摩根士丹利 (MS) 2021 Q1 法說會逐字稿

Good morning. I will be reading a statement on behalf of Morgan Stanley. Today's presentation will refer to Morgan Stanley's earnings release and financial supplement, copies of which are available at morganstanley.com.

Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Please refer to our notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release. This presentation may not be duplicated or reproduced without our consent.

I will now turn the call over to Chairman and Chief Executive Officer, James Gorman.

Hi, good morning, everyone, and thank you for joining us.

The first quarter of 2021 was a significant record for the firm and for many of our businesses. It was marked by some truly extraordinary highs, numerous performance records, the closing of the Eaton Vance deal, our second strategic transaction in the last year, and one very complex event relating to the collapse of the hedge fund, Archegos.

In summary, we generated record revenues of $15.7 billion and an ROTCE of 21.4%. The higher revenues reveal the operating leverage in our business, and the quarter's efficiency ratio was 66%.

Wealth Management generated revenues of approximately $6 billion. Net new assets were $105 billion, which is easily our best-ever quarterly flows and concrete evidence of the growth trajectory of this business. These flows represent an annualized increase of over 10% of beginning period assets. Pretax margin was 27.9%. This margin should only improve in future years and we expect it will exceed 30% as rates tick up. Daily trades reached a new record with heightened levels of retail client engagement. E*TRADE and particularly the strength of the self-directed channel has exceeded our expectations.

In addition, assets continue to migrate towards advice. Fee-based flows for the quarter were a record $37 billion. We're adding new clients at a record pace, creating more opportunities to consolidate wealth held away and provide advisory services. Our workplace business is adding corporate plans. And as a result, the number of participants we reached increased to 5.1 million.

Institutional Securities revenues of $8.6 billion were also a record as clients remain highly engaged. Fixed income had the strongest first quarter of the last decade and has consistently gained share in recent years. Investment Banking revenues reached a record driven by record equity underwriting. And our Equities division also had its best quarter in over a decade.

Turning to Investment Management. On March 1, we closed our acquisition of Eaton Vance, bringing together 2 high-performing asset managers. Our teams at both Eaton Vance and Morgan Stanley executed the close ahead of schedule while prioritizing client service. The momentum Eaton Vance and MSIM demonstrated between announcement and close only strengthened our conviction of this combination. Since we announced the transaction in the beginning of October, pro forma assets grew by nearly $200 billion and pro forma net flows grew approximately $100 billion. In the first quarter, pro forma net flows were $53 billion, representing an annualized organic growth rate of 16%.

Our industry-leading organic growth signals that clients are very supportive of the combination and increasingly recognize the highly differentiated value, offering solutions that we offer across the global platform. Investment Management now has assets under management of $1.4 trillion and is very well positioned in key secular growth segments.

Let me discuss the loss we incurred navigating the collapse of Archegos. First, we liquidated some very large single stock positions through a series of block sales culminating on Sunday night, March 28. That resulted in a net loss of $644 million, which represents the amount the client owed us under the transactions that failed to pay us. Subsequently, we made a management decision to completely de-risk the remaining smaller long and short positions which are not especially problematic that might have been. We decided we would be out of the risk as rapidly as possible and in so doing, incurred an incremental loss of $267 million. I regard that decision as necessary and money well spent. The results are all reflected in Q1. I'm very pleased with how the institution came together and responded to this very complex situation.

Let me close with an early readout from our acquisitions of E*TRADE and Eaton Vance. The performance of both businesses is significantly exceeding our expectations and as importantly, the integration so far is proceeding without major incident. These acquisitions, when combined with our existing Wealth and Investment Management businesses, drove our client assets to $5.7 trillion, of which, approximately $150 billion represented net new client assets to the fast firm this quarter. We are more than convinced than ever that both deals help position Morgan Stanley for growth in the years ahead.

I'll now turn it over to Jon to discuss the quarter in detail, and together, we'll take your questions.

Thank you, and good morning. The firm produced record revenues of $15.7 billion in the first quarter. Across businesses and regions, performance was incredibly strong as clients remained highly engaged and markets were constructive. Excluding integration-related expenses, our EPS was $2.22, our ROTCE was 21.4% and our efficiency ratio was 66%.

First, some housekeeping. To improve the transparency and comparability of our external financial reporting, we made several enhancements to our disclosures this quarter. You can find more details and 3 years restated data on Pages 12 and 13 of the supplement.

The more significant items are as follows: for the firm, the provision for credit losses for HFI loans and lending commitments is now presented as a separate line in the income statement versus being in other revenues and expenses; in Institutional Securities, Sales & Trading net revenue have been reclassified into equity and fixed income, which now includes certain investments and other revenues that are directly attributable to those businesses, and other revenues notably contained corporate loans and lending commitments and related hedges as well as the impact of deferred compensation plan; and in Investment Management, following the closing of the Eaton Vance transaction, we have simplified reporting by breaking revenues into 2 lines. Asset management has been renamed asset management and related fees, although the historical numbers remain the same, and we have combined the remaining revenue categories under a new line named performance-based income and other, notably carried interest.

We have also updated our AUM disclosures. Alternatives and other has been updated to alternatives and solutions to reflect the addition of most of the Parametric AUM, excluding Parametric's portfolio services for institutional investors that have been included in a new line called liquidity and overlay services.

