustrating, as discussions happen at a preliminary board approval stage, and then there is some unpredictability which leads to delays. However, the ideas that are close to being announced are increasing, and this might not necessarily lead to a merger; it could result in a company being spun off and taken public instead. We are growing more confident that if the market and the economy remain stable, then we can expect a surge in corporate finance activities, reminiscent of the mid-90s.
Sharon Yeshaya, CFO
Operator, can you hear us? We can move on to the next question.
Operator, Operator
We'll take our next question from Steven Chubak with Wolfe Research.
Ted Pick, Chairman and CEO
Good morning, Steven. Thanks, and good morning.
Steven Chubak, Analyst
Good morning, Ted. Good morning, Sharon. I wanted to inquire about the 30% wealth management margin target. To provide some context, you're currently operating at 29% on a core basis. Sharon, you mentioned several challenges for the upcoming year, such as changes in net interest income, asset under management growth, and capital markets fee fluctuations. I'm curious about what might prevent you from reaching that goal this year. Additionally, why isn't the long-term target set higher than 30%, considering the significant operating leverage in this model when it scales?
Sharon Yeshaya, CFO
So, I'll address that, Steve. When I compare this call to one from a year ago, it's clear that there have been significant changes in the rate environment and importantly, in asset management fee revenues. This has heavily influenced the fee-based increases, AUM growth, and subsequent revenues. However, we must not forget that we are making important investments in this business. Over the past five years, we've consistently aimed for a 30% margin, but we don't want to compromise on the business's growth. We strive for a sustainable approach to achieve this, ensuring we invest wisely in areas that may initially dilute margins, such as workplace initiatives, various marketing strategies, and enhancements in the sales cycle focusing on self-directed services. We're allocating funds to improve the top of the funnel and to invest in technology that bridges connections between top-of-funnel leads and advisor-led channels. Everything is progressing well. The last thing we want to do is set a target, encounter sudden market downturns or unexpected shocks, fail to meet those goals, and subsequently cut back on investments. That's not our strategy. As Ted mentioned in his prepared remarks, the theme throughout is durability. We're aiming for stable margins, sustained growth, and consistent returns. All these factors play a role in how we approach investments in the business over time.
Ted Pick, Chairman and CEO
I want to highlight the exceptional performance, particularly with revenues increasing by 8% year-over-year and PBT rising by 19%. This level of progress against larger figures is something we are eager to see as it contributes significantly to the overall success of the firm.
Steven Chubak, Analyst
No. That's great to hear. Just one quick follow-up, Sharon. You referenced the recently announced partnership with Carta. And I was hoping to double-click into some of the tangible financial benefits from leveraging that partnership. Just given the number of planned participants, it's been pretty stagnant over the last few quarters, but certainly feels as though this could be a potential accelerant, maybe help reinvigorate growth within that channel.
Sharon Yeshaya, CFO
Let me start by addressing the second part of your question first, as there are several factors to consider regarding the participants. We've discussed and observed a transition from some of the stock sale plans we have sold and announced in Europe and Asia, which are linked to the actual participants. It’s important to recognize that there are other underlying factors at play. Additionally, we’ve not experienced a cycle, particularly over the last two years, with many monetization events. This has led to changes in workforce dynamics for many companies, including headcount reductions and acquisitions that may affect the number of stock plan participants. However, I don’t want you to interpret that as a lack of investment or growth. We continue to meet our mandates and expand our corporate relationships, which is crucial as we discuss our investing efforts. We are actively investing and seeing progress, particularly in the number of corporate clients we serve in the United States. Regarding Carta, I appreciate you bringing it up. This partnership is particularly exciting as the capital market cycle evolves. As you may know, Carta focuses on servicing private companies, and the exclusive partnership we announced last year means that they will refer various stock plans and corporate clients to Morgan Stanley as they prepare to go public. This presents numerous opportunities, not only in wealth management but also, as Ted mentioned, in fostering integrated firm relationships. There are many avenues to strengthen these relationships as these companies transition. We are dedicated to ensuring a seamless experience for our clients throughout this transition. We already work with some private companies, and as they go public, they will benefit from a smooth experience, both through Carta's referrals and our existing services.
Operator, Operator
We'll move to our next question from Christian Bolu with Autonomous.
Ted Pick, Chairman and CEO
Good morning, Christian.
Christian Bolu, Analyst
Good morning, Ted and Sharon. Maybe on Wealth Management organic growth, first of all. So if I look at flows over the last three years, total flows have been somewhat short of that sort of $1 trillion target and have been at the lower end of your 5% to 7% organic growth target. So maybe just talk through how you think about the ability to accelerate organic growth going forward and then maybe confidence level in that $1 trillion target?
