Morgan Stanley (MS) Earnings Call Transcript & Summary

I'm very pleased to have Morgan Stanley up next. Dan Simkowitz, Co-President, is with us before we begin. This discussion may include forward-looking statements, which reflect Morgan Stanley's management's current estimates and subject to risks and uncertainties that may cause actual results to differ materially. Morgan Stanley does not undertake to update the forward-looking statements in this discussion, which is copyrighted by Morgan Stanley and may not be duplicated, reproduced without their consent, is not an offer to buy any security.

Great. Thanks, Jason.

Dan, welcome back. You've been at Morgan Stanley, what I think, 35 years now, Co-Head of Strategy with Ted Pick, were in Capital Markets, led investment management. I think investment management, you doubled assets organically, added Eaton Vance, made it triple. Now Co-President of Morgan Stanley, along with Andy Saperstein. You head Institutional Securities where you just kind of spent the first 25 years of your career. So pleased to have you back. Since we had you here last year, your role has changed, the firm changed and maybe kind of discuss how the firm has evolved over the past 9 months or so under Ted Pick as a new CEO and obviously, other management changes underneath him.

Sure. Well, thanks, Jason, for inviting me back. It's -- but I would say, as you said, I've been at Morgan Stanley 34 years, 35 next year. I would say, I'm as excited about the growth prospects and the competitive positioning of any time in that period. I think back to your question, it's a function of both what we've built over the last decade around capabilities and client access, but also the growth from here and then just translating that into client value across all of our segments. I would say, I'm biased, obviously, but the CEO transition has been incredibly successful, 19% ROTCE in the first half. And yet, I don't think we are way below trend line in that first half on M&A and IPOs. So I think the franchise is really, really strong. And I would say, the transition also gets a lot of credit for being low drama, which I think has helped. I would say, part of that success is because although we've had a CEO transition, we have not had a change effectively in leadership, strategy and culture, and Ted hosted a town hall for the entire firm this morning. And what that has meant is we really are set up for growth. And I think both James and Ted deserve a lot of credit for being very intentional around those outcomes on strategy, culture and leadership. I think James famously talks about his first meeting when he became CEO, talked about succession, but the actions were really also very important. So Andy, Ted and I have attended every single Board meeting for the last 8 years. So the Board, if it's been in nonexecutive session, we've been at every single session. So what I think that has meant is their real -- the leadership team is fully bought into the strategy and then the leadership team we have now for the next part of our journey is really cohesive. And if I dare admit, it's sort of fun as a team. But no doubt, strategic clarity has been critical, and you and I have talked about this. We think it's pretty straightforward and powerful. We just help clients allocate capital and get market access. And we do that with corporations, asset managers and asset owners and individuals. And as James talked about, I think 2 sort of strategy sessions ago and certainly, we've experienced it, it wasn't always that way, right? We had Discover card, we have prop trading. It's all about clients, it's all about markets, it's all around advice and that is the global mission, right? And we're not going to deviate from that. And where we stand today, when we think about it is if you look at where we operate, in the areas where we generate revenue, we are the #1 firm, tied for #1 firm in that marketplace. So we have both scale and focus. So in the world we live in, giving financial advice we're tied for #1. The other firm does a lot of other things. So they're huge diversified financial services firm. But importantly, all of our management team, all of our brands, all of our resources just focused on the financial advice market. And increasingly, what we're doing is that the entire firm is integrating that sort of delivery into those client segments, which is exciting. And Ted, Andy and I are super focused on bringing that whole firm, and we can do so because the strategy is really, really tight.

One of the things that we do preparing for this conference each summer, as we [indiscernible] the summer, we kind of reread each annual letter from the CEOs. I think I counted 12x and Ted used a term, integrated firm, maybe kind of expand upon more what that is, what makes it unique or differentiated and kind of here let's kind of talk about something similar. So maybe what makes it successful at Morgan Stanley?

