Morgan Stanley

Morgan Stanley's CET1 ratio is fine but the Basel III endgame rules, even in the watered-down form regulators are now discussing, will likely require them to hold more capital against their trading book and wealth management loans. More capital means lower ROE, and lower ROE means the premium multiple is harder to justify. People are acting like the regulatory overhang is fully priced in and I don't think it is.

Ted Pick's first full year as CEO has been pretty quiet from a strategic pivot standpoint, which is probably the right call after years of acquisitions to build out wealth management. The company needs to execute on what it already owns rather than make another big bet. He seems more operationally focused than James Gorman was in the later acquisition years.

It's interesting watching Morgan Stanley and BlackRock both chase the same wealthy individual investor with alternative investments — MS through their advisor network pushing private credit and real assets, BlackRock through their retail alt fund wrappers. The wealth management channel is becoming the main battleground for the whole alternatives industry and MS is well positioned as a distributor even if they're not always the manufacturer.

The shift toward fee-based wealth management revenue means Morgan Stanley's earnings are way less cyclical than the market is pricing in. Nearly half of revenues now come from relatively stable asset management and advisory fees versus transaction-based commissions a decade ago. When you compare that earnings quality to where the stock traded historically, there's still a re-rating story here.

Does anyone have a good read on how Morgan Stanley's institutional securities segment will perform if equity trading volumes stay muted? Equities trading was a big driver in past quarters but volatility has been compressed and it seems like that revenue is hard to forecast.

Morgan Stanley's wealth management segment just keeps printing money — they reported $6.6 trillion in client assets and the integration of E*TRADE and Eaton Vance is finally showing real synergy in fee-based flows. When the Fed starts cutting rates in earnest, the lending side of that wealth book is going to unlock a ton of deferred activity. This is the most durable earnings stream in the bulge bracket right now.

Investment banking fees are still way below peak and advisory revenue has not recovered the way the bulls keep promising. Deal activity is picking up but most of the announced M&A is sitting in backlog waiting on antitrust clearance that may or may not come. I'm not paying 15x forward earnings for a bank that relies on a deal market that's been broken for two years.

Morgan Stanley completed its acquisition of Shareworks by Morgan Stanley and has been rolling out equity compensation plan administration to corporate clients as a feeder into their broader wealth platform. The strategy is essentially to capture employees at the point of stock option vesting and convert them into full-service wealth clients. It's a similar playbook to what they did with E*TRADE's stock plan business.