Sharon Yeshaya, CFO
I want to highlight that given the challenging environment we've faced over the past two years, our results are quite impressive. When compared to our peers, we are among the best in our class, particularly in terms of asset aggregation. A significant portion of this success comes from the new assets acquired in the advisor-led channel, as I mentioned earlier. We've acknowledged that certain cyclical headwinds, such as reduced spending and fewer monetization events from workplace corporates, are beginning to ease. In the self-directed channel, we haven't seen as much incoming capital, and from the workplace, there has been a lack of monetization events, meaning companies aren't going public as frequently. However, we are starting to see improvements in these areas. The results we achieved largely stemmed from the advisor-led channel, attracting both new and existing clients, with new clients being particularly vital. I believe there is tremendous opportunity in the 5% to 7% growth range moving forward.
Ted Pick, Chairman and CEO
What I would add to that, Christian, is a broad and detailed perspective. Looking at Slide 9 regarding fee-based flows, that represents the core of our strategy. We've discussed this consistently each quarter, with Jed Finn leading efforts in this area. The figures are encouraging; we had $109 billion two years ago, and we're projecting $123 billion for 2024. This trend in fee-based flows is significant. We're also witnessing increased activity in our self-directed products, especially from clients who are transitioning to financial advisors, which may lead to lasting relationships. On a broader note, it's important to recall that a year ago, our combined assets in wealth and investment management were $6.6 trillion. We have set a goal of reaching $10 trillion, and within a year, we've grown to $7.9 trillion—an increase of $1.3 trillion. While favorable market conditions have contributed to rising asset prices, this growth demonstrates our commitment to this target. Our focus remains on achieving the assets that flow through our channels. We're monitoring key performance indicators—specifically, whether we're expanding our total addressable market of relationships through financial advising, workplace channels, and self-directed options, and we find that we are. We're seeing substantial net new assets, with $250 billion per year being a noteworthy figure. Ultimately, I prioritize the composition of our funnel and the significant growth of assets over exact figures of $700 billion or $800 billion within any three-year span. The goal is to broaden our client base, which has now exceeded 19 million, and convert a portion of that into financial advisory fee-based flows. That’s the framework we’re considering, Christian, as we look at our integrated firm strategy.
Christian Bolu, Analyst
Okay. Very fair. Thanks for the full answer. Maybe another quick one here on just comp leverage, very strong expense, especially in ISG comp. And I'm sorry if I missed this in the prepared remarks, but is the 2024 full year ISG comp ratio of 31% kind of a good place to run going forward, obviously, as you mean, revenue continues to grow?
Sharon Yeshaya, CFO
Yeah. Obviously, Christian, as you can tell, we look at comp on a full year basis and you did have the outperformance as it relates to the revenue in the fourth quarter on a relative basis. And so you do see changes within that comp. We don't give full year guidance specifically on one expense line. We manage the company holistically. When we think about our expenses, we're looking at our overall efficiency of the firm. And what I would pay attention to is on the last page of the targets, the 70% efficiency ratio goal that we've stated over the long-term.
Ted Pick, Chairman and CEO
I want to emphasize that we operate a talent-driven business where we reward performance, which benefits our partners in two main ways. One is through long-term compensation, making tenure important, and the other is total returns from stock ownership, which is a vital component of partner compensation. This is our approach. In strong years, we see some operating leverage in compensation that translates into improved bottom-line results. However, in tougher years, the compensation ratio tends to increase. In the second half of 2023, we undertook challenging efforts to enhance our efficiency, which, when executed properly, not only improves our income statement but also boosts the productivity of our bankers, traders, salespeople, and risk management teams over the following two to three years. Overall, we believe we have positioned ourselves well.
Operator, Operator
Thank you. We'll move to Devin Ryan with Citizens JMP.
Ted Pick, Chairman and CEO
Hey, Devin.
Devin Ryan, Analyst
Thanks so much. Hey, Ted. Hey, Sharon. I just have one on Investment Management. Slide 12, you lay out, your parametric has been a great success story in the alternatives bucket. In investment management, overall, it's still less than 10% of firmwide revenue. And I know the Alts bucket specifically is an area of focus, but I'm curious areas like private equity, private credit, there is a lot of secular growth there. I know you have ambitions to grow private credit, but how do you think about that becoming a larger strategic piece of Morgan Stanley? And what's the appetite there to maybe do acquisitions to step function or accelerate that?