Now to the businesses. The momentum in Institutional Securities witnessed through the back half of 2020 continued as clients remained highly engaged. Several performance records were set as revenues were broad-based and balanced across businesses and regions. Revenues were $8.6 billion, representing a record and a 66% increase compared to the same period last year. The integrated investment bank continues to serve clients across the complex.

Regionally, Asia remained a standout, building on the 4 best quarters of the last decade in 2020. The first quarter of this year set a new record. Europe's performance was solid across investment banking and fixed income and was the strongest in over a decade. Investment banking generated revenues $2.6 billion, more than doubling the prior year driven by record underwriting results. Advisory revenues were $480 million, reflective of higher completed M&A industry volumes versus the prior year. Equity underwriting continues to be exceptionally active. Record revenues of $1.5 billion reflected strength across products and sectors. IPO activity was extremely strong with blocks, follow-ons and convertibles also notable.

Fixed income underwriting revenues of $631 million were the second highest only to the second quarter of last year as companies continued to take advantage of the attractive borrowing environment. We saw strong activity across noninvestment-grade financings spread across sponsors and corporate issuers. Investment Banking pipelines remain healthy across products. Strategic dialogues are active, equity markets should support issuance and conditions remain favorable for borrowers, and we are seeing a broadening across sectors beyond technology and health care.

Equity revenues reached $2.9 billion, the strongest in a decade as global equity market volumes remained elevated. Derivative results were the best in a decade, reflecting heightened client activity and a constructive trading market environment. Both cash and prime brokerage revenues declined versus the same period last year. Revenues associated with higher volumes and higher prime brokerage balances, respectively, were offset by the losses James discussed.

Fixed income revenues of $3 billion was the highest for our first quarter in a decade. Performance was broad-based across products. The debate around the speed and strength of the global recovery, the passage of U.S. fiscal stimulus and the movement and path of rates supported client activity.

Micro performance continues to be strong. The meaningful increase versus the prior year was driven by securitized products and municipals. Macro results were robust, though reflected a decline from the very strong prior year as bid/ask spreads were more stable this period and commodities also had solid results. Other revenues of $123 million improved meaningfully versus the prior year. The increase primarily reflects gains related to deferred cash-based compensation plans compared to losses in the prior year and lower mark-to-market losses on corporate loans and related hedges.

Turning to ISG lending. Our credit portfolio continues to perform well. Improved confidence in the economic outlook and paydowns on corporate relationship loans, particularly noninvestment grade, resulted in a release of $93 million. Net charge-offs in the quarter were $10 million, and our allowance for credit losses on ISG loans and lending commitments now stands at $1 billion. Total ISG loans were up $2.5 billion, while lending commitments increased by approximately $5 billion relative to 4Q as we continue to support our clients.

Our vulnerable sector portfolio continues to represent less than 10% of the overall ISG loans and lending commitments. We saw some velocity in the book with new commitments for investment-grade clients that were largely offset by paydowns. Approximately 90% of this portfolio, like our entire ISG portfolio, is either investment-grade or secured. And lastly, forbearance for the ISG portfolio continues to decline and now stands at approximately $300 million.

Turning to Wealth Management. Given the timing of the close of the E*TRADE acquisition, I will make comparisons to the prior quarter which will serve as a more relevant benchmark than prior year. Revenues were $6 billion with strength in every area. Excluding the impact of DCP, which declined by approximately $300 million versus the prior quarter, revenue increased 11%. Integration-related expenses were $64 million, and excluding these costs, pretax profit increased 28% to a record $1.7 billion, and the PBT margin was 27.9%.

The underlying growth drivers in this business remain extremely strong. Net new asset growth was $105 billion, driven by net new clients, asset consolidation from existing clients and stock plan retention. Fee-based flows were a record $37 billion, and self-directed channel net new households grew by a record 500,000 or 7%. Financial advisers also recognized the value of our platform, demonstrated in continued strength in net recruiting and retention, which also benefited NNA. Elevated client activity across both adviser-led and self-directed channels drove strong transactional revenues. Excluding the impact of DCP, revenues increased 19%. Client engagement in the market was high, putting more cash into equities in the quarter. Self-directed engagement was particularly robust, reflecting record net buying activity.

Daily average trades on the E*TRADE platform reached record highs of 1.6 million, almost 50% higher than the fourth quarter record of 1.1 million. Importantly, revenue related to the E*TRADE platform transactional activity is highly accretive to the PBT margin.

Asset Management revenues were $3.2 billion, up 7% sequentially, benefiting from higher asset levels and record fee-based flows. Fee-based assets are now $1.6 trillion and have grown over $400 billion from last year, greater than the cumulative growth of the prior 6 years, and revenues are up nearly 20% from the prior year. Loan growth remains extremely robust, with balances reaching $105 billion. Demand across products with particular strength in securities-based lending had a quarterly balance sheet growth of $7 billion, north of the 10% full year guidance we gave earlier this year. Continued use of data analytics to understand customer needs is contributing to the strong growth.

