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 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.
If Morgan Stanley demonstrates sustained franchise momentum, while maintaining its above-peer returns and strong credit profile, the ratings would be upgraded. 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.
Franchise Combined Building Block (BB) Assessment: Very Strong
Morgan Stanley’s very strong franchise is underpinned by the largest wealth and investment management platform globally by total net revenues and is in the top five by client assets with approximately $6 trillion. Overall, MS’s Wealth and Investment Management businesses generate more than half of the Company’s total net revenues, providing stability and predictability to results, which we view favorably from a ratings perspective.
MS’s Institutional Securities’ businesses also have top-tier positions globally across investment banking and trading activities. 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 results since the onset of the pandemic.
Earnings Combined Building Block (BB) Assessment: Strong
The Company’s steady and above peer-median profitability metrics provide key support to the ratings. For the full year 2022, MS reported an 11.2% return on equity (ROE), which was lower compared to the strong prior year (15.0% ROE in 2021), but favorable overall in our view, given the challenging operating environment. Performance reflected record revenues in Wealth Management and very strong trading results, which were more than offset by materially lower Underwriting revenue. In 1Q23, MS reported a ROE of 12.4%, which was improved compared to recent quarters and led again by strong Wealth Management and trading results.
Risk Combined Building Block (BB) Assessment: Strong
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 remain as a more meaningful portion of the funding stack. At the end of 1Q23, the Company had $348 billion of total deposits, representing 44% of core funding sources. Liquidity resources remain substantial, totaling $321 billion, or 27% of total assets.
Capitalization Combined Building Block (BB) Assessment: Very Strong / Strong
In 2022, MS returned more than $15 billion in capital to shareholders via dividends and buybacks, while maintaining a capital buffer of approximately 200 basis points. At the end of 1Q23, the Company reported a peer-leading Standardized CET1 ratio of 15.1%.
Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/415950
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental or Social 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. (May 17, 2022)
All figures are in U.S. dollars unless otherwise noted.
The principal methodology is the Global Methodology for Rating Banks and Banking Organisations: https://www.dbrsmorningstar.com/research/398692/global-methodology-for-rating-banks-and-banking-organisations
(June 23, 2022). In addition, DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings: https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings. (May 17, 2022).
The following methodology have also been applied, DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support: https://www.dbrsmorningstar.com/research/411694/dbrs-morningstar-global-criteria-guarantees-and-other-forms-of-support (March 28, 2023)
The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
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 rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the rating process for this rating action.
DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
This is a solicited credit rating.
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:
The last rating action on this issuer took place on June 17, 2022 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.
For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.
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.
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