Morgan Stanley (MS) Q1 2022 Earnings Call Transcript

Morgan Stanley  (NYSE: MS) Q1 2022 earnings call dated Apr. 14, 2022

Corporate Participants:

James Gorman — Chairman and Chief Executive Officer

Sharon Yeshaya — Chief Financial Officer

Analysts:

Glenn Schorr — Evercore — Analyst

Brennan Hawken — UBS — Analyst

Dan Fannon — Jefferies — Analyst

Steven Chubak — Wolfe Research — Analyst

Ebrahim Poonawala — Bank of America — Analyst

Mike Mayo — Wells Fargo — Analyst

Gerard Cassidy — RBC Capital Markets — Analyst

Jeremy Sigee — BNP Paribas — Analyst

Devin Ryan — JMP Securities — Analyst

Presentation:

Operator

Good morning. On behalf of Morgan Stanley, I will begin the call with the following disclaimer. During today’s presentation, we will refer to our 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.

James Gorman — Chairman and Chief Executive Officer

Thank you. Good morning, everyone. Thanks for joining us. I know you have a very, very busy morning, so we did our best to keep these earnings uncomplicated for you. Heading into 2022, we anticipate, as everybody did, a more volatile market, and obviously, we saw that in the first quarter.

The year started with rising inflationary pressures, accelerated expectations for tightening of monetary policy, and most notably, and sadly, the invasion of the Ukraine. This backdrop injected significant uncertainty into the markets and further tested resiliency of our franchise.

Against this quickly evolving market environment, our diversified business model again generated high returns. The firm produced revenues of $14.8 billion and a ROTCE of 20%. I am pleased to report that our first quarter results continued to exemplify Morgan Stanley’s strength and affirm our long-term strategy.

First, Institutional Securities delivered another very strong quarter, with revenues of $7.7 billion, making it one of its highest performances ever. Compared to last year’s record first quarter, we saw a different mix of businesses driving the strength of this segment. While underwriting was muted, Advisory was a highlight. Equity and fixed income again delivered exceptional results, particularly in Asia and Europe, as we supported our global clients amid a turbulent backdrop.

Global balanced Institutional businesses are complex. They require many years to build and an enormous amount invested in human capital. The breadth and depth of our franchise today is a competitive differentiator.

Wealth Management showcased its resiliency in the quarter. Notwithstanding, fluctuating market levels, the business generated a margin of approximately 28% excluding integration-related expenses.

The E TRADE integration continues to go very well, and given the current path we are on, a significant portion of the integration will be done by the end of this year. By the end of 2022, we expect to no longer separate our integration expenses.

Net new assets for the quarter were $142 billion. That included an asset acquisition. Nonetheless, organic growth in our existing business remained very strong. In a volatile market, this is very affirming of the model.

Further, we saw our first rate hike in the year in the first quarter, and with our strong and growing deposit base, this will have a near immediate economic impact to our business and it supports our path to delivering the margins that we projected in excess of 30%.

In Investment Management, the increased diversification of the business supported results in a very choppy market. Fee based asset management revenues, which were $1.4 billion in the quarter, have grown with the addition of Parametric, Calvert and the broadening of our alts and fixed income platforms. We have performed better with these franchises than we would have without it and it has brought much more balance to our asset management business.

And with respect to the Eaton Vance integration, it progresses very smoothly as well. The teams remain stable, and culturally, it’s a terrific fit. While markets continue to evolve, we remain confident about our position and the many opportunities ahead.

Finally, a brief word on the Russian invasion of the Ukraine. In managing a global business, particularly a market-based global business, we must always remain vigilant about the potential for shocks or unexpected events. Obviously, the invasion of the Ukraine is one such event. First of all, and most importantly, our hearts go out to the Ukrainians and all those have been impacted. As it relates to the business, apart from the volatility it’s created, there’s been very limited financial impact to Morgan Stanley. A few years ago, we decided to give up our banking license and we significantly scaled back operations in Russia. Further, as a result of these actions and the current war, we are not entering into any new business in the country and our activities are limited to helping global clients address and close out pre-existing obligations.

I am very proud of how our team has managed through a difficult market backdrop, and going forward, we continue to navigate the turbulent markets and broader geopolitical environment with confidence.

I will now turn the call over to Sharon to discuss the quarter in greater detail and together we will take your questions.