Net interest income was $1.4 billion, including prepayment amortization, which turned positive and was approximately $100 million. Excluding prepay, NII was up 6% and in line with our prior guidance. The increase reflected the realization of funding synergies driven by the onboarding of $20 billion of deposits that were previously swept off E*TRADE's balance sheet, growth in bank lending balances and increased margin lending in the self-directed channel. We have now completed the onboarding of approximately $25 billion of deposits since we closed the E*TRADE transaction, and we remain on pace to realize approximately $200 million in NII funding benefits in 2021. We would also expect to run off additional $16 billion of wholesale deposits through the remainder of the year. We expect that NII will continue to build on the full impact of the onboarded deposits and continued growth in lending.

We're even more excited about E*TRADE today than when we announced the deal as momentum on the E*TRADE platform is robust. Additionally, we are beginning to see early successes from the combination. The business continues to benefit from increased client engagement across channels as evidenced by this quarter's NNA. And while we expect these flows will be lumpy and should be looked at over the course of the year rather than individual quarters, we are encouraged by the strong start.

We continue to prioritize client experiences as we progress with our integration. The rest of 2021 will be focused on analyzing the comprehensive data sets which cover adviser-led and self-directed clients to help better understand investment behaviors and needs and refining the tools required to connect financial advisers to service those needs. Over time, we expect to learn from these insights to effectively serve clients across their entire wealth journey.

Workplace will serve as an important growth engine going forward, and we are building on the investments we have made to date. Our workplace offering is resonating with corporate clients. We are adding new B2B clients and participants at a record pace, and our current pipeline is as strong as it's ever been. Equity plan wins increased by approximately 70% versus 1Q last year, and this led to the addition of 75,000 participants to the Morgan Stanley at Work platform. Our number of participants now stands at 5.1 million. We are also focused on ensuring that each workplace participant has a companion brokerage account to capture vested award proceeds. Today, approximately 50% have one, and we expect 90% of participants will have a companion account within 18 months. This will further enhance our ability to capture workplace flows.

On the expense side, we are on track to realize $100 million of cost synergies in 2021 and have made progress in the first quarter towards this end. On a run rate basis, we expect to achieve 35% to 40% of the targeted $400 million expense synergies by the end of the year.

Moving to Investment Management. On March 1, we closed the acquisition of Eaton Vance. We issued 69 million shares and $5 billion of common equity. We created approximately $9 billion of goodwill and intangibles, including $4 billion of intangibles, of which, half will amortize over approximately 15 years. Our CET1 ratio was impacted by approximately 80 basis points. This quarter's results include 1 month of the combined businesses' financials, so comparisons to prior periods are difficult. I will focus mainly on the quarter and our positioning moving forward. We are pleased that the businesses retained their strong momentum from announcement to close, and total AUM now stands at $1.4 trillion, an increase of 40% or $400 billion on a pro forma basis versus the prior year. Upon close, Eaton Vance added approximately $590 billion to our total AUM.

The underlying fundamentals of this business remain extremely strong. Positive net flow momentum continued across both businesses. Total net flows on a pro forma basis were $53 billion for the full quarter. Long-term pro forma net flows of $22 billion were broad-based across products and regions. We saw a particular strength in MSIM global equity strategies which continued to attract robust flows following strong investment performance. Parametric customized portfolios continued very strong organic growth in the alternative and solutions line. We believe customization is a long-term secular trend, and Parametric is the market leader in this space. Eaton Vance's leading floating rate loan business recovered to strong positive flows, and Calvert saw a strong growth as ESG investing accelerates.

In the quarter, revenues were $1.3 billion. Consistent with strong growth in AUM, the contribution from more durable management fee revenue has meaningfully increased, and asset management-related fees were $1.1 billion with just 1 month of Eaton Vance contribution. Performance-based income and other revenues were $211 million in the quarter. We saw broad-based gains across our alternative funds. The increase versus the prior year was primarily driven by gains in our real estate funds which continued their recovery from 1Q '20. Total expenses were $944 million, of which, integration-related expenses were negligible.

Turning to the balance sheet. Total spot assets increased to $1.2 trillion, reflecting higher client activity levels and the addition of Eaton Vance. Standardized RWAs were flat to the prior quarter at $454 billion. And our standardized CET1 ratio declined from the prior quarter to 16.8%. Our tax rate was 22% for the quarter, and we continue to expect our full year 2021 tax rate will be approximately 23%.

We are pleased with our results in the first quarter as our 3 world-class businesses of scale delivered exceptional performance and growth. Pipelines are healthy, institutional and retail client engagement is strong, and our global positions have improved. With the successful closing of the Eaton Vance deal, we continue to drive our business model towards more durable, more recurring and less capital-intensive businesses. While it's very early in the integration, the combination of breadth and depth of product offerings and services with our enlarged customer base has led to approximately $150 billion of net new client assets to the franchise. And our unique business model is well positioned for growth through a variety of market backdrops.

With that, we will now open the line to questions.

(Operator Instructions) Our first question comes from Brennan Hawken with UBS.

I'd like to ask maybe first on Wealth Management. The net new asset growth rate, implying double-digit organic, is really impressive. It's not something that narrative around wirehouses failing to be able to grow really jives with. So I'm curious, I know we've been seeing these trends accelerate from Morgan Stanley for over a year now, but how much of this remarkable quarter was attributable to E*TRADE versus full-service Wealth Management at Morgan Stanley? And how should we think about a sustainable organic net new asset growth going forward?

