Morgan Stanley (NYSE : MS) Q2 2021 earnings call dated July 15, 2021
Corporate Participants:
James P. Gorman — Chairman and Chief Executive Officer
Sharon Yeshaya — Chief Financial Officer
Analysts:
Glenn Schorr — Evercore ISI — Analyst
Brennan Hawken — UBS — Analyst
Steven Chubak — Wolfe Research — Analyst
Bernard Von Gizycki — Deutsche Bank — Analyst
Christian Bolu — Autonomous Research — Analyst
Mike Mayo — Wells Fargo Securities — Analyst
Ebrahim Poonawala — Bank of America — Analyst
Gerard Cassidy — RBC Capital Markets — Analyst
Jeremy Sigee — BNP Paribas — Analyst
Daniel Fannon — Jefferies — 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 would 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 firm delivered another strong quarter and a record first half with year-to-date revenues in excess of $30 billion. We had strong inflows across Wealth and Investment Management, and in the first six months of the year, we added over $250 billion of net new assets across both of those businesses. We now have over 13 million unique relationships in Wealth Management. And in Investment Management, our asset mix is increasingly diverse and well positioned in key secular growth areas, such as customization, private alternatives and sustainability. Finally, Institutional Securities also had a tremendous performance; equity remains a preeminent leader in the industry, fixed Income has maintained its share gains, and our leading investment banking franchise performed strongly.
Our business is further enhanced by our acquisitions of E TRADE and Eaton Vance and the progress on our integration. Since the respective announcement of each acquisition, both businesses have performed better than we expected. Not only did the standard merger metrics such as synergies and funding benefits read positive, but much more importantly, we are seeing long-term business growth driven by exceptional client engagement.
This quarter, our ROTCE was 19%, and year-to-date, we are over 20%. Obviously, we’re exceeding our longer-term targets of 17% plus. We intend to formally revisit our goals next January. While we will not revisit targets mid year, I want to assure you, we are as focused on delivering top performance as ever. Though we are always subject to the broader macro environment, we will strive for continued outperformance.
Now let me talk about the decision we announced two weeks ago on further capital distribution. During the financial crisis, we reduced our buyback to zero and cut our dividend quarterly to $0.05 per share. Over the past decade, it has been a slow steady path of improvement as we grew our dividend from $0.05 ultimately to $0.35, and increased our buyback from zero to $5 billion. I have said for a number of years that Wealth and Investment Management contribute durable earnings that enable us to pay our shareholders substantially, and that is what we are doing. As a result, we reset our dividend, doubling it to $0.70 per share, and also increased our buyback for up to $12 billion over the next 12 months.
We made this decision because of the confidence we have in our business model and our performance over the past three Federal Reserve stress test. These tests confirmed what we’ve said for many years; Morgan Stanley has built a significant amount of excess capital and we have the ability to invest in our business, do acquisitions, maintained a very healthy dividend yield, and increase our buyback. Given our current earnings momentum, it makes — some time to fully distribute our capital, but we feel strongly that this year is the time to make a big start.
Now, Sharon Yeshaya is here with me today in her new role as Chief Financial Officer. John Pruzan, who was CFO up until midway through the second quarter, is also here with us. And as you know, John took on additional responsibilities as our Chief Operating Officer since June 1st.
So, let me turn it over to Sharon, who’ll discuss the quarter in detail, and we look forward to all of your questions. Thank you.
Sharon Yeshaya — Chief Financial Officer
Thank you, and good morning.
The firm produced revenues of $14.8 billion in the second quarter, representing one of the top three quarters on record. Performance continue to be very strong, reflecting high levels of client activity across our businesses. Excluding integration-related expenses, our EPS was $1.89 [Technical Issues]. Our ROTCE was 19%.
Year-to-date revenues of $30.5 billion were a new record, highlighting the power of our firm, which has been further enhanced by our recent acquisition. Investing for growth remains a priority, while also managing our expense base. On a year-to-date basis, total expenses were $20.6 billion, of which non-compensation expenses were $7.4 billion and compensation expenses were $13.2 billion. The increase in expenses versus the prior year reflects the addition of E TRADE and Eaton Vance, and the integration-related costs. Year-to-date, our firm efficiency ratio declined to 67% excluding integration-related expenses, underscoring the operating leverage of our business.
Now to the businesses. Institutional Securities revenue of over $7 billion demonstrates the power of the integrated investment bank. Revenues declined by 14% from the exceptionally strong prior year. Higher revenues in investment banking and equities were offset by lower fixed income results. Underwriting was particularly robust, as issuance remained elevated. And, despite lower volatility across asset classes, our sales and trading clients remained engaged. We ended the period on a strong footing, as clients were active through June.
Investment banking revenues were $2.4 billion. The 16% increase from the prior year was driven by advisory and continued strength in equity underwriting. From a geographical perspective, results in Europe and Asia were the strongest in over a decade. And, while technology and healthcare remain areas of core strengths, activity in financial institutions, financial sponsors, real estate and other sectors supported higher revenues.
Advisory revenues were $664 million, reflecting increased completed M&A activity versus the prior year. Year-to-date announced industry volumes reached record levels and clients continue to look for strategic opportunities as markets remain open and constructive.