Yes, I'll give you some philosophy, and then I'm going to give you real examples. I would say, at the leadership level, we are laser-focused on this. And I think we can -- as I said, we can have that type of focus because what we're doing in every part of the business is so linked and pretty much the same. Again, whether that advice is helping a corporation allocate capital or an asset manager allocate capital or an asset owner, and by the way, wealth management platforms, including our own, are just one large asset owner, I think that is part of the philosophy. What we're also hearing from clients, though, is that if we connect some of those client segments and some of that advice parameters, we get -- we drive even more clients value and increase, I guess, the competitive advantage that we have. So 2 places where, I would say, are really scaled and big focus areas. The first one is the workplace. So the workplace has been the primary driver in taking our U.S. wealth management household count from 2.5 million to 19 million households. And that access point that we have is really unique. Again, the only other firm that has scaled access into the workplace does not have, one, financial advisers and, two, they don't have corporate CEO advisory relationships. So if you think about the workplace as being the funnel to all those households, it's at a corporation. These are corporations that our investment banking division has relationships with. It's either companies that have been around for decades where we have the relationship or companies that are about to go public. And that funnel and that access point to wealth management is critically important. So if you combine our wealth management capabilities in delivering financial wellness into an employee base or ultimately to the end consumer as well as our relationship capabilities in the investment bank, we're now not just a capital advisor, a risk management advisor, an M&A advisor, but we're also a talent advisor to all these corporates. And that puts us in a very special spot where, in essence, our corporate relationships, our Corporate segment and our Wealth Management segment are really aligned around a very big theme. This is the theme. I'll get back to it, I'm sure, in one of the other questions, as we talk about it. The second one is, there are very few firms that are really global in our markets and our securities business. So we are really global in our markets business. We're multi-asset class. We do public and private markets. If you combine that with being the largest wealth manager in the world and you combine it with the experience, thank you for the note earlier, of tripling asset management, then our ability to partner with an asset manager is pretty unrivaled. And so in that context, we can help them do product development. So we know how to do product development in U.S. wealth, clearly. But we also have relationships with every sovereign wealth fund, both as an ISG partner around alpha, but also as an asset management partner. We are a distribution partner through Prime Brokerage, through Morgan Stanley Wealth Management. And then obviously, we're an alpha partner, whether that's in research. But increasingly, as we move private credit goes up, private equity business, is increasingly important. It's around deal flow, deal flow in PE, deal flow in private credit, deal flow in structured finance, strategic ideas. Do you want -- if you're a public asset manager, do you want to go into private credit, well, we sort of live that, and we have relationships with every private credit manager. So that ability to holistically partner all the way from the analysts in the room, the portfolio manager, but all the way to the CEO of an asset manager is a really unique element and to be able to do it on a global basis. So across our entire business, I would say, the focus has increased around not necessarily business lines or products, client segments. How can we bring the -- Morgan Stanley right now is the premier and leading financial advice firm in the world. I mean, as I said, we're tied with #1, but we're the only one at that size who only does that. If we can bring those capabilities against those client segments, in a more integrated way, we're already seeing there's real value in that proposition.

Got it. I'll maybe put up the first ARS question. Don't worry, Dan, I can ask you respond to this for all the companies. But maybe sort of big picture, a lot going on in markets, rate moves, geopolitical, U.S. elections. You're obviously out talking to clients on the corporate and investing side all day long. Before we dig in, perhaps you could tell us what they're thinking and feeling at the moment?

Yes. I think there's cautious optimism around our client set. I think we've had to deal with and are dealing with elections in the U.K., the elections in France, obviously, a really important election in the United States. We've got political moves over the last week in Germany. We have new Prime Minister coming in Japan. Yet we continue to hear the feedback that it's the economy, right? It's the debate today of soft landing versus hard landing and how does the Fed both react and be a function of that. And clearly, the debate was there was some no landing debate or reinflation debate earlier in the summer, our data indicated that was just the wrong debate. And so I think there is an element of, we are about to hit a cycle of interest rate cuts. So there's cautious optimism. I would say, we certainly, obviously, had a bout of extreme volatility, a pretty sharp but short-lived drawdown in the market. It feels like the bulk of that pain was felt outside the U.S. in wealth management platforms because what we're seeing with our client base, whether it's wealth management clients, asset managers, again, we're talking to a room of asset managers about asset managers, but asset managers, hedge funds, long short, macro quant is that they are all pretty healthy coming out of that belt and that the bias is to try to figure out how to generate returns and alpha into the end of the year and not just protect it. And so in that context, it's an okay market after a pretty volatile and somewhat challenging August.

