DBRS Morningstar Confirms Morgan Stanley at A (high), Stable Trend

DBRS, Inc. (DBRS Morningstar) confirmed the ratings of Morgan Stanley (MS or the Company), including the Company’s Long-Term Issuer Rating of A (high) and Short-Term Issuer Rating of R-1 (middle). The trend for all ratings is Stable. The Intrinsic Assessment (IA) for the Company is AA (low), while its Support Assessment remains SA3. The Company’s Long-Term Issuer Rating is positioned one notch below the IA.

KEY RATING CONSIDERATIONS
The ratings confirmation reflects the strength of Morgan Stanley’s franchise, including its well-diversified global mix of businesses that have substantial scale, strong market positions and contribute to resilient earnings generation. Additionally, MS’s effective risk management capabilities, along with its strong credit fundamentals, support the current rating level. The ratings also consider MS’s exposure to a wide range of capital markets activities that are integral to the value of its franchise, but also contribute a notable level of market risk that characterizes the Company’s risk profile.

RATING DRIVERS
Sustained franchise momentum, including delivering on the Company’s long-term goals, without altering its risk profile, would result in an upgrade. Conversely, a sustained deterioration of earnings or balance sheet fundamentals would result in a downgrade. Any indications of significant weakening in MS’s franchise due to reputational issues, risk management deficiencies or operational missteps, would also result in a downgrade.

RATING RATIONALE

Franchise Combined Building Block (BB) Assessment: Very Strong
Morgan Stanley’s very strong franchise is supported by top-tier positioning globally across its investment banking and trading businesses. While the latter are capital intensive and contribute a notable amount of market risk and revenue volatility, they can still generate a substantial amount of revenue even during adverse market conditions, as evidenced in the Company’s recent results.

With the recent additions of E*TRADE Financial Corporation and Eaton Vance Corp., Morgan Stanley has the largest wealth and investment management platform globally by total net revenues and is top five in client assets with more than $6 trillion. Overall, MS’s Wealth and Investment Management businesses generate roughly half of the Company’s total net revenues, providing stability and predictability to results, which we view favorably from a ratings perspective.

Earnings Combined Building Block (BB) Assessment: Strong
For the full year 2021, MS reported record net revenues and a strong 15.0% return on equity (ROE). In 1Q22, the Company reported $3.7 billion of net income, representing a strong 14.7% ROE. MS’s $14.8 billion of total net revenue in the quarter only slightly trailed a record-setting 1Q21. Highlighting the results, Fixed Income and Equity trading delivered excellent results, benefiting from elevated client activity amid high levels of market volatility.

Risk Combined Building Block (BB) Assessment: Strong
Overall, we view MS’s risk management capabilities and cohesive culture as contributing to the strength of the franchise. Morgan Stanley’s business activities inherently require it to take significant risk, making skillful risk management a critical component of its success. Considering its long and successful track record, we see MS as having the appropriate processes and governance in place for managing risk across its businesses.

Funding and Liquidity Combined Building Block (BB) Assessment: Very Strong / Strong
MS has a comprehensive framework in place to manage its funding and liquidity needs. While the Company has a higher reliance on wholesale funding than its universal bank peers, we view MS’s wholesale funding as well managed, with diverse funding sources and well-laddered maturities. In addition, deposits continue to contribute a more meaningful portion of the funding stack. At the end of 1Q22, the Company had $361 billion of total deposits, representing 46% of core funding sources. Liquidity resources remain substantial, totaling $323 billion, or 26% of total assets.

Capitalization Combined Building Block (BB) Assessment: Very Strong / Strong
We view MS’s capitalization as providing a substantial cushion given its asset mix and risk profile. The Company reported a Standardized CET1 ratio of 14.5% at the end of 1Q22, well above its regulatory requirement, but 150 basis points lower from year-end due to higher risk-weighted assets, lower AOCI on higher interest rates, and capital returns.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/398586.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

There were no Environmental, Social or Governance factors that had a significant or relevant effect on the credit analysis

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Global Methodology for Rating Banks and Banking Organisations (July 19, 2021): https://www.dbrsmorningstar.com/research/381742/global-methodology-for-rating-banks-and-banking-organisations
Other applicable methodologies include the DBRS Morningstar Criteria: Guarantees and Other Forms of Support (April 4, 2022): https://www.dbrsmorningstar.com/research/394683/dbrs-morningstar-criteria-guarantees-and-other-forms-of-support and DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (May 17, 2022): https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

The primary sources of information used for this rating include Morningstar, Inc. and Company Documents. DBRS Morningstar considers the information available to it for the purposes of providing this rating was of satisfactory quality.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed ratings:
Each of the principal methodologies/principal asset class methodologies employed in the analysis addressed one or more particular risks or aspects of the rating and were factored into the rating decision. Specifically, the Global Methodology for Rating Banks and Banking Organisations (July 19, 2021) was utilized to evaluate the Issuer, the DBRS Morningstar Criteria: Guarantees and Other Forms of Support (April 4, 2022) was used to rate the subsidiary guaranteed by the Issuer and the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (May 17, 2022) was used to assess ESG factors.

The last rating action on this issuer took place on June 23, 2021, when all ratings were confirmed

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

Lead Analyst: Michael McTamney, CFA, Senior Vice President – Global FIG
Rating Committee Chair: Michael Driscoll, Managing Director, Head of NA FIG
Initial Rating Date: Initial Rating Date: 10 April 1992

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277