Sharon Yeshaya, CFO
When considering investment management broadly, it's important to focus on our goal to create a diversified platform, which we have successfully achieved through acquisitions. The acquisition of Eaton Vance has been pivotal, particularly regarding Parametric and many of our fixed income products. We are beginning to see significant synergies across our wealth management business, MSIM, and all the initiatives we outlined initially. We have indicated that there is still work to be done with Parametric, especially on the retail side, and we are noticing increased engagement from our financial advisors, retail clients, and asset managers who are utilizing the Parametric product. Additionally, we have plans to expand into fixed-income and international distribution, as evidenced by this quarter's results, where much of the inflow can be attributed to international distribution. The synergies are already yielding positive outcomes, and there is more potential in uniting our two franchises. As we continue to invest in various areas of private credit, private equity, and infrastructure, we will participate in those long-term growth trends moving forward.
Operator, Operator
We'll move to our next question from Dan Fannon with Jefferies.
Ted Pick, Chairman and CEO
Good morning, Dan.
Daniel Fannon, Analyst
Thanks. Good morning. One more question just on wealth. Can you talk about advisor retention, kind of recruitment, and backlogs here? And then you used to talk about the companion accounts within wealth and workplace. So curious if there is any update on where that sits and some of the progress you're seeing within that initiative.
Sharon Yeshaya, CFO
Yeah, I'll take that. So in terms of the workplace in general and how we're beginning to see the transitions in the companion accounts. What I would focus you on is companion accounts were something that we were looking at the beginning of time when we had put together the E*TRADE and the Morgan Stanley platforms, that integration is largely complete. What we're more focused now is actually better understanding the channel migration. And those are the numbers and statistics that we've been giving over the last couple of calls more specifically. So what I mean by channel migration is, we have workplace assets that began at some point in workplace and we're seeing them move into the advisor-led concept. Over the last five years or so, since 2020, we've seen $300 billion coming and initiating at some point from the workplace and moving into that advisor-led channel, that has been a big part of the move towards first transactional and then that movement from transactional flows into fee-based. So those are more of the metrics that I'd point you to on the forward when we think about being able to mark ourselves to market from a funnel perspective.
Operator, Operator
We'll take our last question from Gerard Cassidy with RBC.
Ted Pick, Chairman and CEO
Good morning, Gerard.
Gerard Cassidy, Analyst
Thank you. Hi, Ted. Can you share with us, many investors share your optimism about Morgan Stanley's outlook in the business? Aside from the obvious global geopolitical risks, what other risks or challenges are you monitoring this year? Things look very promising for you and others, but what are some of the risks you discuss regularly?
Sharon Yeshaya, CFO
We are continuously conducting various stress tests to assess the risks, including geopolitical and macroeconomic factors, as well as counterparty risks. This has been a significant focus for us, especially regarding the dynamics of our balance sheet and capital metrics, ensuring we can consistently adapt. Reflecting on past situations we've discussed and the risks we've encountered, we are always evaluating potential threats. It is challenging to pinpoint specific match risks we've未 solved, as new challenges continuously arise, such as the unforeseen global pandemic. The current political climate also introduces uncertainties, particularly with upcoming elections, whose outcomes are unpredictable. We examine these risks closely, consider how to manage them effectively, and assess our ability to respond quickly. Additionally, we analyze scenarios related to fluctuations in interest rates and explore our geographical exposures to enhance our understanding of the evolving landscape ahead.
Ted Pick, Chairman and CEO
What I would add to that is that most of the risks we've been assessing during this time relate to the implications or realities of a change in interest rate regimes. The era of zero interest rates and zero inflation is over, and we are now more concerned about inflation. If there is a downside risk, it may resemble stagflation, which we are actively considering, and there may be times when conditions feel cooler again. This is reflected in global interest rate policies. The first category of risks involves the end of financial repression. The second category relates to the geopolitical uncertainties and tensions that have accumulated in recent years and are likely to persist. This is crucial for us as we operate a global business, where some regions may present re-equitization opportunities while others may harbor significant risks that we need to navigate. Those two categories encompass our major concerns. This is why it was so important for us to end the quarter with consistent performance across both top and bottom lines, even though we cannot guarantee this will be true in every market environment. Reflecting on the past year, it was like experiencing multiple years in one, and the fact that our enterprise was able to maintain consistency in our performance is a positive indicator for a future where, all else being equal, opportunities should expand.
Operator, Operator
There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you everyone for participating. You may now disconnect and have a great day.