Equity underwriting revenues of $1.1 billion were the second highest on record and the third consecutive quarter over $1 billion. The increase from the prior year was driven by traditional IPOs, where activity remains robust globally.
Fixed income underwriting revenues of $640 million were also the second highest, after a record second quarter of last year.
Investment banking pipelines remained healthy across products and regions. CEO confidence remains high as companies look for strategic opportunities for growth.
Equity revenues increased 8% from the prior year to $2.8 billion. We are number one in this business globally. Revenues were the second highest in over a decade. Results in Asia were particularly strong, reflecting increased interest in the region from both Asia and non-Asia-based clients. Cash and derivative results were robust, but declined versus the prior year, against the backdrop of lower volatility. Prime brokerage revenues were strong, an increase versus last year, as average balances reached new highs.
Fixed income revenues were $1.7 billion. Revenues declined from the exceptional prior year as wider bid offer spreads normalized across products. This quarter’s results were broad-based across regions. Micro results were robust compared to historical averages, but declined from the prior year, as credit markets were relatively range bound and bid offer spreads compressed. Macro also declined versus last year, with lower revenue in both rates and foreign exchange on the back of lower volatility.
Other revenues of $207 million declined versus the prior year. The decrease primarily reflects lower mark-to-market gains on corporate loans, net of related hedges. Prior year results benefited from significant credit spread tightening.
Turning to ISG lending. Our allowance for loan for credit losses in ISG loans and lending commitments was essentially flat in the second quarter at $1 billion. ISG provisions were $70 million and net charge-offs were $92 million, primarily related to one facility. Total ISG loans were flat. The decline in corporate loans was almost entirely offset by growth in all other lending categories. Lending commitments increased by approximately $6 billion, relative to the prior quarter.
Turning to Wealth Management. The prior quarter will be a more relevant benchmark as a comparison period rather than the prior year, given the acquisition of E TRADE. Revenues were a record $6.1 billion. Excluding integration-related costs of $60 million, PBT was also a record of $1.7 billion, with a margin of 27.8%. Growth drivers of this business remain robust.
Net new assets were $71 billion in the quarter, bringing year-to-date NNA to $176 billion, of — which represents a 9% annualized growth rate of beginning period assets for the first half. Net new clients, asset consolidation from existing clients, and stock plan retention, all contributed to the strong results. Further, we continued to see strength in net recruiting and retention, also contributing to NNA. While NNA will be lumpy and should be looked at on a full-year basis, the first half of this year illustrates the tremendous growth potential inherent in this business.
Transactional revenues were $1.2 billion. Excluding the impact of DCP, revenues declined 16% from the exceptional prior quarter. Client activity moderated from the first quarter’s torrid pace, but engagement remained high. Self-directed daily average trades were 1 million in the second quarter, approximately 10% above average levels for full year 2020. Our client base continues to expand and our households reached 7.4 million in the self-directed channel.
Asset management revenues increased 8% sequentially to $3.4 billion. Year-to-date, these revenues increased 28%. Fee-based flows were $34 billion, bringing year-to-date fee based flows to $71 billion, almost matching the amount for the full year of 2020. Fee-based assets are now $1.7 trillion, or more than double the level of only five years ago.
Bank lending balances grew by a record $10 billion and balances reached $115 billion in the second quarter. Year-to-date, balances have grown by 17%, exceeding our full year expectation of 10%. This was driven by strong demand for securities-based lending.
Net interest income was $1.3 billion. Excluding prepayment amortization, which declined approximately $150 million sequentially, NII was up slightly. The benefit of incremental loan growth was offset by the downward movement in the middle of the curve. We have realized the fully phased-in synergies that we expected for 2021. For NII, going forward, $1.3 billion is a reasonable exit rate to inform the back half of the year. We expect NII to build from this level as we anticipate loans to grow more in line with 2020 levels.
The integration of E TRADE is going well, and we continue to prioritize the client experience. While early, we are encouraged by continued client engagement and excited about the potential of our pilot programs around referrals. The workplace channel continues to show momentum as we win equity plans, and our number of participants now stands at 5.2 million. Financial wellness plans are also gaining traction. We had four times as many wins year-over-year.
Moving to Investment Management. Because the timing of the close of the Eaton Vance acquisition makes comparisons to prior periods difficult, I will review the quarter mainly on an absolute basis. Revenues were $1.7 billion. Total AUM reached $1.5 trillion, and total net flows were over $48 billion. Since we announced [Technical Issues] acquisition at the beginning of October, pro forma net flows were approximately $150 billion. The increased diversification of this business was a significant driver of results. Total AUM increased 7% from the prior quarter and stands at a record high, of which long-term AUM reached $1.1 trillion.
The benefit of our broadened product offering and positioning in secular growth areas supported our net flows this quarter. Inflows across products resulted in over $13 billion of long-term net flows. We saw particular strength in alternatives and solutions, driven primarily by demand for Parametric customized portfolios, as well as $1 billion strategic multi-asset partnership mandate. We continue to see strong client momentum in our private credits and core real estate platform. Loan strategies in fixed income were particularly robust. Asset management and related fees were $1.4 billion, more than doubling from the prior year, driven by strong AUM growth and the addition of Eaton Vance.
Performance-based income and other revenues were $284 million in the quarter, reflecting broad-based strength across the private alternatives portfolio. With the integration on pace, our very strong position in customization, sustainability, alternative, value added fixed income and high conviction equity investing positioning us all as a critical partner to global clients.
