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 and strategic update. Within the strategic update, certain reported information has been adjusted as noted. These adjustments were made to provide a transparent and comparative view of our operating performance against our strategic objectives. The reconciliations of this non-GAAP adjusted operating performance metrics are included in the notes to the presentation of the earnings release.
Morgan Stanley closed its acquisition of E*TRADE on October 2, 2020, impacting annual comparisons for the firm and wealth management, and closed its acquisition of Eaton Vance on March one, 2021, impacting period-over-period comparisons for the firm and investment management. 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.
Thank you. Good morning, everyone. Morgan Stanley delivered another record year of profits and results in 2021, generating a full year ROTCE of 20%. Performance was strong in each business. In institutional securities, we showed strength and gained share, and in wealth management, we added over $430 billion of net new assets, bringing total client assets to nearly $5 trillion. We drove our strategic vision forward in Investment Management, successfully closing our acquisition of Eaton Vance earlier in the year and created a premier asset manager, which itself has $1.6 trillion of assets under management. Sharon will discuss the details of the quarter and the full year shortly, but first, as always, I will walk through our annual strategic updates. If you turn to the document and start on slide three.
At the beginning of last year, we set two-year objectives with the expectation that 2021 would be a transition year as we worked through our integrations. Clearly, the firm's performance exceeded the expectations we had for 2021 heading into that year. With the early successes of the E*TRADE and Eaton Vance acquisitions and the firm's overall momentum, we entered 2022 ahead of plan. Turn to slide four. First, I'll focus on our 12-year transformation and where the firm is today. History offers perspective on our track record. Next, I'll highlight where we've built unique competitive advantages around each of our businesses and how we expect to grow and maintain our leading positions. Then I will address our continued commitment to return capital to our shareholders.
Finally, I'll touch on how, when taken together, this should lead to further multiple expansion. To begin with our longer-term evolution, slide five highlights the transformation of Morgan Stanley into a more balanced, higher returning firm, today. Total revenues are more than double the level of 2009, with each business significantly growing and contributing to the firm's enhanced profitability. Each of our businesses now have defensible and sustainable competitive advantages to protect and drive their leading positions. Start with Institutional Securities on slide six. Looking back to 2014 when we'd recovered from the financial crisis, but before we reset our strategy and restructured some of this business, we've increased share both overall and individually across business lines. Share continues to aggregate to the industry leaders, and we expect this trend to hold.
Our competitive position is strong and has demonstrated in the very active markets for the last two years. We're confident in our ability to capitalize on opportunities to hold, if not gain share across the division. Moving to slide seven, our integrated Investment Bank delivered $30 billion of revenues in 2021 and continues to demonstrate operating leverage, highlighted by our expanding margins. Our footprint is balanced around the world, putting us in a leading tier of investment banks with global scale. Our franchise has never been stronger, and we have seen tangible results from the collaboration between our segments. Shifting to Wealth Management on slide eight, the growth we've seen in 2021 has been unprecedented. We added nearly $1 trillion in client assets in a single year.
Scale advantages propelled growth, and we added $438 billion of net new assets in the last twelve months. This predominantly organic growth is the result of our consistent and focused execution on our integration and expansion initiatives and puts us in a leading position. The journey of the last few years has demonstrated the art of the possible. With respect to net new asset growth, this business has gone from very low single digits in the last decade to 4%-6% more recently to unprecedented growth this year. Obviously, it's still early days, but the verticals are in place.
Before we commit to specific guidance for net new asset growth, we need more time to better understand the power of these channels. What I can tell you is that the proof points are strong, and we feel great about where we are today and the business potential. Turn to slide nine. With the top advisor-led business in the industry, complemented by leading workplace and self-directed offerings, the wealth franchise we've built is a category one. We already serve nearly $5 trillion of client assets, and overall revenue and assets remains high at over 50 basis points, underlining this segment as an economic engine for the firm. As we think about the growth ahead, we're most excited about the nearly 15 million relationships we have across channels and the potential to deepen those relationships further and consolidate client assets onto the platform.