Sharon Yeshaya — Chief Financial Officer

Thank you and good morning. The firm produced revenues of $14.8 billion in the first quarter, representing the second highest quarter in our firm’s history. Excluding integration-related expenses, our EPS was $2.06 and our ROTCE was 20.3%. The firm’s first quarter efficiency ratio, excluding integration-related expenses, was 67.9% and reflects our expense discipline, while continuing to invest in the businesses.

Results of the first quarter illustrate resiliency and durability. Equity and fixed income supported our clients, while navigating volatile markets. Wealth Management proved resilient and Investment Management benefited from diversification.

Now to the businesses. Institutional Securities revenues of $7.7 billion represented the third highest quarter on record. Results declined 11% from the record set in the prior year. This quarter’s performance again demonstrated the power of our global integrated investment bank, with balance across businesses and a strong presence across geographies. We remain a global diversified leader.

Europe delivered its best quarter in over a decade, while Asia saw its second highest result, with strength in both equities and fixed income. Investment Banking revenues grew $1.6 billion, led by strength in Advisory. Compared to the prior year, revenues declined by 37%. Advisory revenues were $944 million, almost double the prior year’s first quarter, reflecting higher completed M&A volumes.

Equity underwriting revenues were $258 million, a meaningful decline from last year’s elevated results, in line with market volumes. Heightened volatility led clients to delay issuance activity. Fixed income underwriting revenues were $432 million, down compared to the prior year as macroeconomic conditions contributed to lower bond issuances.

Investment banking pipelines remain healthy across sectors and regions. However, the conversion from pipeline to realize will be largely dependent on market conditions going forward. Equity revenues were $3.2 billion, reflecting broad-based strength in performance against the backdrop of volatile markets. We continue to be a global leader in this business.

Cash revenues were solid, with particular strength in Europe, consistent with market volumes by geography. Derivative revenues were robust and the business navigated the volatility well.

Prime brokerage revenues were strong, while intra-quarter balances were impacted by uncertainty, we saw balances rebound alongside markets. Fixed income revenues of $2.9 billion were in line with the very strong prior year.

In the quarter, commodities and macro, particularly foreign exchange led the strength. Macro revenues increased meaningfully from the prior quarter. Clients remained engaged and the trading environment proved constructive.

Micro results were strong, but reflected lower revenues compared to the prior year. Commodities delivered a more diversified results, with revenues notably higher than the previous first quarter, benefiting from the heightened levels of activity.

Turning to Wealth Management. Revenues were $5.9 billion. Declines in DCP negatively impacted the revenues by approximately $300 million. Excluding the impact related to DCP, revenues increased 6% versus the prior year’s first quarter results. Results underscore the resilience of the franchise, the value offered to clients during uncertain times and the benefits of our scaled multi-channel model.

Retail clients remained invested, with allocations across asset classes consistent with last year. PBT was $1.6 billion and the margin was 26.5% or 27.8%, excluding integration-related expenses. These strong results should continue to be supported, as we realize the benefits of rising rates.

Asset management revenues were $3.6 billion, up 14% versus last year, benefiting from the growth in fee-based assets. This growth continues to reflect the investments we have made into the business over time and affirms our strategy is working.

Net new assets were $142 billion for the quarter. NNA was inclusive of an asset acquisition, which I will touch on shortly. Absent this asset acquisition, annualized growth was 5.4%, and despite the volatility, net new assets were generated from all channels.

The advisor-led channel benefited from an even split of existing and new clients, as well as positive net recruiting. Fee-based flows were also strong and inclusive of the asset acquisition were $97 billion.

Workplace continues to benefit from the establishment of companion accounts. Retention of assets also continued to rise as a result of incremental companion account adoption and the value of the platform.

In the quarter, we added $75 billion of retirement assets through an asset acquisition of our institutional retirement — of an institutional retirement consultant. We remain a platform of choice and this is the second institutional retirement plan to join us in the last 9 months. We continue to view these asset acquisitions as incremental opportunities to reach the expanded audience through education and financial wellness. The acquired team’s client base includes nearly one million of plan participants. Transactional revenues were $635 million. Excluding the impact of DCP, which is reflected in this line, revenues were strong.