Turning to the balance sheet. Spot assets were essentially flat. Standardized RWAs increased to $461 billion. Our standardized CET1 ratio was flat to the prior quarter at 16.7% compared to our CET1 requirement, including the SCB of 13.2%. During the second quarter, we repurchased approximately $2.9 billion of common stock, or 34 million shares. Our tax rate for the quarter was 23%.
The second quarter results were strong and balanced. Looking ahead, while we are cognizant of the typical summer slowdown, we are starting the third quarter from a position of strength. Investment banking pipelines are healthy, dialogues are active, and markets are open. Wealth Management continues to retain and attract new clients, new advisors, and new assets. Investment Management should continue to benefit from the increased diversification of the platform.
With that, we will now open the line to questions.
Questions and Answers:
Operator
Thank you. [Operator Instructions] Our first question comes from the line of Glenn Schorr with Evercore. Your line is now open.
Glenn Schorr — Evercore ISI — Analyst
Hi. Thanks very much. You piqued my interest, you made a comment, Sharon, on investing for growth remains a priority. We’ve seen so much that you’ve done across asset wealth management. My question, in ISG, you’re as good as it gets, I think, in equities and M&A, where do you see opportunities to invest and or capture share across ISG right now?
James P. Gorman — Chairman and Chief Executive Officer
Hey, Glenn. I think, firstly, I wouldn’t — I certainly wouldn’t — and I’ll come back to it in a minute, discount growth opportunities across IM and Wealth, even though we’ve just done these huge acquisitions. So, I’ll come back to that. In the institutional business, listen, there is more consolidation going on in prime brokerage. We’re the market leader in that. We will pick up share over time. Clearly, in M&A, there’s opportunity for us to grow. I think there are a lot of the middle-market M&A spaces, very fertile. There are different parts in the world we still think we can punch higher above our weight. So, I actually think both of those, the equities business is good as it is and M&A is good as it is. I actually think there’s a real upside in both of those.
In the fixed income space, our aspiration years ago was to do $1 billion a quarter, we raised it to $1.5 billion. And here we are sort of so-so quarter with $1.7 billion. As rates normalize and as the fixed income fee pool will inevitably grow, I see a lot of space there. In the SPG credit side, we’ve got a world-class business there, again, continuing to grow share. And our commodities business is doing very well. So, the IC franchise has gone from sort of running at $5 billion a quarter to this quarter, it was $7 billion, it was little — it was frankly better than we had expected coming into it, which is terrific. But it’s very interesting, I mean, the share gains across — and it’s not just us, some of the other big players in the U.S. are real and I think enduring, and as the global economies recover and the fee pool increases, you’ll just see more of that. So, I feel very confident about the ISG business.
Glenn Schorr — Evercore ISI — Analyst
I appreciate that. And I hear you loud and clear on asset wealth management. I do have a quick follow-up. Within Wealth Management, obviously, Shareworks has this enormous opportunity. Wonder if you could just give us a little mark to market in terms of what’s going on in terms of conversions in the core business, and then what is going on in terms of leading towards repaying business within the Morgan Stanley platform?
Sharon Yeshaya — Chief Financial Officer
I didn’t hear the last part of your question, but I think you said referrals throughout, and how the integration on workplace is going, Glenn?
Glenn Schorr — Evercore ISI — Analyst
Yes.
Sharon Yeshaya — Chief Financial Officer
So, I’d say that you’re sort of starting with infrastructure, it’s going very well, as James said. But the core is, start with infrastructure, make sure that everyone has companion accounts as you go through. So, we’ve said we’re at 50% right now, where our clients have companion accounts. By the back half of next year, we should be around 90%. And we’ve started pilot programs where you do have that companion account, and we do see it working. We see the retention of assets. We see clients moving over to actually get advice when they look and want advice. So, we’re working with the clients, and we’re trying out new technologies, and we’ll go from there. So, it’s really about conversion of clients and then the retention of assets, but it all seems to be working very well.
James P. Gorman — Chairman and Chief Executive Officer
I’d just say something, so I’ll piece it a little bit here because it wasn’t your question, but you’ve given me an opportunity to comment based on Shareworks. I think every now and then in a business, you look and you sort of see a wave coming, and you catch the wave. And it’s a beautiful thing. The whole workplace space to me is the next major growth area in financial services. I think over the next 10 years, we’ll look back at that Solium transaction, which at the time, some people thought was expensive, and it was. I think we spent $800 million or $900 million on it, might have been Canadian dollars. So, somewhere around there, and it was trading at about $500 million value. That gave us the opportunity to do the E TRADE transaction with confidence, because we knew we could merge the workplace businesses and create Shareworks. And I really believe that this is very fertile ground and convert those millions of clients ultimately into being Morgan Stanley and E TRADE clients as we have the accounts to fold into our own house accounts. So, that’s one way.
Parametric, the customization space, I think is the second wave. Calvert funds and everything we’ve done through our own sustainability institute efforts combined with now Calvert’s products. And then the digitalization, and how we’re going to take the E TRADE platform both domestically and internationally, I think there’s incredible opportunity. So, it’s pretty rare to sit here and having done this for a little while. There are a lot of things that you can do to just improve your business, but these are things where I think we have fundamental market forces pushing these waves and we’re right on top of them. So, it’s very exciting.