Against that backdrop, maybe we can kind of run through each of the main businesses, talking about maybe key drivers and how things are playing out and the impact of the current backdrop? Start with Institutional Securities Group, given that's your current focus, maybe begin with investment banking specifically? In April, Sharon talked about the backlog continuing to improve with an advisory underwriting pipeline, healthy across regions and sectors, and that we're in the kind of the early innings of an investment banking rebound. I understand a lot has transpired then, as you just talked about. Maybe just talk to kind of current pipelines and thoughts on realization of those pipelines?

Well, I would say, a year ago, you asked me the question, I said we were predicting. We saw green shoots and we were predicting a rebound. And so just on the facts in the first half, our investment banking revenue is already up 30%. ECM is up 80%. The pipeline that Sharon mentioned and I'll comment right now, are accelerating. So I think our conviction and commentary that we're in the early stages of a multiyear capital markets recovery is very much intact and, to a degree, in line with what we were predicting a year ago. You had different parts of the market moving at different elements. Yet the M&A and the IPO markets are still well below trend line. And that's not going to change in the third quarter. And so our pipelines are changing, but the revenue prospects are not fully there yet. But our conviction is higher than it was a year ago when I was here, a little guessing and you were pushing me a little bit. Our conviction that in the case of those 2 categories, IPO market, M&A market, ramping up in '25 and '26, I would say, that's still really high. I would say, we are starting to see examples of corporate activities in M&A and so last week, there was a big corporate transaction in the TMT sector. We underwrote a $10 billion bridge loan by ourselves. So that's encouraging. As an example, we are seeing private equity willing to buy. So one of our clients big private equity firm did their largest PE deal ever in Asia out of Australia, it was in the data center sector. And so they're willing to put up immense amount of equity against a [thematic] where I think it's still slower than we had expected, but our conviction around it happening is still strong, is PE be willing to monetize, whether it's an M&A form or an IPO form, I think they have structural ability to play optionality, and that optionality is they can wait. And I think as the summer began, they felt like they could wait and see what happened on rate cuts and they can try to get a better price. I think as rate cuts happen and as LP pressure around return of capital and the portfolio starts to build, our view is the monetization of private equity portfolios into '25 and '26 will happen. And on the other side of that, on the buy side of that trade, we do have a lot of private equity capital and in fact, we had some reasonably good IPO and equity market execution. It's just we don't have a wave, we just have a couple of examples. So I'll just give you one example because it also ties around integrated firm. I think the largest IPO in the last year or 2 has been a deal we did in July for Lineage Logistics, almost $5 billion IPO. And the book was great. The aftermarket has been strong. And what's great for us is we had raised capital for them well before going public. Amason is an investor and the leadership are big wealth management clients. So we brought the whole firm together and that data point, I think, is encouraging a higher level of dialogue around IPO filings. And then the last one is, companies have to continue to risk manage around the world. I mean, there has been talk over the last year or 2 around deglobalization, but I would argue, every asset manager and every multinational has to be thinking about this and risk managing, one of our clients is Walmart. And so they are doing really well with their stores in China, but they also through M&A owned 10% of a Chinese Internet company. And so third week of August, not your typical, slow August, we, I think, traded almost $4 billion sold of Walmart out of the Chinese internet company, which is a function of market strength after early August volatility, but also as an indication that we've got the leading Asian equity franchise, we were able to monetize that back into our corporate sector. So again, I think the M&A business, the IPO business still is well below trend line, but that will continue probably for the rest of the year in terms of revenue. But I think in terms of activity based on the pipeline, '25 and '26 feel pretty good.