Although activity moderated from the prior year, self-directed daily average trades remained above $1 million in the quarter, over 3 times E TRADE’s pre-asset acquisition record. We have also seen meaningful interest in our alternatives offering, given our broad-based access to managers and their retail-oriented products.

Loan growth remained strong in the quarter, with bank lending balances growing $7 billion, driven by securities-based lending and mortgages. We expect loan growth over the remainder of the year to be consistent with our prior guidance of approximately $5 billion per quarter.

Deposits increased $6 billion in the quarter to $352 billion. The average rate on deposits declined to 9 basis points. We have completed the net runoff in wholesale deposits and do not anticipate further declines in deposit costs.

Net interest income was $1.5 billion. Excluding prepayment amortization, NII increased 15% from the prior year driven by loan growth. Back in January, we indicated that the fourth quarter NII was a reasonable base to inform 2022 and that we would expect $500 million of incremental NII on the back of rising rates. Due to the further moves in rate expectations since January, we should see this benefit at least double if the forward curve and our modeled assumptions are realized over the remaining 9 months of the year.

Moving to Investment Management. My remarks will refer to quarter-over-quarter changes as the timing of the Eaton Vance acquisition makes the prior quarter a more relevant benchmark. Revenues were $1.3 billion. The sequential decline reflects the seasonally lower performance fees, which are mostly recognized in the fourth quarter and a more challenging market environment. Despite headwinds, this business is benefiting from increased scale and a more diversified product offering. Total AUM of $1.4 trillion declined 8% quarter-over-quarter as a result of market declines and outflows.

Long-term net outflows reflected approximately $9 billion of institutional outflows in our Solutions business, including the expected redemption of a large asset manager who brought their equity trading implementation in-house.

Equity strategies saw a giveback of some of the prior year’s asset appreciation, as the broader market experienced a rotation out of growth. This was partially offset by the continued strong flows into Parametric customized portfolios, as well as our inflation-related and interest rate-sensitive products.

Asset management and related fees decreased sequentially to $1.4 billion on the back of the aforementioned seasonality and market volatility.

Performance-based income and other revenues were a loss of $53 million in the quarter, driven by markdowns in one of the Asia private equity funds, declines in deferred compensation plan investments and negative marks associated with legacy international real estate investments. Away from these specific markdowns, we saw broad-based gains across our alternatives platform, reflecting the strength and diversity of the platform.

Turning to the balance sheet. Total spot assets increased to $1.2 trillion. Our standardized CET1 ratio sequentially declined and now stands at 14.5%. Multiple factors contributed to this change. Standardized RWAs increased as client activity returned after the more moderated levels at the end of 2021 and volatility increased.

OCI related to our available-for-sale securities portfolio reflected an increase of an unrealized loss of $2.4 billion as a result of higher interest rates. While this should earn back over time, it impacted our CET1 ratio by 50 basis points in the quarter.

We continue to return capital to our shareholders. We are executing on our $12 billion buyback authorization, as we repurchased $2.9 billion of stock in the quarter. We remain in a strong capital position.

Our tax rate was 19% for the quarter. The vast majority of share-based compensation and the share-based award conversions takes place in the first quarter creating a tax benefit. We continue to expect our full year tax rate will be in line with full year 2021.

The first quarter again tested the resiliency of our franchise. We are pleased with how our team navigated the volatile environment and stayed close to clients during times of uncertainty. While the outlook for the remainder of the year is difficult to predict, the second quarter has started constructively and clients remain engaged.

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

Questions and Answers:

Operator

[Operator Instructions] The first question is from Glenn Schorr with Evercore.

Glenn Schorr — Evercore — Analyst

Hi. Thank you. Maybe just to start off big picture, so putting up a 20% ROTCE in this tape, I am sure it is good performance and it is affirmation of the strategy and what you built. So my question is, you have enough capital, you have a lot of earnings power, rates are going up. I am curious how you think about — is there what’s next, I mean, what do you do with this higher earnings production with all the capital that’s being produced, do you continue to chip away and find bolt-on acquisitions? Are you thinking about a next act, I mean, organic growth alone can power this, but I am just curious in the next couple of years how you are thinking about that, James?

James Gorman — Chairman and Chief Executive Officer

Glenn, it’s a high class problem and it’s great position to be in. We have been very protective of keeping a sort of buffer on a buffer, because you never know in this world and I think what we have experienced with the markets in the last quarter were extremely volatile and you just have to — you have to anticipate the worst and make sure you are prepared for that. We clearly have done that.