Operator
Thank you. Our next question comes from the line of Brennan Hawken with UBS. Your line is now open.
Brennan Hawken — UBS — Analyst
Good morning. Thanks for taking my questions. And I’d like to just start by saying congrats to Sharon. Welcome to the calls in a different role, the quarterly dance here. Congrats.
Sharon Yeshaya — Chief Financial Officer
Thanks, Brennan.
Brennan Hawken — UBS — Analyst
Sure. So, I’d like to maybe start with the integrations, and sort of taking a step back, you’ve got two pretty substantial deals under your belt. They’ve now closed, and so you’re working on integrating those businesses. What are the milestones that we should think about as you proceed with that work? What kind of timeframe should we think about around updates? Are we going to just get back to the annual strategic update where it’s the fourth quarter call? Or are there going to be more regular updates where we’re going to be able to hear about the work that you’re doing? James, you made reference to the workplace, which is obviously a key part of E TRADE. But how should we think about those from here? I know it’s kind of a broad question, but just want to try and level set.
Sharon Yeshaya — Chief Financial Officer
Sure. I think it’s a fair question. And in terms of where that comes out, it will likely be the next step, will be the annual deck. But then, from that point on, I think there’ll be a more regular cadence. So, obviously, most investors here know Jed Finn, for example, who can begin to take us through some of that workplace. But there is also — I think, the goal will eventually be to better understand where there are participants migration, so — how do you think about the question that Glenn asked, which is referrals, how do you see that referral channel going through in terms of dollars, etc., how are you thinking about proceeds and the proceeds falling through from those companion accounts. But the integration is a three-year process, which we put out there at the very beginning. So I think right now, what we’re looking to do is make sure that the pilot programs are going well and understand the client reaction as you think about some of the
Technology and what is working and what isn’t working. So to give you thing as a piecemeal or to give it a little bit too early, I think would also be a mistake, because we’d like to ensure that it is the right client experience and that’s what we’re focused on right now.
Brennan Hawken — UBS — Analyst
Okay. Thanks for that. And then, when we think about net new assets, the growth there has been really pretty impressive. We have seen some acceleration across the industry though, and I think — most investors think it’s going to slow. This past year has been a little unusual. But when we look at what’s been happening at Morgan Stanley, things already were accelerating before we entered into this period. And so one of the debates that has been coming out more regularly has been, what is the right growth rate for the Wealth business on a go forward basis? I’ll maybe throw out a range, and — from my perspective, it feels like somewhere in the mid to upper single digits, 5% to 7% feels fair on a long run basis. But number one, I’d love to hear your reaction to that. And then number two, what — how do you think about that growth rate? Do you guys have something in mind? Is there something that you’re targeting? Any color on that would be really helpful.
James P. Gorman — Chairman and Chief Executive Officer
Why don’t Sharon start and I’ve got a few thoughts about this as well.
Sharon Yeshaya — Chief Financial Officer
Yeah. I mean I think where we started, Brennan, if we look back to the beginning of the year, we gave you guys a very long historical average chart, and then we showed you the 7% of the pro forma when you included E TRADE. Now what we have said is, we don’t think we’d go back to a 3% to 4% sort of on a sustainable basis. So, that 5% to 6% is where James spoke to this audience at the beginning of the year when we talked about the deck. Obviously, as you look forward though, we’re doing a lot, both on net asset consolidation, net recruiting, and all of these new channels. And so I don’t think we — the same way that James level set with the targets at the beginning of his introductory remarks, I’d say we don’t — that’s probably the same way you can think about this, where 5% to 6%, maybe that’s the right place to start. But we’re obviously not going to try to under achieve that number.
James P. Gorman — Chairman and Chief Executive Officer
Yeah, Brennan, it’s really the — it’s the question, right. Because if we can generate growth in the high teens, I mean I think we’re — what are we 9% year-to-date organic, I mean, this is just — we’ve never seen this, right, and I’ve been doing this for a very long time. The three industry segments, basically, the wirehouses, sort of independent/RIAs, and the direct channel, for years, the direct and — has grown. The RIAs have grown in a large part, because they’ve taken — advisors have moved out of the traditional channel into the RIA channels, so part of the growth just been a shift, if you will, out of it’s been organic. And the wirehouses have sort of struggled. And they’ve struggled for a couple of reasons. One is poor training. Two is very high attrition. Three is lack of gluing the clients in through the mortgage and the banking products that the bank have etc.
And I think what you’re seeing now we think we’re kind of creating — not to be arrogant about it, but a new mousetrap. We are creating an advisor channel, which actually has deep organic growth levers in it. And if you look at our attrition numbers and the weekly hiring numbers, I mean they’re fantastic. And with that, we’re getting tremendous asset growth. And then you combine that with having the direct platform, and then combine that with having the workplace platform, you’ve got three legitimate channels pouring assets into the house.