Well, Brandon, let me have a go at that. I mean, historically, the growth rate, as you probably know, in the full service, as you call it, wirehouses, it's been, I don't know, 0% to 2% over the last 15 years with loss of financial advisers, some loss of assets into the RIA channel and clearly loss to some of the direct distributors and generally just not having in place significant growth plans.

And I think this quarter, and I'll talk about the absolute levels in a minute, but this quarter is reflective of a very different view of that Wealth Management business. Number one, we needed to have a compelling direct channel, we have that through E*TRADE; number two, we needed to have a compelling workplace platform, we have that through Solium and E*TRADE; number three, we needed to have net positive FA growth in terms of recruiting, not in just numbers of bodies, but actual people who are bringing in assets and we're doing that; and number four, you need a compelling platform of ideas, which linked to our institutional business and the quality research and products; you're just operating at a different level.

And so I think it's a culmination actually of a lot of things. E*TRADE is clearly a factor in it, but it's by no means the only factor. If you took out E*TRADE, the organic growth was tremendous in the core business, which, again, we've started to see in the last couple of years. I think we showed some numbers last year of around 4%. Our target, I think, was 4% to 6%.

Now this at 10%, well, Q1 is probably going to be your best quarter. Q2 usually has some tax factors, tax flows going on. But listen, the growth rate is real. If we annualized 10% a year for the next several years, that would be spectacular, but that's certainly not what we're planning on, and I got to be realistic. But to be outgrowing some of our nontraditional competitors, even for a quarter, is just a -- it's a wonderful green shoot to have planted out there.

No doubt. And then thinking about NII within the Wealth Management business. Jon, you made some comments on NII, but I wasn't sure if those were just purely on the wealth or firm-wide. When we think about it on the Wealth Management business, thanks for quantifying the prepay impact, is this -- you've got strong loan growth. We've got securities yields that have been recovering, yesterday's setback aside. So should we be expecting continued constructive trends in core NII ex-ing out any noise that might happen from prepays quarter-to-quarter?

Sure. I think the short answer is yes. We've really got some nice tailwinds from the loan growth that we've been experiencing as well as the deposit funding synergies. I think as I said in the first quarter, we don't expect any movement in policy rates. The short end is really what benefits the NII, so our growth, we would expect from the full realization of the onboarding of deposits, which, as you know, was feathered in over the quarter. And so that will have the full impact next quarter. At $7 billion of loan growth, we're running ahead of plan there, so that's obviously a nice tailwind. And then as I said, we'll continue to see our deposit costs tick down as some of the incremental wholesale deposits run off because of the onboarding. So we feel good about the guidance we gave you.

The $1.2 billion in the fourth quarter was a good run rate and then start to add the tailwinds from the deposits as well as the loan growth. We also saw some nice loan growth in margin lending, which is not in the bank, but is part of the Wealth Management NII story. So again, just a nice quarter, and we would expect it to continue to grow from these levels.

Our next question comes from Steven Chubak with Wolfe Research.

So I wanted to start off with a question on the Archegos development. So James, you noted that you were pleased with how the firm responded. Just given the complexity of the situation, what were some of the learnings from that experience? And just maybe more importantly, how does it inform your risk management approach within PB to ensure that you can avert a similar situation in the future?

Yes. I think -- I mean, my comment about the way the -- this team has worked together now for a decade. We all went through the financial crisis, most of us in sort of a job a level below where we are now, so I'd say the accumulated both scar tissue and experience is very real. And we have a philosophy. We cauterize bad stuff and deal with it as soon as we possibly can.

This was, as you know, a very unusual event. It was a family office, actually. No outside money. It got to enormous size by the growth in the single stock position, very concentrated single stock long positions that had explosive growth, and they're offset by the various shorts, in the indices that they were short. So it was -- and I think what the lessons are still unfolding, if you will, or learnings, Steve.

But it's not going to change how we feel about the prime brokerage business at all. This is a gem of a business that we've probably generated, I don't know, something close to $40 billion in revenue in a decade. It's a core part and backbone of the equities business. So it doesn't change that at all, but I think we'll certainly be looking hard at family office-type relationships where they're very concentrated and you have multiple prime brokers. And frankly, the transparency and lack of disclosure relating to those institutions is just different from the hedge fund institutions. And that's something I'm sure the SEC is going to be looking at, and that's probably good for the whole industry.

Better information is always good in rooting out where potential problems can be. So obviously, there's not a lot I can and should be saying publicly about it, but we -- as I said, we're never happy taking a loss, but our job is to deal with the facts as reality and get on top of it and get it done, and that's what we did. And we took the extra bit, frankly, just to clean it up by quarter end. We didn't want this thing to be lingering.

No, that's helpful color, James, and I certainly appreciate your candor on the topic. Just for my follow-up, another one on NII, Jon. I just wanted to get a sense, looking at the cost of deposit disclosure, nice to see that come in from 24 bps to 18 basis points. And one of the things that we're thinking about, just given some of the funding benefits from E*TRADE as well as just some higher-cost wholesale deposits that start to roll off, where should we expect that number to ultimately bottom? And is that what informs those benefits, at least your expectation, that we should be able to grow or build NII from here going forward?

So the weighted average cost of deposits is 18. It will clearly continue to tick down over the course of the quarter, assuming rates, short-term rates don't move. And again, we're not expecting policy rates to move as the wholesale, higher-cost wholesale deposits roll off.