We have been chipping away at the excess capital. If you add back the OCI, we are running about 15% CET1. We were well above 16%. So, clearly, we will see where our CCAR results are. I think last year, they are around 13.2% or 13.3%. I’d be surprised if there’s material changes. But let see. So we are still sitting on a significant buffer.

Listen, we are clearly going to keep pushing capital distribution through buyback and dividend to shareholders. That’s clearly the case. We have just done two major acquisitions with about $21 billion. We would do more deals if as they — if they fit with our strategy, we won’t do things that take us offline, off piece.

We want to stay true to our strategy and our strengths in our three core businesses. So, yeah, continued buyback, but also a lot of investment in the business. I mean, we are doing a lot on the tech side. Obviously, we want to stay completely compliant with our regulatory responsibilities and we will continue to invest to make sure we are best-in-class there.

But a lot of investment technology and a lot of investment around the retirement workplace platform, which I think is sort of the next frontier. And we are just in baby steps, we are very early days of that, but I think that’s a huge opportunity.

And finally, I do think that there are opportunities outside of the U.S., even though we are along the U.S. and that served us incredibly well, and I think, will serve us very well for the next decade. But I think in the Wealth and Asset Management spaces internationally, we punch below our waist. On Institutional Securities we don’t and we had a very strong quarter in Europe and Asia in Institutional Securities. But I think there’s clearly more we can do internationally to sort of watch that space.

Glenn Schorr — Evercore — Analyst

Okay. I appreciate all of that. Thank you. Maybe just one follow-up, Sharon, you mentioned alternatives on the Wealth Management platform. I think you are the largest in the world, but yet it’s still, in terms of distributor of alternative product, But there’s — it’s still at a low level percentage wise of client assets. So I am curious, James mentioned, building technology, building people. How much do you have to prepare the platform or is it there waiting for this day [indecipherable] products that’s coming, I am trying to get a window into what’s coming in terms of alternative distribution on your platform?

Sharon Yeshaya — Chief Financial Officer

I think it’s a great question and we — as you said, we continue to invest in it. We have obviously seen the alternative players creating more product and you see that from peers, but you also even see that from our own from MSM as a secular growth trend in a place that we are investing. They have obviously created products now that are more appropriate or more suitable for retail and our platform is there. We are working very closely together. There’s clearly more that we can do. As Jim said, we are continuing to invest. But I agree with you that this is a place where we have seen an uptick. We noted it over the course of this quarter. It was interesting to us, as I know we have discussed it individually as well, Glenn, and I think, it’s a place where you will just continue to see that kind of growth investment from both us and also on the product side.

Operator

Thank you. Our next question is from Brennan Hawken with UBS.

Brennan Hawken — UBS — Analyst

Okay. Good morning. Thanks for taking my question. Sorry, excuse me, it’s sound of paper, I couldn’t even find a handset. So I had a question first on the Wealth Management deposits and thanks, Sharon, for that indication of updating the NII outlook. But when we think about the deposits and the potential beta, what’s your expectation for beta this time around and what percentage of your deposits are actually on the self-directed platform? We get the asset percentages, but it’s my sense that self-directed runs with a higher percentage of cash. So I am guessing the percentage of deposits would be — would skew higher than the assets do on that platform and could that impact your beta this time around? Thanks.

Sharon Yeshaya — Chief Financial Officer

Sure. I think it’s a great question. I think about it as two parts, probably, actually a bit separately. One with beta, beta for us is informed by the last rate hike cycle. So, we have given you historically and we stand by as sort of a 50 beta as an end state. But, obviously, beta also moves through time as you see different rate cycles, and so that’s stage sort of point A, if you think about just where the beta is. Your point on deposits is also interesting. I think that we think about deposits as we look at the composition of the deposits. And obviously, what E TRADE did and the self-directed channel did is it offered us more deposits from smaller accounts with smaller levels and that might — to your point that might have a different beta. So there’s a beta, obviously, holistically, but then there’s a beta, as you have mentioned, that might depend on where you are within the size of the accounts and the stickiness that you might see associated with those deposits. So, we are looking at it from two ways. Overall, beta the same, but the deposits themselves and the way that we think about the runoff of the deposits might be different this time around, just given our own composition of the deposits as they have been acquired by E TRADE.