Okay, got it. I have to have you back next year to follow up on that. All right. And maybe shifting gears to markets, $3 billion in equities, $2 billion in FIC in the second quarter. You saw strength across the businesses and regions with client activity, fairly active. Maybe discuss the current backdrop and kind of what you're doing to sustain reasonable momentum, where can Morgan Stanley grow share, whether it's pocket clients, geographies, regions?

Yes. Again, I think at the overall ISG level, and I'll just come back to investment banking in a second, in the context of our brand and operating as an integrated firm and a view that we are entering into this multiyear cycle, I think Ted started and I'm continuing an investment into our investment banking franchise. So that's both senior talent and lending, and you're starting to see some of that share pick up and in a place where that share has been most obvious because that scale has been in the debt markets and in debt underwriting as an example. And so I think that's something we'll continue. In the markets business, I would say, the focus, and you called it markets, right, because we don't like calling it trading. We like calling it markets because I think the proportion of revenue around financing and solutions just keeps going up throughout. And what I would say is on the markets business just in the moment is -- and I mentioned August as a volatile month, it's holding up. But I would say, more importantly, because either you've asked this or your peers have asked this from time to time, when we think longer term, we don't think the markets business. Fixed income and equities is at either a secular peak, a cyclical peak or a Morgan Stanley market share peak. And I think just going piece by piece, I'll go really quick, backs up that view. And when you combine that with a view on investment banking cycle recovery, it's why we feel pretty good about the long -- certainly in the next couple of years in ISG. Number one, government debt is not -- is a growth business. I hate to say it. It is a growth business. As you look around the world, defense spending outside the United States is going up. Energy transition spending is going up and there are a couple of economies where stimulus is going to get required. The government debt, i.e., macro is not a declining business. I think secondly, despite the U.S. being pretty mature in the equity market, being in a remarkable capital market, the efficiency, I travel around the world, it's just an incredible capital market, but it's relatively mature. But we have equitization going on in Japan, in the Middle East, in India, in Brazil. And if you think about our franchise, our global franchise in equities, we are active in all those markets. So if you're an asset manager of all shapes and sizes and forms and you want to partner with a global firm in those equitization trends or even in Greater China, people still need to risk manage, they still need to get access, they still want to take advantage of market idiosyncratic elements, we're the -- as I said earlier, we and a few others are the leaders in Asian equities. And there's still equitization in countries like Germany still, probably multiyears, but still in front of us. So despite the U.S. being relatively mature and the equity market not really growing, buybacks outweighing IPOs, the rest of the world where, frankly, the margin and the value add that we bring is higher. The other one that I've talked a [indiscernible] about and different firms have different perspectives on this is -- and I haven't read all the bar commentary and you'll ask me about it later. But generally speaking, the regulatory environment for banks lending money for the last few years and probably for the next years is not great. And in that context, as Ted has mentioned, in the world where financial repression is over and rates might be higher for longer, and you get paid better to be a lender and banks aren't lending, then asset managers are going to fill the gap. And asset managers are filling the gap not just because the borrowers need them. We're seeing pension funds, sovereign wealth funds, wealth management clients all around the world starting to look at credit for the first time. I mean, the endowment model did not have credit. Some of our biggest pension funds didn't have credit. A whole number of sovereign wealth funds just did equity, private equity, real estate and treasuries, they didn't do credit. Now that credit demand is increasing. It's going to go through asset managers and asset managers are really good for Morgan Stanley. I mean, I said it before, but I'll just give you the simple example, when -- and we love commercial banks in the United States. But if a commercial bank, and you had one just earlier, but they threw us down maybe. If you think about a commercial bank, we would do a bond deal for them in June or in January when the year starts, we'd probably do a bond deal for them in July. That will help them with their lending. Every 10 years or something great or really bad happens, we would raise equity for them. And that is it -- and we would do M&A. I would say, if you're a big asset manager and you're either doing CLOs or you got a high-yield franchise or you have a private credit franchise, in particular, you're talking to Morgan Stanley every hour. And we're helping them raise the money, we're going to help them find the assets, we're going to help them finance the assets, and they're not generic. They've got to customize all the way through the risk and reward structure, so they need us to structure the asset. So credit going to asset manager is a big secular trend that is good for Morgan Stanley. And then the last one, I would say, on the markets business is corporations and private equity in particular. I would say, the big asset managers have had to live risk as a core competency their entire life. But if you're a corporation or even a private equity firm, you're all focused on just your business or that alpha, you have to risk manage. And so whether it's -- and we've seen in the last few years, FX volatility, rate volatility. We have clients now in the private markets who will not do a deal without hedging in some form or fashion, both FX and rates. And I'll use -- the last one is on commodities. We are the #1 power trading firm in the United States. And it used to be utilities and chemical companies and all the people who would use power. Our largest clients in the power business now are very large tech companies. And in one of those cases, this gets back to integrated firm. We had a relationship with the CEO in wealth management and he's super focused on the power dynamics and powering AI and this is a Board issue for this company. And actually, we had just written a research report through the Plug for Research, Jason, we adjust right in a research report on powering AI at the beginning of the year. We connected that CEO with the research analyst who immediately connected them to the Head of Commodities. And now, through a wealth management connection, we're delivering not just investment banking, but commodities' power trading into the enterprise. And so again, we feel like there's all these elements around our markets business. And in a world where asset managers are putting an increased value on being global, increased value on being multi-asset, increased value on understanding both the public and private markets and wanting to do less, we think there's a share opportunity as well as sort of overall TAM, the TAM is not dead, that's one thing I want to leave with you.