I think as you recall, when we originally announced the transaction, I think we've talked about $150 billion of funding synergies. We've revised that to $250 billion given the growth in deposits. We said that we would realize that in -- $200 billion of which will be realized this year, so we have incremental deposit and funding synergies that will be captured in 2022. So all of the sort of the movement, if you will, and the cost of deposits is sort of factored into our synergy -- funding synergy calculations. So the way we generally have been thinking about it is that the policy rates aren't going to move, so there's not going to be necessarily a big plus or minus from rates. And NII will grow because the quantum will grow based on loan growth and then we'd pick up the funding synergy.

Our next question comes from Glenn Schorr with Evercore ISI.

James, I think you covered some of the stuff that I wanted to cover on Archegos, so a couple of quick follow-ups. So I still want to get to what was so complex about this one? Is it really just the family office nature and the less disclosure on the multiple primes and the levers you employed? Were you -- because obviously, what's been great about your PB business is -- I mean, you didn't even lose money in '08, you have the assets when they -- historically, when you have the assets and things break, you look for more collateral for you to blow out the positions, what was different about this one? And what do you think -- why wasn't it disclosed? Why didn't this meet the materiality test? And then what do you think regulators want to change going forward? Sorry for the follow-ups.

Well, Glenn, I'll try and touch on a couple of them. And to be honest, there was a lot going on in this quarter, and so I don't want to spend too much talking about a specific client situation which is now done and history.

But let me touch on a couple of things, going sort of reverse. Sort of why we didn't disclose, we were having a record quarter. The business ISG was having a record quarter. The equities business where this resided was having a record quarter. So you've got to be at a level where it's material to the overall quarter, and I'll leave that up to the lawyers, but we're very comfortable with that. That's -- frankly, given how the firm was performing, I think we generated $2 billion revenues more than our previous record quarter out of, I don't know, 340 quarters that we've had it since our origination. So we've got to sort of focus on the big picture on that one.

What was different about this situation relative to '08, and yes, you're right, I don't think we've had -- we went back through the records, and I don't think we've ever had -- ever is a long time, but a loss in the PB business. And the business is, back to the previous question from Steve, the business is very well risk managed and has been for decades now, and we're the #1 prime broker in the world. We were the #1 prime broker in this particular instance.

There were enormous positions because of the rapid growth of the fund. They were levered across multiple prime brokers. And as I said, the disclosure rules, as I understand them and I'm not the expert on it, made it more difficult to understand exactly who is holding what where. And that's something that we'll work through, and that's part of out of the learning experience.

It was complicated, I will say, last comment on this, by the fact that one of the large single stock positions related to a security in which we have been an underwriter, and we thought the right thing to do was to close that previous underwriting which happened on that Friday. So we had to hold off, which caused us to be later than some, if you will. And the reason for that was not that we weren't aware of what was going on. We just felt we had an underwriting obligation to deal with. So anyway, it's a long story. But again, in the context of equities business, equities had a record with this built into it, which is pretty extraordinary.

(technical difficulty) And our next question comes from Christian Bolu with Autonomous.

Perfect. No worries. Okay. Just circle go back to the Wealth Management business, the organic growth there was pretty spectacular at north of 10%. And I was wondering if you could give more detail on the legacy financial adviser business? I hear you on E*TRADE and workplace, but the vast majority of the business is still the FA business, and it's really surprising to see this level of growth. So just curious, how much does recruiting, for example, drive growth? Have you made any changes to the recruiting incentives that you're paying out to drive more growth? Just trying to understand some of the core drivers of the strength here.

Sure, Christian, it's Jon. I'll take that. I would say just first on net recruiting, I think you've heard us talk about this for the last several quarters. We've been very active. We've become a destination of choice. All the comments that James made about the breadth of the platform, the intellectual capital, the technology investments that we've made have made our platform and our company a place where FAs want to do business. So we've seen higher levels of recruiting pipeline as we bring in FAs, and they are successful and they like the platform. They're obviously talking to their previous colleagues and therefore, it's sort of accelerating. So we've seen really nice net recruiting. We're bringing in bigger teams, better teams and attrition has dramatically slowed down. So that's point number one.

In terms of just the contribution of NNA, it was really across all the comments that I made. Net recruiting aided in the NNA. The E*TRADE platform contributed to the contribution, new clients in the FA channel, bringing in existing clients away, so just broad-based activity very, very active. We talked about client engagement being quite spectacular this quarter, and it really aided those numbers, but broad-based.

Okay. And then on FIC, to your point, it's been a while since we've seen this level of revenues in that business. And you called out securitized products as a real strength, which I think has always been a bigger business for Morgan Stanley. Maybe any more details on that business and what's driving growth? Is it anything to do with the state of the mortgage markets and the strength there? Just trying to get more color on sort of maybe that business and what's driving the strong growth there.

Sure. And again, I think that, as I said, the [FID] business, it was really every business in all geographies contributed to that quarter, $3 billion of revenue. The team is working extremely well together. We are gaining share in that business. The depth of the franchise continues to improve as you can imagine in this environment where the debate around rates and inflation and credit and yield. So generally speaking, the credit products have been quite active, and volumes have been quite elevated. Also, it's being aided by the primary calendar agency issuance, so just a lot of good activity going on in credit. And I think as you saw this quarter, a lot of debate around rates, inflation, reflation, which really added to those results.