Brennan Hawken — UBS — Analyst

Great. That makes a lot of sense. And then for the follow-up, sticking with the rate sensitivity, SBL growth has been quite remarkable this — for the past many years. When we think about what happen last rate hiking cycle, I went back and I looked through, and the interesting thing is the SBLs weren’t often thought of as rate sensitive, but they continued to grow in the last rate hiking cycle. So, how do you think about this time around if the product is obviously mature, but more mature and so maybe could be more subject to some rate sensitivity, but also like advisors and customers, probably, understand the value of the product better, too. And so there’s a couple of cross currents and I can’t quite get my head around exactly how to think about it, but what are your thoughts on that?

Sharon Yeshaya — Chief Financial Officer

Thanks for the question. I think when you — your points are, I think, appropriate. You are looking at, obviously, yes, it was nascent. What I’d say about our profile is, we didn’t have the same size of household penetration across lending products. Then and even today, there is still, I’d say, room to run in better understanding educating products and educating our clients about the different products that are available to them. Now, of course, the pace may change and that’s not impossible given what we are seeing or what you might think could happen. That’s not really the prediction. But the idea is there’s still more education that can be done and that’s why I think we feel comfortable that even though we might see rates rise, the actual amount that we gave you as guidance from a lending perspective should continue. Part of that obviously being SBL, part of that being mortgages. But when you look at the household penetration even five years, six years ago, you were in very low-double digits for us and you have only reached that mid-teen numbers. So still a lot more to go, as I said, around the education of that product for clients where that’s suitable.

Operator

Thank you. Our next question is from Dan Fannon with Jefferies.

Dan Fannon — Jefferies — Analyst

Thanks. Good morning. The $75 billion acquisition of AUM that you got within Wealth Management, this is the second transaction I think over the last 12 months. Can you talk about the capabilities that you are getting with this and how this is being integrated more broadly into the Wealth platform? And also just thinking about the backdrop and strategy, should we see more of these type of transactions going forward?

Sharon Yeshaya — Chief Financial Officer

So why don’t I start with just saying, we will see more when it’s appropriate for our — we are obviously continuing to look at this space. What these are, and as James said, when we are looking at retirement, we are looking at defined benefit. We are looking at understanding how workplace coincides with the FA advisor-led space together and the way that I would think of this is just an extension of our strategy. So the best kind of concept that you can say is, yes, we had a proof point in the third quarter of last year. We are obviously in a situation where we have acquired a similar plan and group of advisors. The group of advisors covered defined benefit contribution plans. Those defined benefit contribution plans have corporations associated with them that may also have participants. Those — in this case, we have 1 million participants that were added. That — those participants, if you go back to our strategy of the funnel, they are a top portion of that funnel that we begin to advise or educate or learn or teach people about financial wellness. We give them access to our services particularly that we have already developed in the workplace channel. And so that educational content has a crossover and then they now understand better what financial wellness is. They can say, I am interested in speaking to a financial adviser. So that’s where the channels begin to converge and merge, and where you are beginning to really think about the top of the funnel into potentially providing access and advice to clients over time.

Dan Fannon — Jefferies — Analyst

Got it. That makes sense. And you did talk about within the workplace, higher retention rates and more companion accounts. I don’t know if you can give some stats around that, but maybe you are also I think highlighted that the integration costs will be done with E TRADE by the end of the year. So maybe what’s left in terms of milestones with that and then within the kind of workplace, some of the momentum and progress, any numbers would be helpful. Thank you.

Sharon Yeshaya — Chief Financial Officer

Sure. So the companion accounts, what we have said is that, by the end of this year, approximately 90% of U.S. stock participants will be in a position to access a companion account. Should they want to or should they have the stock to invest into the account. So that’s the point there.

The question around the retention of assets, we had given that metric at the beginning of — in the January deck and we talked about aiming towards 30% and we have made improvements from the 24% that we gave you at the end of the quarter.

So, all of those are milestones as you think about integration and integration-related expenses. And also the points that James had made around the investment in our business in technology and in this — and in the integration more broadly.

Operator

Thank you. Our next question is from Steven Chubak with Wolfe Research.