And it wasn’t so long ago that if we did $10 billion a quarter, we thought we’re pretty good. And we just had a $70 billion quarter during tax season, and it’s good. I mean, it’s very good. But we don’t think it was a fluke. So, I don’t know where the ultimate number is going to settle. I think our assets in Wealth are now around a little over $4.5 trillion. They were $500 billion 12, 14 years ago. So, we’re at $4.5 trillion. We’ve gone up nine times. Compounding on a big number is a pretty potent force, as you know. So I don’t know if it’s going to — it won’t be below 5%. I mean any individual quarter you have stuff going on, but it won’t be below 5%. Whether it’s 6%, 7%, 8%, where we land on that, we’ll see over a few years. But it feels good.
Operator
Thank you. Our next question comes from the line of Steven Chubak with Wolfe Research. Your line is now open.
Steven Chubak — Wolfe Research — Analyst
Hi, good morning, and welcome Sharon. Nice to have you on the call. Wanted to start off, which is a two-parter on Wealth Management NII. You noted that the E TRADE funding synergies have been captured for 2021. The deposit costs in Wealth Management still feel a bit elevated at 16 bps, especially when benchmarking versus peers. Just wondering if there is potential to drive those funding costs lower if rates remain at zero? And then just as a second part, maybe just speak to the environmental factors supporting such strong SBL growth and the sustainability of that trend?
Sharon Yeshaya — Chief Financial Officer
Sure. I would just mention that we did see the planned runoff, right, of wholesale deposits, and we continue to expect another $13 billion of wholesale deposits to runoff by year end, as we see some of that higher cost funding roll down. So, just to note there, I don’t have an exact target on sort of BDP cost, but that will give you a sense.
In addition to that, I would just highlight the SBL question that you asked, that product is resonating with our clients. So, that’s the point there. And as James has always said, it’s a product in which you lend wealthy clients their money back, and this is something that is resonating. It’s structured very well. We’ve historically seen minimal losses, and it has a 37% LTV right now in that portfolio. So from that perspective, I think it’s a good product to offer, and it’s also something that works especially in a season like this where you generally see a lot of that product in tax season. And so there is an elevated number in the second quarter, generally speaking.
Steven Chubak — Wolfe Research — Analyst
Okay. And just for my follow-up on capital management, the dividend increase that we saw was much higher than anticipated. It looks like you’re now running with the highest dividend yield amongst all of the G-SIB. I know, James, you had alluded to the improved stress test outcomes, the higher contribution from recurring revenues. But just remind us of the philosophy around setting the dividend and buyback. And where you’re running on your cap — where you’re comfortable running on your capital ratios on through the cycle basis?
James P. Gorman — Chairman and Chief Executive Officer
I mean, there is a lot in that, Steve, so it might take a little while. Get yourself a cup of coffee, put your feet up on the stool. [Speech Overlap]
So, let’s just start with — I think we are a company that is going to produce durable revenues forever, unless we go and screw it up basically. If you look at the daily numbers coming out of the fee-based businesses — and the wealth business and the fee-based businesses in asset management, they’re for real and they’re every day. And they’re not $10 million, they’re $100 million. So, you kind of locked in a $25 billion business, right, from day one in the beginning of the year. And our view on that is, unless we spend our way into trouble on it, it will generate very consistent earnings, and just philosophically doesn’t mean I’m right, but my view was certainly the wealth business and the fee-based part of the asset management business, which is so predictable, we think of it as like a yield stock, and the investment banking and trading businesses and capital markets businesses and some of the carry businesses in asset management, we think is like the — not that the other business isn’t a growth stock, but that provides the capital to fund the engine, to do buybacks, etc., etc.
We’ve been carrying a buffer at CET1 of over 17%. We have to be — I think, the latest CECL is around 13.2%-ish. I don’t know what the exact buffer we should carry internally. As we’ve said 50 basis points, it wouldn’t be less than that. But just pretend it’s 80 basis points, you’re at 14%. You’ve got 300 plus basis points to play with. We’re generating net income, in the first half of this year was $7 billion. Assume we are less than that in the second half, again just because, who knows, but we’re certainly not going to be under $10 billion for the year and probably not under $12 billion.
So, you’re talking about a buyback of 5 — of $12 billion, dividend of $5 billion, that gets you to $17 billion. You’re generating at least $12 billion, you’re in the hold for $5 billion, but you’ve got 300 basis points of excess, it’s going to take a bunch of years to eat into that. And we felt our shareholders deserve to get the earnings stream up, the predictability of the businesses. So we’ve got — we’re not a traditional investment bank as traditional investment banks used to be and the vast majority of them, if not, all of them went out of business or merged. We are a combined investment bank with a massive wealth and asset management business. So, we think shareholders should get the benefit of that very different profile. 14 point, whatever it was, 8 billion in revenue this quarter, a little over $7 billion of it was Institutional, a little over $7 billion point of it was Wealth and Asset Management. So, it’s exactly what we hope that sort of balance. That’s a philosophy now.
It will take us a bunch of years unless SICAD [Phonetic] changes dramatically for us to get close to a buffer. And we are buying the stock back, and the stock is over $90, we are very happy buying at this level, but at some point, obviously, that gets expensive. We do think we can do more deals over time, and we’ll actively look at that. And we want to keep investing in the business. But the reality is, and this is like the ultimate conundrum, we can do all four: buyback, dividend, invest and acquisitions, and still run an excess buffer. And the only way out of that problem is not to have good earnings, and that’s not my solution currently. So let’s play this out over a few years. I’m really happy we got the dividend, as we quoted a reset. And we have the authorization from the Board for up to $12 billion, and we’ll go hard at that, particular have to stop [Phonetic] whether — if we saw a big move in the market, but that’s how I’m thinking about it and how the Board’s thinking about it.