Our next question comes from Mike Mayo with Wells Fargo Securities.

Well, great timing with your E*TRADE acquisition. And I guess, retail volumes are some 2 to 3x higher than historical from what I can tell. Are you seeing those trends continue through the end of March? And do you expect that to reverse as we get out of the pandemic and people get out of the house and stop trading as much? Or maybe this is secular?

Sure, Mike. Yes. No, we're really pleased with the timing of the transaction. As you highlight, just if you look at number of clients, volumes, trades, all of the metrics that we historically look at in that business. They're dramatically higher today than they were when we announced the transaction back in February of last year. So we're also seeing that same engagement across the FA-led channel, so it's not just related to E*TRADE. So I think client engagement is very, very strong at 1.6 million average trades, that's on top of a 1.1 million average trade in the fourth quarter, which was a record. It was less than 1 million over the course of last year.

So we're clearly at elevated levels. Do I think we go back to the 200,000 or 300,000 trades they were doing in '19? No. But can we sustain this level, no one's got a crystal ball, but right now, clients are extraordinarily engaged, and we'll have to see how this plays out over time.

Mike, I'd just say that the 2 kickers, there will be some -- obviously, these markets won't stay at this kind of retail activity forever. But the 2 strategic kickers behind this business, which are yet to really have the impact that they will have, are obviously, the deposits. And as rates rise, that will be a phenomenal additive. And secondly, the whole workplace as we're integrating with Solium, and that's proving -- we had some stats in there, I think, about 5 million-plus clients in there, but that's a huge growth business for us, and I think that will be that will be sort of the story over the next 5 years as much as the highlight -- the very elevated activity will be.

And then separate question goes back to Archegos. So if I heard you correctly, you had $900 million of losses, and that compares to record equities anyway, $40 billion of revenues over the past decade in prime brokerage. But within all the news around this, I guess it was just press reports saying that you didn't have losses, so I think it's a little bit of a surprise and does speak to risk management. And so I guess my question is, are you -- how much of your prime brokerage business relates to family offices since you're saying you're taking another look at that? And why do you think it was that you were the only large bank to call out losses of this magnitude when others didn't? I mean did you -- I don't know what you guys did differently versus Citi, Bank of America, JPMorgan and Goldman Sachs? Or maybe they didn't disclose it, I just don't know. If you can share some color on that, that would be great.

Well, I'll give you a couple of things just on the -- we're in a quiet period, so there are certain times when you can't comment about the business unless you sort of preannounce earnings, which we weren't going to do given that it was a record. So -- secondly, I don't -- I'm not going to comment on other firms. Some of them weren't even prime brokers to this institution, I don't think, so each of them have their own bed and they make it. And thirdly, the context is the business is a phenomenal business. It's been risk managed very well. This was a very unusual incident. I think the family office, I don't have those numbers, Jon might, but I suspect it's less than 10% of the prime brokerage business.

Very small.

Very small. So Yes, Mike. I mean, listen, we're quite transparent about this. We don't like to take losses ever. Unfortunately, when you intermediate flows of capital, you sometimes say that's what our whole margin book is. And the question is, once you're faced with the reality, how does the team come together to deal with it? And I think they did -- as I said, I think they did a really good job.

Our next question comes from Mike Carrier with Bank of America.

To me first, just on the trading front, obviously, robust quarter even with some of the losses. I realize difficult to gauge the outlook. Just what drivers are you seeing that could continue to drive activity versus normalize it? And how is your market share been trending during this environment?

That's a great question. And again, without the crystal ball, I'll just give you some sort of perspective on what we saw in the first quarter, and then we collectively get to -- and decide whether we think that will persist for what period of time.

We clearly still have strong asset values. I mentioned we have healthy pipelines, and clients are significantly engaged, both retail and institutional. Markets are open. There's lots of liquidity. And we are seeing a continuation of the accelerating economic data around the globe, obviously, news coming out of China this morning or last night in terms of the growth recovery. So really good backdrop or macro backdrop. As James mentioned, seasonality, the first quarter is usually the strongest. Typically, it wasn't last year, but typically, it is the strongest in these businesses.

We are confident that we have the ability to deliver on the objectives that we set out earlier this year in terms of our strategic goals. We do believe, and I think the data supports, that we're gaining market share across all of our businesses, so that's something that we would expect to persist. And I think this year is really going to be focused on that, just growing our market shares and integrating these two very important acquisitions.

Okay. Great. And then just a follow-up. Just on the Wealth and Investment Management, organic growth, obviously, very strong. James, you mentioned some of the retail activity can moderate. I guess maybe on the flip side, both E*TRADE and Eaton Vance, they're very early, it's early innings in terms of integrating it and getting to like the maximum potential. So what are some of those initiatives over the next 1 to 2 years that you feel like could maybe partially offset any normalization that we eventually get?

I think James mentioned a couple of those already. I mean I think what we've said all along, we're going to be very deliberate with the integrations. These deals were not about costs, they were about growth, and we do not want to disrupt the client experience. We obviously want to enhance it over time, so we are being very deliberate. We're investing in the platforms. We're investing in the service model. And we are in the process, as we've mentioned before, of sort of gathering data and running pilots to make sure that we understand what we need so we can service our clients better.

