Morgan Stanley (MS) Q1 2021 Earnings Call Transcript

Morgan Stanley  (NYSE: MS) Q1 2021 earnings call dated Apr. 16, 2021

Corporate Participants:

James P. Gorman — Chairman and Chief Executive Officer

Jonathan Pruzan — Chief Financial Officer

Unidentified Speaker —

Analysts:

Brennan Hawken — UBS Investment Bank — Analyst

Steven Chubak — Wolfe Research — Analyst

Glenn Schorr — Evercore ISI — Analyst

Christian Bolu — Autonomous Research — Analyst

Mike Mayo — Wells Fargo Securities — Analyst

Mike Carrier — Bank of America Merrill Lynch — Analyst

Kian Abouhossein — J.P. Morgan — Analyst

Devin Ryan — JMP Securities LLC — Analyst

Jeremy Sigee — Exane BNP Paribas — Analyst

Presentation:

Operator

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.

James P. Gorman — Chairman and Chief Executive Officer

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.

Pre-tax margin was 27.9%. This margin should only improve in future years and we expect 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 are 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 reach 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 1st, we closed our acquisition of Eaton Vance, bringing together two 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 MSM 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 were 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 28th. That resulted in a net loss of $644 million, which represents the amount the client owed us under the transactions but failed to pay us.

Subsequently, we made a management decision to completely de-risk the remaining smaller, long and short positions, which, while not especially problematic, 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 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.

Jonathan Pruzan — Chief Financial Officer

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 three 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 and 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 contain 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 two 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 & 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 four 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 of $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 non-investment grade financing, spread across sponsors and corporate issuers. Investment banking pipelines remain healthy across products. Strategic dialogs are active, equity market should support issuance and conditions remain favorable for borrowers, and we are seeing a broadening across sectors beyond technology and healthcare.

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 loss, as James discussed.

Fixed income revenues of $3 billion was the highest for a 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 in passive 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. They 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 meaningful 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 pay-downs on corporate relationship loans, particularly non-investment 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. So the 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 pay downs. 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, pre-tax 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 advisors also recognize the value of our platform, demonstrated in continued strength in net recruiting and retention, which also benefited NNA. Elevated client activity across both advisor-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 six years and revenues were 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, led the 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 pre-payment amortization which turned positive and was approximately $100 million. Excluding pre-pay, NII was up 6% and in line with our prior guidance. The increase reflected the realization of funding synergies, driven by the on-boarding 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 on-boarding 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 on-boarded 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. 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. Through rest of 2021, we’ll be focused on analyzing the comprehensive datasets which cover advisor-led and self-directed clients to help better understand investment behaviors and needs and refining the tools required to connect financial advisors 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 1st, we closed the acquisition of Eaton Vance. We issued 69 million shares and $5 billion of common equity. We created approximately $9 billion in 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 one month of the combined businesses’ financial, so comparisons to prior periods are difficult. I’ll focus mainly on the quarter and our positioning moving forward. We are pleased that the businesses retain 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 region. We saw a particular strength in MCM global equity strategies, which continue 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 for more durable management fee revenue has a meaningful increase and asset management-related fees were $1.1 billion with just one 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 three 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 integrations, the combination of breadth and depth of product offerings and services with our enlarged customer base has led to approximately a $150 billion of net new client assets for 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.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Brennan Hawken with UBS. Your line is now open.

Brennan Hawken — UBS Investment Bank — Analyst

Good morning. Thanks for taking my questions. I’d like to ask, maybe first on Wealth Management. The net new asset growth rate implying double-digit organic is really impressive, not something that narrative around wirehouses, you know, tailing to be able to grow really jives with.

So I’m curious, I know we’ve seen these trends accelerate in 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?

James P. Gorman — Chairman and Chief Executive Officer

Well, Brennan, let me have a go at that. I mean historically, the growth rates, as you probably know, in the full service as you called, wirehouses, has been I don’t know 0% to 2% over the last 15 years, with loss of financial advisors, some loss of assets into the RAA 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 bring 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 product, you’re just operating into 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%, while 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’ve got to be realistic. But to be outgrowing some of that non-traditional competitors, even for a quarter, is just a — it’s a wonderful green shoot to have planted out there.