That's an interesting perspective. As Co-President, you obviously work closely with Andy Saperstein of Wealth Management and you're former Business Investment Management, and client assets now over $7 trillion, which is obviously a big number. You're a leader in wealth management. Maybe just talk to kind of what trends you're seeing in Wealth Management business? Net new assets have been a bit lumpy, client engagement may be a little bit soft. And just how that's evolving? And just how does that inform your kind of 30% pretax margin up from kind of 27%, 28% in the second quarter?

I'm going to be bigger and longer on I think your question, just if you bear with me. So I had a really lucky seat the last few years as Head of Investment Management and then Co-Head of Strategy with Ted and that I got to talk to everybody, whether it's a securities firm, because Amason was a client, asset managers because it's so fragmented and active asset management, we all talk and commiserate and trade ideas. And then obviously, we were intensely focused on wealth management platforms all around the world. And then I had to incorporate that, Ted and I, into a strategic perspective. The growth opportunity at Morgan Stanley Wealth Management today, going forward, I would argue, is the #1 scaled growth opportunity in financial services. And it's just -- to a degree, it's just competitive positioning and just really big math, right? There's $60 trillion of investable assets in the United States. Over the next 8 to 10 years, it's going to be over $100 trillion. Within that, $1 million household is going to grow even more. It's going to double in the next 8 to 10 years. In that context, we have really unique client access through the workplace. So we've gone from 2.5 million households to 19 million households. So one of the challenge is how do you get to the client. We now have the ability more so than any other wealth management firm with the brand, and I'll get to the capability set to get to the client. And what's interesting is in that 2.5 million to 19 million households, we went from, I think, 5 years ago or 6 years ago, $2.5 trillion of assets held away among our clients to now $13 trillion of assets held away. And that household population is younger, and they have an immense amount of wealth accumulation in front of them because I think 15 years younger is the average client in the workplace versus our average advisory client. So in that context, we've got access that is really, really unique and then we've got capability set. And the capability set is around taxes, parametric which we're using really well, an incredible alternatives platform which not only gets the best asset managers coming into Morgan Stanley, but also the best structures to adapt to not even just wealth management. We're structuring things with our asset management partners that are segmented pieces of the Morgan Stanley Wealth Management infrastructure. And so in that context, there's really intense capability. And what I would argue is there's not $40 trillion of assets available, there's probably greater than $50 trillion. And we should have a -- we have 10% market share right now. We should be able to get greater than 10% share of that increment. And so in that context, it's a pretty powerful dynamic around the big picture in terms of that. And that is, I think, why you had a prediction around this, answer is why you want to be #1 because that is the big play as we go forward.