Operator
Thank you. Our next question comes from the line of Matt O’Connor with Deutsche Bank. Your line is now open.
Bernard Von Gizycki — Deutsche Bank — Analyst
Hi, good morning. This is actually Bernie Von Gizycki [Phonetic] on for Matt. So, my questions are Investment Management and the inclusion of Eaton Vance. In last quarter’s 10-Q, you noted that certain Eaton Vance products to have lower average fee rates than the standalone, Morgan Stanley Investment Management platform. I know you made some revisions today on disclosures and Eaton Vance only had one month of performance in the data in 1Q. Could you just talk about the expectations on fee rate in the combined asset management platform as you diversify the product mix?
Sharon Yeshaya — Chief Financial Officer
I think that that’s right. Obviously, that’s in the — in some of the overlay products, for example, will have lower fee rates. It will obviously be a mix products. Also if you think about it just across the platform, you might see other gives and takes. But I think that what we’re focused on is not necessarily the fee rate of one individual product. It’s creating an ability to service the client more broadly. So, while the overall fee rate might come down as we’ve disclosed, there are secular growth trends that should continue to bring assets to the platform, which would offset parts of that on a total basis, right, a rate times volume kind of concept.
In particular, you have the Parametric product, which we discussed, which is obviously has its own secular growth trends, the Calvert product. And then there are cyclical trends that could eventually turn into secular trends, i.e. ESG, i.e. what’s going on with changes to tax legislation and how people think about customized portfolios, all of those things are reasons that we might see changes and growth in AUM. And in addition to that, I think that the fixed income products offered the clients an ability to bring their entire portfolio to Morgan Stanley. And so from that perspective, again, rate times volume over time, and so there will be a difference in those fees more broadly on their portfolio, but assets should continue to come in.
Bernard Von Gizycki — Deutsche Bank — Analyst
Okay. Thank you. That’s helpful. And then just as my follow-up. Again, I know it’s just the first full quarter of Eaton Vance as combined on the platform, but just any color you can share about the integration efforts around like putting Eaton Vance’s products on your international distribution channel, and then vice versa putting some of your core products on Eaton Vance’s domestic retail platform? Just trying to get a sense of anything with a net flows showed up? Thank you.
Sharon Yeshaya — Chief Financial Officer
I’d say that we’ve aligned the sales forces. But as you noted, it’s — it has not been that long. We’re working through it. I think we see and we expect to invest in the various businesses to deliver the customization for a better client experience, but also open the new workplaces. So not just international, but also as it relates to workplace etc. So, we’re still working through that and we should have an update over the course of the rest of the year.
James P. Gorman — Chairman and Chief Executive Officer
But the short answer on the flows is zero of the flows, to my knowledge, are a result of exactly what you just said, putting the Eaton Vance’s product in international and putting our products through the wholesalers in Eaton Vance. They’re terrific teams. There’ll be a lot of upside on that going forward, but zero of it has appeared yet.
Operator
Thank you. Our next question comes from the line of Christian Bolu with Autonomous. Your line is now open.
Christian Bolu — Autonomous Research — Analyst
Good morning, James and Sharon. And just to echo the settlements, a big congrats to you Sharon. James, maybe actually a couple of follow ups from things you’ve said on the prior questions. I think you just said — maybe a couple of questions before that you mentioned, you can do more M&A deals. Just trying to get a sense of what you’re thinking there? Is that doubling down on Wealth Management? Or is it consolidating traditional asset management space as you look to grow to $10 trillion in client assets?
James P. Gorman — Chairman and Chief Executive Officer
Yeah. We’ve — Christian, good morning. We’ve done, I think, five deals/acquisition since the crisis, and we’ve had a lot of dispositions/disposals, I guess, TransMontaigne, Heidmar, we spun off MSCI, obviously, before this, we spun off Discover, PDT, the [Indecipherable] business, FrontPoint we shot. So, folks have focused on the acquisition side, but also done a huge number of deals in getting rid of businesses that are better owned by somebody else or just won’t fit. Now, Asesores in Spain, as I remember, Quilter in the UK, European Private Banking business we sold, etc. So on the deal side, we’ve done — Smith Barney, obviously, was the big one and Mesa West was the first sort of toe in the water in Investment Management, then the Solium deal and the workplace space, followed by E TRADE and Eaton Vance.
So all I’m saying is we don’t have big transactions in line of sight at this point in time, but we’re a big enough company. We’re generating — I don’t know, we’re running — run rate, I guess, is $60 billion in revenues this year, a $170 billion plus market cap. Finding the right things to fit in, particularly internationally, and particularly on the digital and technology side is very interesting to us. Now, pricing, as always, you’ve got to be disciplined. But it’s just — it’s something that we’re very watchful of and we’re not shy about it. But major transactions are highly unlikely to happen. These are more bolt-ons as they feel right.
Christian Bolu — Autonomous Research — Analyst
Great. Thanks. And then just a follow-up. You keep mentioning international. I think you said E TRADE, you want to expand that internationally, which I don’t think I’ve heard before. And if I remember correctly, in the past, you’re always cautious about Wealth Management international expansion. I mean you just said you divested Quilter and E TRADE covered about eight [Phonetic] international businesses post financial crisis. So, just — can you just talk more about how you think about international? How you would expand E TRADE? What’s the sort of like vision here?