So for example, we're defining -- running pilots around lead generation. We're defining the FAs that will be part of that program. We're looking at data analytics and scoring models. We're making the investments in the engine that will help us match the FA to the client based on specific needs. And the goal really for this year is to make sure that we have the pipes, the people and the process to be able to support our clients in the coming years. So we think there's huge potential.

James mentioned the 5 million workplace participants where only clients outside of that channel, with about half of those, that business continues to grow. The great thing about that business is that it's scalable. Think of it as a huge funnel of opportunities to further enhance client relationships. That experience is digital, so it is very, very scalable, and we would expect real growth not only in that channel, but to drive growth across the platform really out of the workplace.

Just to add to it. I can't tell you how excited I am about the combination of these 4 businesses. The Eaton Vance, our own Investment Management business, our traditional core Wealth Management business and E*TRADE and how this is transforming the place by providing so many growth verticals.

I mean look at the Parametric product in Eaton Vance, it's extraordinary, they've done an unbelievable job. Our Calvert funds with everything going on in the sustainability space. As I said, the workplace with E*TRADE and what we've done with Solium there and now we'll be 1 of the top 2 workplace providers in the world. Things that we can do to expand internationally, taking Eaton Vance's product using our international distribution, putting some of our core equities product on the Eaton Vance domestic distribution, they have a great capability there.

So it's just -- there are so many verticals now which are driving growth. And once upon a time, when we had the core business, it's sort of number of financial advisers and productivity per financial adviser. That's basically the only 2 metrics you needed to follow. And now we've got like 30 different things that are bopping along.

So sort of watch this space. My target is $10 trillion of money under management. I've told the team internally, they hate that. But you know what, I told Danny Simkowitz a couple of years ago that my target, I said on a public platform, was a $1 trillion assets under management in the wealth asset management business. And he correctly pointed out, it's revenues per asset, it's not assets. And I said, "Yes, I know it, but I'd like $1 trillion worth high revenues per asset." And guess what, we've got a $1.4 trillion. When we started the wealth management journey 12 years ago, we had $500 billion under management, now we have $4 trillion. And so we're heading to $10 trillion. We've got all these growth verticals, and I just couldn't be more excited about it.

Our next question comes from Glenn Schorr with Evercore ISI.

Maybe just a little more color on workplace. I feel like it's a good growth and good margin business on its own. But nirvana is the ability to transition them over to a total wealth management advisory relationships over time. So the question is, how do you execute on that? You mentioned companion accounts, but do you make research available, what products do you push across? How do you premarket for them to convert them because it takes time?

Yes. Glenn, Jon's going to answer. But sorry about cutting off before. It wasn't personal. Trust me, I like you. I don't know quite what happened, but I told the team, let's get you back on for another go at it. So good to have you back.

So I think you sort of highlighted some of the things that is going to drive the growth going forward. I mean again, we want more corporate accounts. We're seeing the pipeline very strong. The hit rate is higher. And the product is really resonating. We then want to grow the participants. And then once the participants are in the system, we need to build trust and relationships with them through content, through education and through services because the ultimate goal, as you said, is to convert them to a broader client. And when we first convert them, we're reasonably indifferent whether they go into the self-directed channel, the FA channel, a virtual channel, because that will just give us an opportunity to build that relationship, deepen that relationship. As the clients' requirements and services and needs change, we'll be able to grow with them.

And so your comment about migrating one across a wealth client across the different platforms will be the ultimate goal. But first, we want to build trust with them, bring them into the Morgan Stanley relationship and then try to -- one of the keys is to try to have that integrated experience across the platforms for the clients. So that's a lot of the technology that we're trying to build too. So we want to bring them in, deepen the relationship and then let them go to the channel that best suits them.

James, I'm very confident in our relationship. I appreciate that.

Good to hear.

Our next question comes from Kian Abouhossein use with JPMorgan.

Yes. The first one is on fixed income. As you know, you're very credit-geared player and clearly, that's been performing extremely well. I just wanted to see how you're thinking about that business more on the longer-term, more stable environment around credit and with your macro pieces being a bit weaker. So can you talk a little bit about the mix? And if you're happy about the mix or what opportunities do you see to further grow the rates in FX areas?

I think the short answer, again, is that we're very pleased with the performance from the fixed income business. We've deepened the breadth of the franchise. As you said, credit has historically been a strong point for us, but we're seeing good results and good penetration in both the macro as well as the commodity space. And so again, we think we've gained market share since we've restructured this business. We were probably a 6% or 7% player before. We're now probably at 10%, maybe even 10% plus player. We would expect to maintain that market share going forward, potentially increase it or grow it a little bit more, but we've been very pleased with the balance of the business and the results over the last several years in this business.

And on -- coming back to Archegos. I mean you are a great #1 PB player, but clearly, family offices and high concentration with low transparency by a client is reflected by the margin that you take. So as a result, I'm sure your risk office will take margins and the simulations on a, so to say, unwinding of the positions. And in that, you have lost significant amount of money. So I'm just trying to understand how you're thinking about not just the family office needs more disclosure, needs to be reviewed, but more around your margin requirements and how you're thinking about your business in terms of risk management. And in that context, if you could also maybe highlight to me if all the synthetic prime brokerage business is on a dynamic basis or on a fixed basis in terms of margins.