Very helpful. I guess within Wealth Management, one area I still get a lot of questions on is net interest income and sweep deposits. Maybe just kind of give us a related perspective on sweeps and Wealth Management NII?

Yes. I know you get these questions still. I mean, I think, again, in the context of my last question, we have the premier financial advice franchise, not just at the firm level but in wealth management, and deposits, they're a feature in that overall advice proposition. And I think, as Sharon has said, at the last quarter, we saw some clients moving in segments of that advisory platform their rate. We're not going to compete just on that, but we move some of the rate on those advisory accounts. We feel very comfortable that, that move in the context of the overall advisory proposition that we have with clients is in good shape. And so I think you heard that. We're going to keep saying it over and over again. It's part of the package, but we feel pretty comfortable with the rate move that we made, and it's reasonable, and it's defending our competitive position, we feel really confident about that. I would say, overall, with NII, as Sharon said, we had, I think, a modest decline in NII in the second quarter, and we still expect modest decline, comparable decline in the third quarter. Again, as I indicated, we're still early innings in this capital markets recovery. But we are seeing clients in the wealth channel start to take a little bit more duration and start to look for increased return, a little bit more equity risk, a little bit more credit risk. And so that has a deposit dynamic. I would say though, we're still in early innings. And again, there's an element of a natural sort of balance in our business, which is as we have rate cuts and as we have risk tolerance going up, then in '25, and we have IPOs and M&A, they don't just help the ISG line. In fact, they don't just help the investment banking line, the hedging in our markets business goes up, the trading in our markets goes up. But where it's really relevant to wealth is transactional revenue in the context of an M&A and IPO market increasing, which we are predicting in '25 really plays through. And then I think the second element you mentioned is we've had some great success just this year at the ultra high net worth and the family offices in NNA, but where you could have real NNA breadth and a wave is if you start to have an IPO market and companies start to get sold, big and small, for cash or for stock, the correlation around that capital markets recovery as well as some NNA in the future is pretty significant.

And then maybe rounding out the business line discussion, investment management, your [indiscernible], here you've highlighted areas of secular growth, customization, direct indexing, private alternatives, married with the global distribution platform. Where are you in fully capturing Eaton Vance revenue synergy opportunities and what did you see the biggest growth opportunities in the medium term?

Yes, I was going to answer it and I'm going to reverse the order I would answer. I would say Eaton Vance brought sort of durability to the business, which links back to some of the themes I mentioned. So the first theme is along with a private credit build, which I'll talk about in asset management, they brought just a significant larger proportion on the active side in fixed income. So now if you believe like thesis, that asset managers are a lot more important in the credit markets or in credit provisions, Eaton Vance Fixed income is very strong, and we've built a pretty sizable private credit business. So we were a little late in private credit. But 4 years ago, we were at $1 billion in private credit inside of Amsterdam, and now we're at $50 billion of private credit. So the sort of credit proportion of the business has gone up. But I would say, the 2 secular themes, one of which is Eaton Vance acquisition related and the other one is organic, are around direct indexing and customization and then private markets. On the customization side, the Parametric element of Eaton Vance, along with the fixed income fees, along with some other tax innovation that they had around portfolios has been a huge home run. I mean, this year-to-date alone, just in the wealth management part of Parametric because they have institutional business as well, the flows are plus $27 billion. So taxes and customization mattered to wealth management clients, whether they're at Morgan Stanley Wealth Management or all of the platforms and the premier platform in the country is Parametric. And so in that sense, really good growth and flows, and really good front-to-back partnership that's going on between wealth management and investment management under Andy's sort of combined guidance. And then the second one is private markets. In the alternatives business, combined with wealth management, we now have $0.5 trillion of alternatives, between the 2 organizations. So if you think about them now reporting up to Andy, there's $0.5 trillion of private markets. We think it's still a secular growth area. We think it grows especially in wealth management platforms, not just in the United States, but outside the United States. And so as we look at countries where we do really well, either in ISG or in long-only active management, Italy and Japan and, ultimately, Germany and other countries or even wealth management channels in some of the emerging markets, we're set up to go capture still a big wave around, I guess, the phrase, democratization of alternatives.