Steven Chubak — Wolfe Research — Analyst

Hi. Good morning. So I wanted to start off with a question on M&A outlook. Organic growth has moderated granted versus what admittedly was a neck breaking pace that we had seen last year. And to what extent does the market volatility disrupt adviser movement across the wealth space and have you seen any improvement in breakaway broker trends or just the recruiting backlog more broadly as volatility has started to moderate versus the level seen in Jan and Feb?

Sharon Yeshaya — Chief Financial Officer

Thanks for the question, Steve. So as it relates to net recruiting, still seeing inflows on the back of net recruiting, in fact, all three channels, as you think about NNA were contributors to the net — the NNA number excluding the asset retention, so if you just take that other piece or the asset acquisition. And if you look just at the advisor led channel, a couple of factors; so, one, net recruiting positive; two, on the actual adviser side, evenly split between existing accounts or existing clients and new clients, so continuing to see consolidation of assets held away, as well as new client relationships going forward. And then we had a contribution from workplace, which is obviously impacted by both the companion accounts and also retention of assets and self-directed. So, really broad-based contributions from the different channels and net recruiting, as I said, remains very — in a good — in a solid place.

Steven Chubak — Wolfe Research — Analyst

Understood. And just for a follow-up, just trying to clarify some of the NII guidance, I was hoping you could provide, Sharon, an update on the loan growth outlook, whether you are still comfortable with the mid-teens loan growth you had guided to previously and does the more than $1 billion NII benefit that you alluded to in your prepared remarks contemplate some continued loan growth or is that on a static balance sheet?

Sharon Yeshaya — Chief Financial Officer

It’s the same loan growth number that I gave you. So the percentage that you gave, if you take that and you think it was basically about $5 billion a quarter, so we just gave you in dollars this time around, so it’s the same that I gave in January. And then that is what’s — the point around the — I don’t know if it was illusion, I actually gave you that it was double. So I said at least double in terms of the NII guidance increase. That really has to do with the realization of the forward curve and the change in the forward curve.

Operator

Thank you. Our next question is from Ebrahim Poonawala with Bank of America.

Ebrahim Poonawala — Bank of America — Analyst

Hey. Good morning. Just a quick couple of follow ups. One, Sharon, if you could remind us in terms of the NII guide, how big is the money market waivers kind of coming back now that we have had the first Fed hike and is there any additional improvement that we should expect if the Fed hikes by 50 bps in May?

Sharon Yeshaya — Chief Financial Officer

So our money market guidance we gave you was about plus $200 million and we stand by plus $200 million, but I’d say, for the full year. It’s really based on two factors that are contributing into that. One is the balances, as well as the industry and the waivers, how quickly those waivers roll off. So we are — $200 million for the remainder of the year for the increase for Investment Management.

Ebrahim Poonawala — Bank of America — Analyst

Understood. And just as a follow-up, when you think about, it’s a tougher question around the macro outlook when we think about M&A, IPOs coming back. Any sense in terms of when you look at the world feels like volatility is going to be high, which bodes well for trading. But how do you handicap just talking to sort of your corporate clients around appetite for deal making and given just the current geopolitical backdrop, any color would be helpful.

Sharon Yeshaya — Chief Financial Officer

Yeah. So a couple of things, first on the advisory pipeline in particular. Pipeline remains healthy and diversified. So taking a look at the underlying pipeline still diversified across sectors, which I think is another healthy sign in terms of the marketplace. As it relates to the underwriting calendar, that obviously you do have deals that didn’t necessarily come to market in the first quarter. They — that pipeline to realize, that was associated really with the volatility and the uncertainty in the first quarter, as that recedes, to the extent that it does, that would move things from the pipeline state to the realized state.

Operator

Thank you. Our next question is from Mike Mayo with Wells Fargo.

Mike Mayo — Wells Fargo — Analyst

Hi. I have a question and a follow-up. I guess no good deed goes unpunished. Going back to, you said, core net new asset growth for the quarter was 5.4%, if I got that right excluding the deal. And so that is down from where you were before, but it’s certainly up from where you guys have been a few years ago. So where do you expect that to settle out and what’s the relative contribution, say, E TRADE versus the other legacy businesses?