Brennan Hawken — UBS Investment Bank — Analyst

No doubt. Thanks for that color, James. And then, thinking about NII within Wealth Management business. Jon, you made some comments on NII, but I wasn’t sure if those were just purely on the Wealth 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 trend in core NII axing out any noise that might happen from prepays quarter-to-quarter?

Jonathan Pruzan — Chief Financial Officer

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. And 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 on-boarding 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 cost tick down and some of the incremental wholesale deposits run-off because of the on-boarding.

So, we feel good about the guidance we gave you. The $1.2 billion [Phonetic] 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.

Brennan Hawken — UBS Investment Bank — Analyst

Thanks for the color.

Operator

Thank you. Our next question comes from Steven Chubak with Wolfe Research. Your line is now open.

Steven Chubak — Wolfe Research — Analyst

Hi, good morning.

James P. Gorman — Chairman and Chief Executive Officer

Good morning.

Steven Chubak — Wolfe Research — Analyst

So, 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, you know, what were some of the learnings from that experience? And just may be more importantly, how does it inform your risk management approach within PB to ensure that you can avert a similar situation in the future?

James P. Gorman — Chairman and Chief Executive Officer

Yeah. I think — I mean, my comment about the way that this team has worked together now for a decade, we all went through the financial crisis, most of us in a 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 their single-stock position — very concentrated single stock long positions that had explosive growth, and were offset by the various short in the indices [Phonetic] that we short.

So it was, you know, and I think what the lesson is 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 is 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.

Steven Chubak — Wolfe Research — Analyst

No, that’s helpful color, James. And 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 that lead to your expectation that we should be able to grow or build NII from here going forward?

Jonathan Pruzan — Chief Financial Officer

So, the weighted average cost of deposits is 18 basis points and 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 talked about $150 billion of funding synergies. We revised that to $250 billion, given the growth in deposits. We said that we would realize that and $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 in 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 is 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 pick up the funding synergy.

Steven Chubak — Wolfe Research — Analyst

That’s great color, Jon. Thanks for taking my questions.

Jonathan Pruzan — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from Glenn Schorr with Evercore ISI. Your line is now open.

Glenn Schorr — Evercore ISI — Analyst

Hi, thanks. James, I think you covered some of the stuff that I want to cover on our cadence [Phonetic], 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 leverages employed?

Where — because obviously, what’s been great about your PB business is, I mean, even though you can lose money, and — oh, wait, you have the assets when they — historically, when you have the assets and things break, you look for more collateral before you blow up 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? Thanks. Sorry for the follow-ups.

James P. Gorman — Chairman and Chief Executive Officer

Well, Glenn, I’ll try and touch on a couple of them. And to be honest, there is — 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 — you know, we’re 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 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 yeah, 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 and ever is a long time, but a loss in the PB business. And the business is — you know, back to the previous question from Steve, the business is very well risk-managed and has been for decades now, and we’re the number one prime broker in the world. We were the number one 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 the learning experience.

It was complicated, I will say, a 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.

Glenn Schorr — Evercore ISI — Analyst

I appreciate that. And then on workplace, it’s such a good growth and good margin business on its own? How do you execute? You mentioned that the companion accounts over the next 12, 18 months, how do you execute on that? And then how do you execute on morphing them to the all-important Wealth Management Advisory relationship?

Operator

[Technical Issues] Please standby, the conference will resume momentarily. Again, please, standby.

Unidentified Speaker —

Hello. This is the speaker of the call. Can the operator hear us, please?

Operator

Yes, confirmed.

Unidentified Speaker —

Okay, great. So can you put us in, please?

Operator

You are in the main conference, ready to proceed.

Unidentified Speaker —

Great. We can…

James P. Gorman — Chairman and Chief Executive Officer

Can we have the next question, please?

Operator

And our next question comes from Christian Bolu with Autonomous. Your line is now open.

Christian Bolu — Autonomous Research — Analyst

Good morning. Hope everyone can hear me.

James P. Gorman — Chairman and Chief Executive Officer

We can now. Sorry about that.

Christian Bolu — Autonomous Research — Analyst

Perfect. No worries, okay. Just circle back to the Wealth Management business, the organic growth there was pretty spectacular at north of 10%. And I was wondering if you can give more detail on the legacy financial advisor business. I hear you on [Indecipherable] 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 is recruiting, for example, will 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 strength here?

