Company Profile
Morgan Financial Empire
Morgan Stanley (ticker: MS) reigns supreme in investment banking, as JPMorgan Chase does in commercial banking. Both are irreplaceable kings. Crucially, they share a common origin: J.P. Morgan & Co., the Morgan financial empire of nearly a century ago.
Separation from Morgan Bank
The old Morgan Stanley was founded on September 16, 1935, by J.P. Morgan partner Henry Sturgess Morgan (grandson of John Pierpont Morgan) and Harold Stanley. The new company was established in response to the Glass-Steagall Act’s mandate to separate commercial and investment banking.
The Morgan empire was thus split into two: the old Morgan Stanley and Morgan Bank. Morgan Bank later merged with Chase Bank to become today’s JPMorgan Chase. For more information on this, please see my other post: “How Does JPMorgan Chase, the World’s Largest Bank, Make Money?”
In 1941, Morgan Stanley partnered with the New York Stock Exchange and became a partner of the exchange.
Merger with Dean Witter
The new Morgan Stanley was formed in 1997 through the merger of the old Morgan Stanley with Sears and Dean Witter Discovery. Dean Witter’s Chairman and CEO, Henry Purcell, became Chairman and CEO of the new company, named Morgan Stanley Dean Witter Discover & Co. In 2001, the new company was finally renamed Morgan Stanley.
Initial Public Offering
Morgan Stanley was listed on the New York Stock Exchange in 1986.
Key Regulatory Changes in the United States
Glass-Steagall Act
In 1933, during the Great Depression, Congress passed the Glass-Steagall Act, prohibiting firms from providing both commercial and investment banking services.
Repealed Glass-Steagall Act
Seventy-five years after Congress separated them from deposit-taking and lending banks, Morgan Stanley and Goldman Sachs, the last two major US investment banks, announced on September 22, 2008, that they would become traditional bank holding companies regulated by the Federal Reserve. The Federal Reserve’s approval of their bank status ended the dominant position of securities firms.
Since then, the 1933 Glass-Steagall Act has been repealed, allowing firms to provide both commercial and investment banking services. In short, Morgan Stanley and JPMorgan Chase have since provided both commercial and investment banking services.
Company Operations and Businesses
Significant Mergers, Equity Interests, and Disposals
The old Morgan Stanley merged with Sears and Dean Witter & Discovery in 1997. Morgan Stanley nearly collapsed during the 2008 financial crisis, and JPMorgan Chase ultimately declined to rescue it. Fortunately, Japan’s Mitsubishi UFJ Financial Group agreed to inject significant capital. In September 2008, Mitsubishi UFJ invested $9 billion to directly purchase a 21% stake in Morgan Stanley. In 2011, Mitsubishi UFJ Bank converted its Morgan Stanley preferred stock into 22.4% of Morgan Stanley common stock.
In January 2009, Morgan Stanley and Citigroup established a new joint venture, Morgan Stanley Smith Barney, making Morgan Stanley the world’s largest brokerage firm. In 2013, Morgan Stanley acquired all of Citigroup’s shares, gaining full control of Smith Barney.
In October 2009, Morgan Stanley sold its retail investment management business (including the Van Kampen unit) to Invesco Ltd. for $1.5 billion in stock and cash.
In February 2020, Morgan Stanley acquired ETrade for $13 billion, offering 1.0432 shares for each ETrade share, equivalent to $58.74 per share.
Top Shareholders
Morgan Stanley is primarily owned by institutional investors, who hold a 62.00% stake. As of December 31, 2024, its largest shareholders are:
- 2,677 other institutions (12.99%)
- Mitsubishi UFJ Financial Group (23.38%)
- State Street Corporation (6.90%)
- The Vanguard Group (6.83%)
- BlackRock (5.90%)
- JPMorgan Chase (2.54%)
- Capital International Investors (1.86%)
- Geode Capital Management (1.60%)
Key Business Divisions
Morgan Stanley’s headquarters consists of nine divisions, including:
- Equity Research
- Investment Banking
- Private Wealth Management
- Foreign Exchange/Bonds
- Commodities Trading
- Fixed Income Research
- Investment Management
- Direct Investments
- Institutional Equities
Operating Status and Performance
Q2 2025 Financial Report
- Net Revenue: Approximately US$16.79-16.8 billion, an increase of approximately 12% year-over-year (approximately US$16.79-16.8 billion in the same period last year). $15.02 billion).
- Net Income/Diluted Earnings Per Share: $3.54 billion, or $2.13 per share (compared to $3.08 billion/$1.82 per share in the same period last year).
- Return on Tangible Common Equity (ROTCE): 18.2% this quarter; 20.6% in the first half of 2025.
- Expense Efficiency/Cost Control: The efficiency ratio (i.e., non-interest expense/total revenue) improved slightly, to approximately 70-71%.
- Dividends/Capital Return: The quarterly common stock dividend was raised to $1.00 per share; 8 million shares were repurchased this quarter for approximately $1 billion.
- Capital Adequacy/Buffer: Common Equity Tier 1 ratio was approximately 15.0%.
Key Segment Performance
Morgan Stanley breaks down its performance into its main segments: Institutional Securities, Wealth Management, and Investment Management. Below is how each segment performed in the second quarter of 2025.
Institutional Securities
- Net Revenue: Approximately $7.6 billion
- Equity Trading: Approximately 23% year-over-year increase (approximately $3.72 billion)
- Fixed Income Trading: Approximately 9% growth (approximately $2.18 billion)
- Investment Banking/Underwriting: Mixed results. Advisory fees declined (approximately 14%), fixed income underwriting revenue declined (approximately 21%), but equity underwriting revenue grew (approximately 42%). Overall, investment banking fees declined approximately 5% to approximately $1.54 billion.
- Profitability/Margins: Institutional Securities reported solid pre-tax profits, with strong trading volumes driving margin expansion.
- Challenges/Headwinds: Reduced trading activity and slowing M&A impacted advisory fees.
- Fixed Income Credit/Underwriting faced pressure.
Wealth Management
- Net Revenue: Approximately $7.8 billion (approximately 14% year-over-year increase)
- Pre-tax Profit and Margins: Pre-tax profit reached a record high of approximately $2.2 billion, with a margin of approximately 28.3%. (Deferred compensation plans (“DCP”) dragged down earnings by approximately 70 basis points.
- Net New Assets/Flows: Net new assets (NNAs) for the quarter: $59 billion, offset by approximately $22 billion of tax outflows.
- Fee-based flows (excluding acquisitions): $43 billion (record).
- Shift toward fee-based assets (rather than brokerage, etc.).
- Drivers/Positives: The consistency and stickiness of wealth management-based fees acted as a stabilizer for the company.
- Client engagement and growth in the advisory platform facilitated future cross-selling.
Investment Management
- Net Revenue: Approximately $1.6 billion, primarily driven by asset management and related fees.
- Money Flows: Long-term net money flows were positive (approximately $11 billion) for the quarter.
- Profitability: Moderate but stable margins given scale and product diversification.
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