Sharon Yeshaya — Chief Financial Officer

We have given what I think we — where we started, Mike, is we said and James said it in January. 11%, which we saw last year, was exceptional and we didn’t expect that to be repeated in the near-term or we weren’t sure and we wanted to see how the pipeline moved out and how these different channels work together. But what we did say is 3% to 4% is where we used to be and we weren’t expecting to see that, obviously, we are also at a higher base now and so that’s also something to bear in mind. So I think we feel very good about where we are and this is well within that range that we had basically given you. We said, we would spend time better understanding the channels to provide guidance over time.

You asked another. The contribution from each of the channels, as I said, three different channels all contributed very, very nicely. We don’t break it out into different pieces, but I would say that, the integration is going well and the E TRADE client and client usage is also doing well.

Mike Mayo — Wells Fargo — Analyst

Okay. And my follow-up question is on the block trading investigation, which you guys highlighted in your filings. And I know you are limited about what you want to say, I know you can’t and shouldn’t give any expectations. But there might be some things that you could disclose around this. This might wind up being a non-event. I mean there’s investigations all the time. We get it. But every now and then one of these investigations lead to something. I am not saying that this is the case, but I just want to what investors ask me, what do you think the impact to the block trading investigation of Morgan Stanley could be? It would be nice for me and investors to have that answer, so with that big wind up. How much do you make from block trading per year and were these issues self-disclosed by Morgan Stanley to the regulators or did it come from an outside party? Thank you.

James Gorman — Chairman and Chief Executive Officer

Hey, Mike. Certainly prepared your first question about the net new money growth and high class problems of not achieving 11% organic, 5.4% is generating something like $200 million to $250 million net a year. So it’s actually a great problem, and I think, as Sharon said, the various channels there are going to continue to contribute. My telling you all of this is to say, I can’t talk about ongoing investigations on block trades, obviously and we are not going to do that on an earnings call. But you can look at our equities business and how it performs generally and how it’s done over many, many years. And its current performance and draw, whatever conclusions might be appropriate, but right now we can’t talk about ongoing investigations and it doesn’t matter whether this one or any other one from any authority, it’s always the same rule.

Operator

Thank you. Our next question is from Gerard Cassidy with RBC Capital Markets.

Gerard Cassidy — RBC Capital Markets — Analyst

Thank you. Hi, Sharon. Sharon, can you share with us when you take a look at the equities business, as well as the FIC business and all the disruption we saw in the quarter. Has there been any opportunity for you guys to grab market share from maybe some other competitors that are weaker and are unable to handle the volatility the way you guys did?

Sharon Yeshaya — Chief Financial Officer

Thanks, Gerard for the question. I — actually I know a lot of the peers have released this morning. So I haven’t looked specifically at this quarter’s number in terms of this — the public market share. But what I can tell you is that we have seen increased share over time. I think we are really proud of the position that we have made in both of the sales and trading franchises. A lot of that has to do with what James discussed more directly in his script, which is building these — investing our people and talent both geographically and also making sure that we have it across different functions. So all of these things are important, I think it’s decades in the making rather than just one quarter, and we are really proud of the way that we thought about the continue — the continuous velocity of all of our resources to make sure that we can better and more efficiently support client flows.

Gerard Cassidy — RBC Capital Markets — Analyst

And then a second, following-up on your commentary about your pipeline and we all understand the volatility of what’s going on out there, if the markets settle down but they settle down at lower valuations in the underwriting area, do you still think that could come back or do we need higher valuations, so that there’s not basically down, almost like a down round where private has to go public, if that’s their intention at a lower price than what they have raised money on the private side?

Sharon Yeshaya — Chief Financial Officer

I think that will be very — I think individual companies will make their own decisions in terms of where they have that from an advice driven perspective.

James Gorman — Chairman and Chief Executive Officer

I just — if you look at pipeline and you look at investment banking revenue through cycles, it’s actually remarkably stable on an annual basis. On a quarterly basis, it’s extremely volatile. I mean, look at the change between fourth quarter ECM and first quarter ECM. But then look at what M&A did the advisory business, I think, over $800 million. But if you go through the end of the year, I am sure you will find it’s much more stable and reflective of what we have done in 2020, 2021 period. So I don’t think that — it’s a very interesting question you raised, but I don’t think that individual companies, they don’t make their decisions obviously based on averages of what the market theme is based on what their own equity capital needs are or debt capital needs or M&A needs. And listen, we have got — we have one of the best franchises in the world. It is global. So any cross border deals, any global companies, we are in it. That won’t change. It’s just a question as a Q1 or Q3. So I am really unphased by the volatility and banking on a quarterly basis.