On slide ten, we look more closely at Workplace, which I'm incredibly excited about for the future. As we've said before, we see this channel as a funnel for client and asset acquisition to sustain growth going forward. We now have over $500 billion of unvested assets in this channel and expect to retain an increasing proportion as they vest. In 2021, we had a 24% retention rate. That compares with 21% the previous year. Given our focused effort, our long-term goal is to reach 30% retention. This new metric illustrates the strength of the Workplace business to augment net new assets to Wealth Management. Moving to Investment Management on slide eleven. Our platform has transformed into a premier and growing asset manager.
Our distinctive capabilities enable us to deliver differentiated client value, as endorsed by $115 billion of net flows in the year. Total AUM is now $1.6 trillion, and our more durable asset management fees are nearly triple what they were in 2014. If you look closer at our investment management business on Slide twelve, you can see we're a leader and growing where it matters most. Customization, specifically direct indexing through the premier Parametric brand, sustainability and alternatives are each areas of increasing client demand. We've strengthened our position across these categories with robust investment capabilities, and we've seen meaningful assets under management growth as a result. Moreover, the complementary nature of distribution networks with Eaton Vance's powerful U.S. retail distribution capabilities and MSIM's strength in international distribution enhances our client reach.
We're encouraged by early signs of success in leveraging the greater combined network along with our world-class equity franchise and value-added fixed income platform, and we expect these areas will continue to drive growth into the future. Finally, on slide eleven, as we look ahead, we expect rates to rise. We expect approximately $500 million of incremental NII in wealth management this year based on the year-end forward curve. Additionally, we expect another $200 million this year from the reversal of fee waivers in our investment management business. To further measure our rate sensitivity, we look at what happens if there is an incremental 100 basis point parallel shift in rates beyond the curve. That would deliver another $1.3 billion, which largely goes to the bottom line.
While we certainly don't expect this additional shift to happen this year, the firm will clearly benefit substantially as rates rise over the next several years. Pivoting to our capital return strategy on Slide fourteen. Our increased earnings power, supported by revenues from more durable sources, has enabled us to double our annualized dividend to $2.80 just last year, while at the same time executing on meaningful share repurchases. Notwithstanding the returns we're making to shareholders and the investments we make in our business, we continue to have an excess capital position. Our CET1 ratio was 16% at year-end after paying our dividend, executing on our repurchase plan, and accounting for the impact of SA-CCR. As further illustrated on Slide fifteen, growing net income has provided us the flexibility to reduce our share count.
While we added 300 million shares from our two large acquisitions of E*TRADE and Eaton Vance, we continue to execute on our meaningful buyback program, and it brought back our share count back to just under 1.8 billion from 2 billion in 2014. Taking all this together, Slide sixteen highlights the fundamentals we have in place to drive future multiple expansion. We have scale, significant growth opportunities in wealth and investment management, coupled with a leading institutional business and a strong commitment to capital return. The Morgan Stanley brand has never been stronger. We've been fortunate enough to acquire additional brands in the last few years that have tremendous value in expanding our footprint. The sum of these elements supports multiple expansion for the combined company. Slide seventeen shows our performance goals.
Of note, we are increasing our ROTCE goal to reflect the earnings power we see in our business model. We are laser-focused on delivering value to our clients, our shareholders, and our employees, and we believe an ROTCE in excess of 20% is achievable. As we look to the longer term, with the support of our track record behind us, we're adding a new goal, a long-term goal, to achieve $10 trillion in client assets across wealth and investment management. As always, our targets are subject of course to major market moves or changes in the economic, political, and regulatory environment. However, with the outlook we have now, we fully expect to achieve our goals. I'll now turn the call over to Sharon, who will discuss our fourth quarter and annual results. Then together we will take your questions. Thank you.