Jonathan Pruzan — Chief Financial Officer

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.

Christian Bolu — Autonomous Research — Analyst

Okay, thank you. And then on FIC, to your point, it has 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 there 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?

Jonathan Pruzan — Chief Financial Officer

Sure. And again, I think that — as I said, the FIC 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.

Christian Bolu — Autonomous Research — Analyst

Okay, thank you.

Operator

Thank you. Our next question comes from Mike Mayo with Wells Fargo Securities. Your line is now open.

Mike Mayo — Wells Fargo Securities — Analyst

Hi. Well, great timing with your E TRADE acquisition. And I guess retail volumes are some 2 times to 3 times high — 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?

Jonathan Pruzan — Chief Financial Officer

Sure, Mike. Yeah. 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 has got a crystal ball. But right now clients are extraordinarily engaged and we’ll have to see how this plays out over time.

Mike Mayo — Wells Fargo Securities — Analyst

Okay.

James P. Gorman — Chairman and Chief Executive Officer

Mike, I just — the two kickers — there will be some. Obviously, these markets won’t stay at this kind of retail activity forever. But the two 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 workplaces we’re integrating with Solium, and that’s improving. 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 sort of the story over the next five years as much as the highlight, you know, the very elevated activity will be.

Mike Mayo — Wells Fargo Securities — Analyst

And then my 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 report 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 Citibank, America, JP Morgan 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.

James P. Gorman — Chairman and Chief Executive Officer

Well, I’ll give you a couple of things just on the — we are in a quiet period, so the things — there are certain times when you can’t comment about the business unless you sort of pre-announce the 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 bid and they make it.

And thirdly, the context is the business is a phenomenal business that’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.

Jonathan Pruzan — Chief Financial Officer

Very small.

James P. Gorman — Chairman and Chief Executive Officer

Very small? So, yeah Mike, I mean, listen, as you know, we’re quite transparent about this, we don’t like to take losses ever. Unfortunately, when you intermediate flows of capital, you sometime says that’s what our whole margin book is. And the question is, once you’re faced with the reality, how do you — 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.

Mike Mayo — Wells Fargo Securities — Analyst

Alright. Thank you.

Operator

Thank you. And our next question comes from Mike Carrier with Bank of America. Your line is now open.

Mike Carrier — Bank of America Merrill Lynch — Analyst

Good morning, and thanks for taking the questions. First, just on the trading front, you know obviously, a robust quarter, even with some of those losses. I realize it’s difficult to gauge the outlook, so what drivers are you seeing that could continue to drive activity versus normalize it? And how is your market share have been trending during this environment?

Jonathan Pruzan — Chief Financial Officer

It’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 — 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 lot 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.

Mike Carrier — Bank of America Merrill Lynch — Analyst

Okay, great. And then just as a follow-up. Just on the Wealth and Investment Management, organic growth obviously, very strong. James, you mentioned some of the retail activity could 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 one to two years here that you feel like could maybe partially offset any normalization that we eventually get?

Jonathan Pruzan — Chief Financial Officer

Well, I think, James mentioned a couple of those are 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’re 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, it 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 is huge potential, James mentioned the 5 million workplace participants where only clients outside of that channel was 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.

James P. Gorman — Chairman and Chief Executive Officer

Just to add to it. I can’t tell you how excited I am about the combination of these four 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; Calvert Funds. So it’s 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 one of the top two workplace providers in the world. Things that we can do to expand internationally, taking Eaton Vance 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 — got the core business that’s sort of number of financial advisors and productivity per financial advisor, that’s basically the only two metrics you needed to follow. And now we’ve got like 30 different things that are evolving along. So sort of watch this space.

My target is $10 trillion of money under management. I tell 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 $1 trillion assets under management in the Wealth Asset Management business. And he correctly pointed out, you know, it’s revenues per asset, it’s not assets. And I said, yeah, I know, but I’d like $1 trillion with 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.

Operator

Thank you. Our next question comes from Glenn Schorr with Evercore ISI. Your line is now open.

Glenn Schorr — Evercore ISI — Analyst

Hi, thanks very much. 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 has the ability to transition them over to full wealth management advisory relationships over time. So the question is this, how do you execute on that? You mentioned companion accounts, but do you make research available or what products do you push across? Have you pre-market to them to convert them because it takes time? Thanks.