Operator

Thank you. Our next question is from Jeremy Sigee with BNP Paribas.

Jeremy Sigee — BNP Paribas — Analyst

Hi, there. Thank you. I wanted to talk about the lower transaction revenues in Wealth Management and not so much about what happened in the quarter, but just looking at March and April, what’s the state of mind in your Wealth Management clients? Is this an environment where they are going to stay active or become more active again or is this a sort of wait and see kind of mood among your clients?

Sharon Yeshaya — Chief Financial Officer

So actually it’s a really interesting question. Two things that struck me as we sort of went through and thought about the quarter. One is the fact that when you look at allocations of investors in the retail space in terms of where their positions were in equities, fixed income, cash, cash equivalents, etc, on a proportional basis. Over the last year or two actually, those percentages have actually also remained relatively stable. So the retail investors’ investment is something that hasn’t necessarily fluctuated based on the data that we have, that we have seen. Those positions have remained there despite the fact that there’s been volatility.

The second point is, specifically on self-directed is, the E TRADE, the fact that, this is what I tried to mention in the script was, where we are from the daily average trade levels, still very, very high, 3 times the high from when E TRADE was a standalone company. And so I think it highlights the change that we have seen in the retail sentiment over the course of the last two years or three years.

James Gorman — Chairman and Chief Executive Officer

I’d just add two points to that. Number one, the transaction revenue line in Wealth Management has the DCP impact in it, which was actually very big this quarter. That bounces around. And secondly, if you look at the P&L of Wealth Management, actually the transaction revenues as a driver of the overall health of the business is relatively small. I mean, the much more important are the fee-based revenues, the net interest income, what we are doing in the banking side. So, and then some of the new issue stuff. So I just put that out there. It’s — again, it’s one of these things that, honestly, I am not very pleased, I am much more interested in asset growth, net new asset growth and what we are doing in the bank than deposits, transactions will bounce around given market volatility.

Jeremy Sigee — BNP Paribas — Analyst

That’s very helpful. Thank you. And could I just ask a follow-up, I am sitting in Europe, you mentioned Europe was strong. Could you talk about which bits were driving that? What was so great in Europe this quarter?

Sharon Yeshaya — Chief Financial Officer

I think that this is really based on the advice driven model, right? You have uncertainty in Europe. There’s a lot going on. Obviously, there are pieces of commodities, for example, it’s very specific. But then you also just see client engagement as it relates to various parts of Europe and being able to service that advice is all part of this diversified model.

Operator

Thank you. Our next question is from Devin Ryan with JMP Securities.

Devin Ryan — JMP Securities — Analyst

Great. Good morning, everyone. Question on the family office strategy, there was an interesting article recently and I figured to dig in here a little bit more. I know it’s always been a focus for Morgan Stanley and really the firm is uniquely positioned in my opinion to really take advantage of that. But I am curious kind of what is new in the strategy and how you guys would maybe frame the evolution and kind of where the opportunity is accelerating?

Sharon Yeshaya — Chief Financial Officer

Absolutely. I am actually glad you asked the question. I think it’s a really interesting space and I think it’s an example of connecting the dots. So over the course of the last couple of years, what we have realized is there’s a need for family offices to have access to services that we already offer Institutional Securities clients through our Fund Services platform. And so bringing together those conversations between what’s happening in the Institutional Securities Group and what strategy we are driving in Wealth Management is just an example of how the business is working more closely together to find those opportunities to service clients as family offices begin to feel more like Institutional accounts, and that back and forth in dialog is really amongst the team, the leadership and then throughout the organization.

Devin Ryan — JMP Securities — Analyst

Okay. Great. Thanks, Sharon. Quick follow-up, just on the digital asset strategy and maybe how you would frame where you are today both in GWM and Institutional, and what we could expect over the next year?

Sharon Yeshaya — Chief Financial Officer

Absolutely. As you know, we are obviously offering some — we have some offerings for different qualified investors that we have. But in this space, we are obviously taking the lead from regulators as it relates to what we can and can’t offer various clients.

Operator

Thank you. There are no further questions at this time. Thank you, presenters.

[Operator Closing Remarks]