MORGAN STANLEY

Morgan Stanley is a global financial services firm that, through its subsidiaries and affiliates, advises, and originates, trades, manages and distributes capital for governments, institutions and individuals. The firm operates as a financial holding company regulated by the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and conducts business from its headquarters in and around New York City, regional offices and branches throughout the U.S., and principal offices in London, Frankfurt, Tokyo, Hong Kong and other world financial centers. The firm maintains significant market positions in each of its three business segments: Institutional Securities, Wealth Management and Investment Management.

All aspects of Morgan Stanley's businesses are highly competitive, and the firm expects them to remain so. The firm competes in the U.S. and globally with commercial banks, global investment banks, regional banks, broker-dealers, private banks, registered investment advisers, digital investing platforms, traditional and alternative asset managers, financial technology firms and other companies offering financial and ancillary services. The firm's competitive position depends on factors including reputation, client experience, the quality and consistency of long-term investment performance, innovation, execution, relative pricing and other factors, including entering into new or expanding current businesses as a result of acquisitions and other strategic initiatives. The ability to sustain or improve competitive position also depends substantially on the ability to continue to attract and retain highly qualified employees while managing compensation and other costs.

Morgan Stanley generates revenue through a wide variety of products and services provided to a large and diversified group of clients and customers, including corporations, governments, financial institutions and individuals. The firm operates as an Integrated Firm, serving clients holistically across its business segments. The Institutional Securities segment provides investment banking services, including capital raising and financial advisory, and markets services comprising equity and fixed income sales, financing, prime brokerage, market-making, and Asia wealth management services. The Wealth Management segment provides a comprehensive array of financial services and solutions to individual investors, including high and ultra-high net worth individuals, and businesses and institutions, through advisor-led, self-directed and workplace channels. The Investment Management segment provides a broad range of investment strategies and products that span geographies, asset classes, and public and private markets to a diverse group of clients across institutional and intermediary channels.

The Institutional Securities business segment provides a variety of products and services to corporations, governments, financial institutions and ultra-high net worth clients. Investment Banking services consist of capital raising and financial advisory services, including the underwriting of debt, equity securities and other products, as well as advice on mergers and acquisitions, restructurings and project finance. The Markets business, which comprises Equity and Fixed Income, provides sales, financing, prime brokerage, market-making, and Asia wealth management services and holds certain business-related investments. Lending activities include originating corporate loans and commercial real estate loans, providing secured lending facilities, and extending securities-based and other financing to clients. Other activities include research.

The Wealth Management business segment provides a comprehensive array of financial services and solutions to individual investors, including high and ultra-high net worth individuals, and businesses and institutions. Wealth Management supports clients through three channels: Advisor-Led, Self-Directed and Workplace. Wealth Management includes financial advisor-led brokerage, investment advisory, custody, cash management, and administrative services; self-directed brokerage services; financial and wealth planning services; workplace services, including stock plan administration; securities-based lending, residential and commercial real estate loans and other lending products; banking; and retirement plan services. The Investment Management business segment provides a broad range of investment strategies and products that span geographies, asset classes, and public and private markets to a diverse group of clients across institutional and intermediary channels. Strategies and products, which are offered through a variety of investment vehicles, include equity, fixed income, alternatives and solutions, and liquidity and overlay services.

During the year ended December 31, 2025, as a result of a March workforce management action, the firm recognized severance costs of $144 million ¹, included in Compensation and benefits expense. The workforce management action was related to performance management and the alignment of the workforce to business needs, rather than a change in strategy or exit of businesses. The workforce management action occurred across the firm's business segments and geographic regions and impacted approximately 2% of the global workforce at that time. The firm recorded severance costs of $78 million ² in the Institutional Securities business segment, $50 million ³ in the Wealth Management business segment, and $16 million ⁴ in the Investment Management business segment. These costs were incurred across all regions, with the majority in the Americas.

For the year ended December 31, 2025, the firm reported net revenues of $70.6 billion ⁵ and net income applicable to Morgan Stanley of $16.9 billion ⁶, reflecting strong results across business segments and demonstrating the strength of the Integrated Firm. The firm delivered ROE of 16.6% ⁷ and ROTCE of 21.6% ⁸. The firm expense efficiency ratio was 68% ⁹ compared to 71% ¹⁰ in the prior year. Diluted earnings per common share was $10.21 ¹¹ in 2025, which increased by 28% compared with $7.95 ¹² in 2024. Net revenues increased by 14% compared with $61.8 billion ¹³ in 2024, and net income applicable to Morgan Stanley increased by 26% compared with $13.4 billion ¹⁴ in 2024.

The firm has an ROTCE goal of 20% ¹⁵. This ROTCE goal is a forward-looking statement that is based on a normal market environment and may be materially affected by many factors.

The firm's growth is supported by its Integrated Firm strategy, serving clients holistically across its business segments. Wealth Management delivered net revenues of $31.8 billion ¹⁶, primarily reflecting higher Asset management revenues on higher market levels and the cumulative impact of strong fee-based flows. Fee-based asset flows were $160 billion ¹⁷ and the business added net new assets of $356 billion ¹⁸. Investment Management reported net revenues of $6.5 billion ¹⁹, primarily reflecting higher asset management fees driven by higher average AUM on higher market levels. Institutional Securities net revenues of $33.1 billion ²⁰ primarily reflected strong performance in Equity on higher client activity and higher underwriting and Advisory revenues within Investment Banking.