James P. Gorman — Chairman and Chief Executive Officer
Sure, I’ll try and be brief. The international wealth business is complicated, because while the U.S. market is 300 million people, and Europe is about 300 million people, Europe is multiple jurisdictions within that, even though it’s Eurozone. Asia people look at it though it’s some monolith, it’s not. Vietnam is not Indonesia, Malaysia is not Thailand, the Philippines is not Australia, Korea is not China, etc., etc. So, you’ve got — it’s very hard to get scale in these markets, that’s issue number. Issue number two, they tend to be very heavy equities trading markets. They are not the diversified traditional financial planning. You might look at Japan, the velocity of asset in Japan compared to the US, it’s night and day. And thirdly, obviously, know your client, money laundering, all of the things that one has to be careful about cross border type money flows, the bar is very high, and we are a conservative institution. We just are.
So, my view has been for a long time that you trade very carefully. You go where you’ve got scale. We’ve done that in LatAm, because we basically run it out of Miami and New York. So, we run it as a region as to think from single countries, and you go — and we’ve done it in Hong Kong where we deal with a lot of wealthy Asian clients out of Hong Kong and Singapore, little bit in Australia, but basically you go where you have scale. So, the more attractive path forward is likely to be through digital and electronic under the brand and with good products rather than trying to build up thousands of people in, I don’t know, Malaysia and Indonesia. Hence, E TRADE becomes a very interesting platform for that. Early days, that’s the — the new strategy team is taking a look at what we can do internationally, but that’s something I’d be very excited about.
Operator
Thank you. Our next question comes from the line of Mike Mayo with Wells Fargo Securities. Your line is now open.
Mike Mayo — Wells Fargo Securities — Analyst
Hi. This is the first call since you announced the partnership with Microsoft to accelerate your cloud development. Can you talk about what you hope to achieve with that with any concrete metrics possible? And ultimately how much do you expect to have of your processing on the public cloud or private cloud and otherwise on-premise?
James P. Gorman — Chairman and Chief Executive Officer
Yeah. I don’t think I have off the top of my head all of those details, Mike. We do have a major deal with Microsoft, but we’re also working with other cloud providers. I won’t name them on the call. But we have a long-term contract we’ve just done with Microsoft. It’s all part of the re-imagination about technology organization. And it’s come through some programs that we put in place internally around agile and something we called pace, that are basically designed to move this organization into this century, which I think they’ve done a fantastic job of. We created a group of what we call the distinguished engineers.
And interestingly, and people don’t think of it this way, but I think we’ve done the biggest move in technology of any of the large banks, maybe in the world, by spending $13 billion on a technology company, called E TRADE, which is basically technology and brand. So, the Microsoft deal is a very important one, but it’s not the whole enchilada for what we’re doing with that tech platform. It’s just a necessary step to move a large part of our business into the cloud, and we’ve got, I think, three different providers. We just happened to have the largest contract went to Microsoft on this occasion.
Mike Mayo — Wells Fargo Securities — Analyst
Okay. And then a separate question on Quilter. I think it was like six or seven years ago, you made some pretty harsh comments on compensation, and people had to take stock, and they were all upset. And I guess that was the right move for you and for them. And recently you made another tough comments as it relates to employees needing to be back in the office. And there is a big debate out there, should you have a hybrid solution, should people be back in the office, if you work outside the office you’d be paid less. So, perhaps my question saying, well you were right whenever that was six or seven years ago about being taking a hard stance short term for the long term, can you elaborate on those comments you made recently?
James P. Gorman — Chairman and Chief Executive Officer
Well, they’re certainly not connected. And I think it was nine years ago. I think it was 2012. We were barely profitable. We cut the dividend to $0.05. We had zero buyback, and we had an ROE of about 2%. And somebody asked me in a TV interview about how would I feel about people complaining about the bonuses, and I said what I said at the time. If you don’t reward your shareholders at some point as you remind us over the years, Mike, when our ROE was well below 10%, they pick up their bat and ball and go home. So, given we we’re paying employees a lot in stock, it was in their self-interest to hang tough, get a lot of stock very cheap, and they’d be rewarded. And I’m very, very happy for our employees that that’s in fact what’s transpired and the stock has gone from obviously a very low number to where we are today.
The comment I made about the workplace, I fundamentally believe that the way you and I and others sitting in this room, Sharon and John, have developed our careers is by being mentored by and watching and experiencing the professional skills of those who come before us. It’s certainly dramatically affected my career. And I don’t think you can do that sitting home by yourself. I just I think there is a limit to how far — as good as the Zoom technology is, how far that can take you.
So what I said was that I want to people to start coming back in the office and certainly by Labor Day. But I also said, which wasn’t picked up in the media, that we would be flexible where flexibility was called for. What we’ve learned through COVID is that under certain circumstances having people work from home makes great sense. There are individuals who have health issues. There are individuals who look after family members. In past years, we would have said, well that’s sort of too bad. Now, if you have to move to be with your family for a couple of months to look after healthy issue or family issue, we can manage that. Some people have extraordinary commutes, we can manage some flexibility around that. So — but the basic premise and right at the beginning of COVID in February of, what was it, 2020, I think I said when I was asked how would this end up, I think I said that I felt 80% of all employee hours worked would be done in one of our offices, and that’s probably where it’s going to end up. Not a 100%, but not 0%.