James P. Gorman — Chairman and Chief Executive Officer

Yeah, Glenn. Jon is 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. Good to have you back.

Jonathan Pruzan — Chief Financial Officer

So I think — you sort of highlighted some of the things that are 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 that 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, or 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.

Glenn Schorr — Evercore ISI — Analyst

Thanks. And thanks, James, I’m very confident in our relationship. Appreciate that.

James P. Gorman — Chairman and Chief Executive Officer

Good to hear.

Operator

Thank you. Our next question comes from Kian Abouhossein with J.P. Morgan. Your line is now open.

Kian Abouhossein — J.P. Morgan — Analyst

Yes. Thanks for taking my questions. The first one is on a fixed income. As we know, you’re a 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 a longer-term, more stable environment around credit and with the macro pieces being a bit weaker? So can you talk a little bit about the mix? And if you are happy about the mix, or what opportunities do you see to further grow the rates in FX area?

Jonathan Pruzan — Chief Financial Officer

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’ve 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 a 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 the industry.

Kian Abouhossein — J.P. Morgan — Analyst

And on — coming back to Archegos, I mean you are a great, number one PB player. But clearly, family offices and high concentration risk, low transparency by clients is reflected by the margin that you take. So as a result, I’m sure you risk office will take margins and do simulations on a, so to say, unwinding of the position, and in that, you have lost a significant amount of money.

So I’m just trying to understand how you’re thinking about not just the family office needs more disclosure, and needs to be reviewed, but more around the margin requirement, 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 your synthetic prime brokerage business is on a — on a dynamic basis or on a fixed basis in terms of margins?

James P. Gorman — Chairman and Chief Executive Officer

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 it 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, so 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 overlabor this issue.

Jonathan Pruzan — Chief Financial Officer

Yeah. I would just — and I think just pulling some of the threads of your questions together and just make a couple more observations. First, as we obviously are looking across all of the portfolio, 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.

Kian Abouhossein — J.P. Morgan — Analyst

Thanks for the answers.

Operator

Thank you. Our next question comes from Devin Ryan with JMP Securities. Your line is now open.

Devin Ryan — JMP Securities LLC — Analyst

Okay, great. Hey, good morning. So, 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, 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?

Jonathan Pruzan — Chief Financial Officer

Sure. And I think your comments are very appropriate. It’s a fast-growing space. There’s a lot of interest in this space. And we had significant interest from our wealth clients to try to get access to this new asset class, and so we tried to facilitate that. We’ve allowed within our Wealth Management platform, qualified investors to get access through two specific passive funds if you will, to 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.

Devin Ryan — JMP Securities LLC — Analyst

Okay, terrific. If I can squeeze in a quick follow-up here. Just on the SPAC market, clearly it has played a role and 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 just love to maybe think about the backlogs there and expectations moving forward to kind of work through those backlog? And then, can the IPO market kind of do a hand-off year, the traditional route of going public if the SPAC market slows?

Jonathan Pruzan — Chief Financial Officer

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 product.

But I’d also point out there is a couple of hundred million dollar of sort of SPAC money that can be levered and put into the M&A environment, but there is also a $1.5 trillion of dry powder with the private equity firms. So if you put multiples or leverage on those, there is a lot of buying power, so I think that’s also a good driver of the M&A market going forward.

Devin Ryan — JMP Securities LLC — Analyst

Okay, great. Thanks, Jon.

Jonathan Pruzan — Chief Financial Officer

Yes.

Operator

Thank you. Our next question comes from Jeremy Sigee with BNP Exane Paribas. Your line is now open.

Jeremy Sigee — Exane BNP Paribas — Analyst

Hi, there. Thank you. 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 advisor 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?

Jonathan Pruzan — Chief Financial Officer

Yeah. 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 will start to give you more color on that. But early anecdotes are quite positive.

Jeremy Sigee — Exane BNP Paribas — Analyst

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?

Jonathan Pruzan — Chief Financial Officer

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 to the overall capital requirement.

Jeremy Sigee — Exane BNP Paribas — Analyst

Okay. Thank you very much.

Operator

[Operator Closing Remarks]