The firm continues to invest in technology and innovation to drive growth. The trend toward direct access to automated, electronic markets will likely continue as additional markets move to automated trading platforms, and the introduction and application of new technologies, including generative artificial intelligence and tokenization, will likely continue the pressure on revenues. The firm's ability to effectively compete is affected by multiple factors including brand and reputation, the breadth, depth and pricing of product offerings and technology supporting evolving client needs, including generative artificial intelligence and tokenization.

The firm's expense efficiency ratio was 68% ²¹ compared to 71% ²² in the prior year, demonstrating operating leverage while continuing to invest in businesses. Non-compensation expenses of $19,126 million ²³ in 2025 increased 8% from the prior year, primarily due to higher execution-related expenses and increased technology spend. Compensation and benefits expenses of $29,216 million ²⁴ in 2025 increased 12% from the prior year, primarily due to an increase in the formulaic payout to Wealth Management advisors and higher discretionary incentive compensation within Institutional Securities, both on higher revenues, and higher salary expenses.

The firm continues to make investments with a view toward maintaining and enhancing its cybersecurity, resilience and information security posture, including investments in technology and associated technology risk management activities. The cost of managing cybersecurity and information security risks and attacks, along with complying with new, increasingly expansive and evolving regulatory requirements, could adversely affect results of operations and business. As of December 31, 2025, the firm had approximately 83 thousand employees ²⁵ across 42 countries.

At December 31, 2025, the firm's Standardized Common Equity Tier 1 capital ratio was 15.0% ²⁶, and its Supplementary Leverage Ratio was 5.4% ²⁷. The firm's Tier 1 capital—Standardized ratio was 16.8% ²⁸, and the Tier 1 leverage ratio was 6.7% ²⁹. Common equity was $101,882 million ³⁰ and tangible common equity was $79,147 million ³¹. The firm had common shares outstanding of 1,583 million ³² and book value per common share of $64.37 ³³.

The economic environment was resilient in 2025, as client and investor confidence and market sentiment improved and markets rebounded from early-year uncertainty. The year was characterized by increased momentum in capital markets activity and lower interest rates. The rate of economic growth, ongoing geopolitical uncertainty, as well as the timing and pace of any further central bank actions have impacted and could continue to impact capital markets and the firm's businesses. The firm's results of operations may be materially affected by market fluctuations and by global financial market and economic conditions and other factors, including periods of low or slowing economic growth in the United States and other major markets.

The firm is subject to numerous political, economic, legal, compliance, tax, operational, franchise and other risks as a result of its international operations that could adversely impact its businesses. These include risks of possible nationalization, expropriation, price controls, capital controls, exchange controls, increased taxes, levies and tariffs, cybersecurity, data transfer and outsourcing restrictions, regulatory scrutiny regarding the use of new technologies, prohibitions on certain types of foreign and capital market activities, limitations on cross-border listings and other restrictive governmental actions, or political and governmental instability, including tensions between the U.S. and its significant trading partners, such as China, as well as the outbreak or escalation of hostilities or terrorist activity around the world.

The firm faces significant market risk, as its results of operations may be materially affected by market fluctuations and global financial market and economic conditions, including the level and volatility of equity, fixed income and commodity prices, interest rates, inflation, and currency values. Credit risk is substantial, with the firm exposed to the risk that third parties indebted to it will not perform their obligations, arising from activities including extending credit through various lending commitments, entering into swap or other derivative contracts, and providing secured funding. The firm's liquidity could be negatively affected by its inability to raise funding in the long-term or short-term debt capital markets, its inability to access secured lending markets, or unanticipated outflows of cash or collateral. The firm's borrowing costs and access to debt capital markets depend on its credit ratings, and a downgrade could require the firm to provide additional collateral of $1.0 billion ³⁴ in the event of a one-notch downgrade and $1.4 billion ³⁵ in the event of a two-notch downgrade. The firm is subject to extensive regulation, and changes in regulation, including capital, leverage, and liquidity requirements, could materially impact the profitability of its businesses and its ability to pay dividends or repurchase stock.

Management's message emphasizes the strength of the Integrated Firm model, with the firm reporting net revenues of $70.6 billion ³⁶ and net income applicable to Morgan Stanley of $16.9 billion ³⁷ reflecting strong results across business segments. The firm delivered ROE of 16.6% ³⁸ and ROTCE of 21.6% ³⁹, and the expense efficiency ratio improved to 68% ⁴⁰ from 71% ⁴¹ in the prior year. Management highlights the firm's ROTCE goal of 20% ⁴² as a forward-looking statement based on a normal market environment. Key strategic priorities include continuing to demonstrate operating leverage while investing in businesses, serving clients holistically across business segments, and maintaining strong capital ratios, with the Standardized Common Equity Tier 1 capital ratio at 15.0% ⁴³ and the Supplementary Leverage Ratio at 5.4% ⁴⁴.