I'll just make one comment. I'll let Jon add a couple of comments. But we've answered and addressed this topic, and I'm sure we'll have plenty of opportunity to talk about in the future. But this is a pretty small part of what we do as a whole firm. But I think the comment I want to make is family offices are not bad, let me say, I want to be very clear about that. We have some phenomenal family office clients and there are all over the world, tremendous institutions. So let's not throw the baby out with the bathwater here. This is not a judgment call on family offices. This is a very idiosyncratic event. And I'll let Jon, if you want to add anything more to it, but I don't want to over-labor this issue.

Yes. I would just -- and I think just pulling some of the threads of your questions together, just make a couple more observations.

First is we obviously are looking across all of the portfolios. As James mentioned, we're looking at our stress testing methodology, and we will recalibrate it if and where it's appropriate to do so, number one. Your comment about margin and collateral, I mean, I think the way that we think about it is we had collateral based on a certain set of facts that turned out not to be true. And James has mentioned, it wasn't necessarily -- it was a family office, it wasn't necessarily that they had large concentrated positions. It really came down to the fact that this firm had large positions, the same positions in the same names at other banks across the street, and it wasn't apparent to us.

So I think that's what isolates the situation here or makes it more unique. We scrubbed the portfolio. We haven't found anyone that has similar fact patterns or copycat strategies, and we'll continue to be diligent around all of those points.

Our next question comes from Devin Ryan with JMP Securities.

So I wanted to ask a question about the recent announcement to offer a few specific Bitcoin-related funds to Wealth Management clients. And appreciate you have to walk before you run here, and it's pretty small. But just given how fast the ecosystem is developing and the interest in the space, I'd love to just maybe get some thoughts on, I guess, one, what the reaction was internally; and then two, just thoughts more broadly as you're thinking about the crypto space across the organization?

Sure. And I think your comments are very appropriate. It's a fast-growing space. There's a lot of interest in the space, and we had significant interest from our wealth clients to try to get access to this new asset class. And so we try to facilitate that. We've allowed, within our Wealth Management platform, qualified investors to get access through 2 specific passive funds, if you will, that give access to the crypto currency. The uptake and the interest level has been strong, and we would expect people to continue to be interested in this space, and we'll continue to monitor it and evolve. And we're in the business of trying to provide services and investment opportunities that interest our client base. And as we continue to see more or stronger interest, we'll continue to try to work with the regulators and others to provide services that we think are appropriate.

Okay. Perfect. If I can squeeze in a quick follow-up here, just on the SPAC market, clearly it has played a role in, I think, the record amount of investment banking activity in the market really started to lock up a bit over the past month on the pipe side and now, the SEC is adding some more scrutiny here. So I'd just love to maybe think about the backlogs are there and expectations moving forward to kind of work through those backlogs. And then can the IPO market kind of do a handoff year, the traditional route of going public if the SPAC market slows?

Sure. I mean, listen, the SPAC or the product itself is just another financing vehicle just like a private placement or a direct listing. And even with those incremental and new products, the traditional IPO product has been very active, very strong, and we've been a market leader in that space. You appropriately point out that the backlog, I think, is over 200 SPACs on file, so I would expect that we'll continue to see more issuance. There seems to be a pause as the market is digesting this and the regulators are looking at it, so I don't want to get in front of that.

But there is clearly interest in this product, both from an issuer and a buyer perspective, and I think it does also add to some of the momentum in the M&A products. But I'd also point out, there's a couple of hundred million dollars of sort of SPAC money that can be levered and put into the M&A environment, but there's also $1.5 trillion of dry powder with the private equity firm. So if you put multiples or leverage on those, there's a lot of buying power, so I think that's also a good driver of the M&A market going forward.

Our next question comes from Jeremy Sigee with BNP Exane Paribas.

I wanted to carry on the discussion about the revenue growth drivers in Wealth Management because I agree with you, I think the upside is huge from that. Is it too early to see signs of revenue synergy between E*TRADE and the workplace channel and the adviser channels, whether it's customers bringing in assets held away or starting to cross over into other channels and use other services? I mean can you see signs of that yet? Or is it too soon?

Yes. I mean I think, as I mentioned, we are seeing some anecdotal signs of that. We are running some pilot programs. We think we're capturing some of the traditional E*TRADE clients who might have left that platform for incremental advice, and now they're staying with us and working with our financial advisory platform. So I think there are some very good early signs, and I think you're seeing some of that obviously in the NNA.

The other point I would make is, in terms of the workplace retention, when we announced the transaction, we targeted a 15% retention rate there. It's early days, but we're pleased with the progress that we're making. E*TRADE is still -- the E*TRADE platform retention rate is still well above 15%, so we feel very confident about our ability to deliver on that. And as we get further along on this journey, we'll start to give you more color on that. But early anecdotes are quite positive.

Okay. Great. And could I just ask a follow-up, a technical question on Archegos, and I know you're fed up with this topic, but just a technical question. Does the fact of the loss, which is now in your data history, does that have any mechanical calculation impact on risk weightings or capital requirements in your PB business?

Again, the volatility related to this event was, as James said, was very short in terms of time series. So I think the answer is it will not have a meaningful impact over to the overall capital requirement.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.