Got it. And maybe up to the next ARS question. But maybe just talk to expenses for a moment, year-to-date efficiency ratio of 72% and get targeted at or below 70%. 30% pretax margin kind of gets you halfway there in wealth management. Kind of what else needs to be done and kind of what are the investments needed?

Look, the integrated firm focus is not just at the client level, it's not just on the revenue side. As we've gotten on the other side of integration, then I think there's a real focus on trying to use the scale of the firm to drive some efficiencies. And so I think you saw some relative progress in our efficiency ratio in the first half. I think, again, we're trying to leverage technology wherever possible, both on the client side as well as on the productivity side. So you've read a lot about the wealth management platform and the use of automation and next-best action and now AI at the platform, but we're also investing in the technology to continue to be a leader in electronic trading, but at the firm level, the use of technology to create not just productivity or client value, but to make the place safer and more durable for growth in the context of what I talked about earlier is really important. Now we're going to have idiosyncratic events. For example, the SEC raised trading fees dramatically in the United States, and we had a really big volume month in August. So you're going to have spikes around things, but those are spikes around things we don't really control. Around things we control, where do we invest, how do we leverage technology, how do we make the place both more efficient, safer and higher value to our production layer, that production layer could be a financial advisor, it could be a trader, it could be a portfolio manager. It could even be an investment banker in the future around some elements of AI. There's still a focus on driving and taking advantage of operating leverage as the business grows on the revenue side.

Got it. Next ARS question. So I'm not going to ask you to comment on what [indiscernible] said because he said as we were on stage. But I think...

I didn't bring my phone. So the phone is out there.

Conceptually, it seems like market risk, operational risk, things that impact Morgan Stanley are going to get curtailed. So just against that backdrop, maybe just generally how you're thinking about capital allocation?

Does anyone else feel like Deja vu all over again? So Jason asked me the exact same question and my response will be largely the same as a year ago and James and Ted and Andy and I were all -- and Sharon all really are on this, which is, we didn't think the original proposal was good for the consumer, it wasn't good for the economy, wasn't good for U.S. banks. And we also felt like it was really going to change. I just didn't know that some of the change was going to show up a year later on the day that we're presenting again. Again, I think it's -- the changes are necessary. I don't know whether they're sufficient. I do know that we're still early and so I think in that context, we have to see. But we are -- we've run a pretty conservative capital framework. With our business mix, and stability in earnings, we are super committed to a really healthy dividend and increasing it. We have seen a real ability to invest capital into our client franchises and generate returns in the last year, well above our cost of capital. But we wanted to stay safe and buffered for even more client business but also whatever the vagaries of Basel III would be, and we still see that capital strength as a competitive strength as we move forward.

And then in our 30 seconds remaining you referenced Eaton Vance multiple times. Each rate obviously has been additive. So clearly, Morgan Stanley has benefited from inorganic growth. We're now few years [removed] from those acquisitions. Are there other areas you think you could be beneficial?

Yes, it's interesting. We did our town hall this morning, and both Andy and I talked about these just great successes, but again, those deals plus Solium and a little one, Mesa West and if you go far enough back, Smith Barney, they are all really tight within the strategic umbrella of Morgan Stanley. And so as I hope it's clear, we see so much growth in essence taking what we've built and bought, again, what Ted has done with an integrated investment bank, and then what we have acquired, we have all the tools to deliver a really intense client a over the next year. So M&A, although we're really good at it, and we're always looking, is just not front foot on it. Front foot is the workplace. Front foot is asset manager with capability. Front foot is investing and taking advantage of the investment banking revival. It's around the market things that I argue and the secular areas we are in investment management and doing it across client segments and connecting the firm under Ted's leadership. And so I think that is our primary focus versus a big deal, they were great and they were successful, but they were all very strategically oriented. They were not opportunistic in their strategic element. They may have been opportunistic at the moment, COVID and the 2 big ones, but they were so tight within the strategy. And right now, the tightness of the strategy is to go focus on client segments.

Great. With that, please join me in thanking Dan for his time today.