Operator
Thank you. Our next question comes from the line of Ebrahim Poonawala with Bank of America. Your line is now open.
Ebrahim Poonawala — Bank of America — Analyst
Good morning. I just had a question around — I know you mentioned earlier in terms of updating the Street around your return, 17% plus return outlook early next year. I was wondering if you can talk about, as you think about the next five years, and just the competitive forces, talk to us in — how you’re thinking about budgeting some investment spend as it relates to R&D or more experimental type investments that could allow you to better compete and gain market share?
James P. Gorman — Chairman and Chief Executive Officer
That would take a lot longer than we probably have on this call. Why don’t we hold that until we get to the strategy discussion next year, because I much rather tie budgeting and investment discussions to actual initiatives we’re undertaking rather than just do it in the abstract here if you don’t mind.
Operator
Thank you. Our next question comes from the line of Gerard Cassidy with RBC Capital Markets. Your line is now open.
Gerard Cassidy — RBC Capital Markets — Analyst
Good morning, Sharon and James. Can you guys share with us, you talked about wallet share gains in the ISG Group. And I was wondering if you could elaborate on how you think you’re achieving it? Some of your peers have said the same thing. Is it because of your people, or the amount you have invested in technology, your size, or is it some of your competitors are just weaker and have other issues to deal with, which gives you this opening to take wallet share gains?
Sharon Yeshaya — Chief Financial Officer
Hi, Gerard, it’s nice to hear from you. I’d say it’s all of the above. But more importantly, I also think that there is something that we’ve said which is in periods of crisis, which I think you saw over the course of 2020, oftentimes those that you are closest to from a relationship perspective and being your closest relationship, and you’re gaining share in that regard, so very similar to what we’ve talked a lot about in this call about asset consolidation in a Wealth Management relationship. I think the same goes for the asset — the relationship consolidation, if you think about Institutional Securities. So be that on the equity underwriting, for example, be that in coming to the equity business. But not forgetting what we’ve done in fixed income, which has really gained share since 2015 to be a really credible player in that marketplace. So all of those things I think technology and leveraging technology with the beginning of MSET in equities, moving over to the right places in fixed income where it makes sense, that investment continues, and I think it has helped us gain share as well from, like you said, probably the Europeans and others that have retreated in certain marketplaces.
Operator
Thank you. Our next question comes from the line of Jeremy Sigee with BNP Paribas. Your line is now open.
Jeremy Sigee — BNP Paribas — Analyst
Thank you. Just really a quick follow-up on net interest income in Wealth Management. I just wondered whether in your view where you sort of at a sustainable base level here and NII should now grow in line with the volumes that are coming through, or are there any further moving parts that you expect to affect that?
Sharon Yeshaya — Chief Financial Officer
Well, I would say that the fundamental moving part is rates, right. So if you think about it, obviously, there are certain things where when we look at giving you guidance or presenting a base case, the base case is what’s priced into the marketplace, and so we use that as the guide. And that’s why I think for this quarter, what we mentioned was the medium part of the curve did move more than I think most had expected or predicted. But as you go forward, right now, at least for 2020, the build is really going to come from the actual lending, which we’ve talked about, which is a 2020 number is what we’ve just given you, and we said that, that ran around $18 billion for that year. So that’s $4 billion to $5 billion a quarter that you can think of for the growth in lending per quarter through the end of the year.
Operator
Thank you. Our last question comes from the line of Dan Fannon with Jefferies. Your line is now open.
Daniel Fannon — Jefferies — Analyst
Thanks. Good morning. So, I had a couple of questions just on the Investment Management and Eaton Vance. So curious, I know you mentioned that you’re just integrating the sales forces to — for the distribution platforms. But curious about which products you think have the most potential to be sold through the Morgan Stanley distribution on the global side, as you look at the Eaton Vance product lineup today. And then within ESG, you have multiple capabilities now with Calvert and what was Legacy Morgan Stanley. How do you think about integrating that more broadly across the Investment Management segment given the demand you’re seeing, we’re seeing across the industry for those types of products?
Sharon Yeshaya — Chief Financial Officer
Sure. So I would say sort of similar to my last answer, which is all of the above. I think all products. But particularly we’ve talked a lot about the customization of Parametric, I don’t think that’s just Wealth Management, I think that’s a workplace product as well over time. So not just an advisor-led product. Alternatives, private credit is one where I think we’ve seen an interest, and we continue to see interest in alternatives from the Wealth Management franchises more broadly, not just our own. And as you think about ESG, we had always talked about Eaton Vance and the old anthem being equal perfect fit in terms of the two. And I think a lot of that came from the distribution and the complementary distribution that you had. So, ESG products and Calvert was an Eaton Vance product with a U.S. domestic sales force. We have a strong international sales force. And, obviously, a lot of the interest in the ESG and sustainability products are also coming from Europe and abroad. And so that’s where we think that that distribution can really help thinking about taking those products elsewhere.
Operator
Thank you. There are no further questions at this time.
[Operator Closing Remarks]