Thank you and good morning. The firm produced record revenues of $59.8 billion in 2021 and ended the year on a strong footing with fourth-quarter revenues of $14.5 billion. All three businesses contributed to the extremely strong full-year results, reflecting high levels of client engagement and active markets. Excluding integration-related expenses, our ROTCE was 20.2% for the full year and 20.4% for the fourth quarter, and EPS was $8.22 and $2.08 respectively. Even while investing in our business, we continue to demonstrate operating leverage led by Institutional Securities. The full-year efficiency ratio was 67.1%. Including integration-related expenses, our full-year efficiency ratio was 66.3%, down from 68.4% in 2020. Total expenses in the year were $40.1 billion.
The increase in total expenses versus the prior year reflects the addition of E*TRADE and Eaton Vance and the integration-related costs and higher compensation on higher revenues. Now to the businesses. Institutional Securities delivered excellent full-year performance with record revenues of $29.8 billion. In the fourth quarter, revenues were $6.7 billion. Our integrated approach, global footprint, and balance across business lines continues to distinguish our model. Underscoring the operating leverage in the business, pre-tax margin was 39.6% for the full year, increasing from 34.6% in the prior year. Investment banking revenues were a record $10.3 billion for the full year. While each business delivered record results, advisory and equity underwriting led the year-over-year improvement. Corporate clients actively pursued strategic opportunities and sponsors deployed capital. IPO issuances were exceptionally robust in the year.
From a geographical perspective, results were led by the Americas, along with sustained strength in EMEA. Fourth quarter revenues of $2.4 billion increased 6% from the prior year, driven by strength in advisory. Trends from the third quarter persisted, particularly as results benefited from a broadening of transactions across sectors. Although underwriting revenues moderated overall, equity issuance was strong, and elevated levels of event-driven activity supported fixed income. We continue to invest in our investment banking business. Our outlook entering 2022 is strong and our pipelines continue to be healthy across products. CEO confidence remains high and markets remain open and constructive. Additionally, advisory transactions should support strong capital market issuance. Equity full-year revenues were a record $11.4 billion, increasing 15% from the prior year as client engagement remained high.
The increase versus the prior year was driven by strength in prime brokerage. From a geographical perspective, Asia. Revenues were $2.9 billion in the quarter. Increased revenues in prime brokerage on higher client balances were offset by declines in cash and derivatives on lower client activity versus the prior fourth quarter. This quarter also included a mark-to-market gain of $225 million on a certain strategic investment. Fixed Income revenues were $7.5 billion for the full year, declining 15% from last year's exceptional results. The full-year decline was driven by tighter bid offer spreads in macro and credit corporates, partially offset by securitized products. Quarterly revenues of $1.2 billion were 31% lower than the prior year, reflecting a challenging trading environment in rates and lower volumes and tighter bid offer spreads in credit.
Further, client engagement tempered in December, reflecting seasonal patterns impacting results. Turning to Wealth Management. For the full year, Wealth Management produced record revenues of $24.2 billion and a PBT margin of 25.5%. Excluding $346 million of integration-related expenses, the PBT margin was 26.9%. Fourth quarter revenues were $6.3 billion, up 10% from the prior year, and the PBT margin was 22.6%. Including integration-related expenses of $109 million, the PBT margin for the quarter was 24.4%. Quarterly margin was negatively impacted by seasonal expenses and certain compensation and benefits decisions made to further support our employees. Given the full annual impact of these decisions was taken in the fourth quarter, the impact was amplified in this quarter's margin.
Going forward, this will be about the year pro rata. As we look ahead to the first quarter of 2022, we expect the PBT margin to be more in line with the 2021 full year margin, excluding integration related expenses. This business continues to benefit from strong client demand across the platform. Client assets grew nearly $1 trillion this year and now stands at $4.9 trillion. Fee-based flows were an incredible $179 billion in the year, reporting growth in fee-based assets to $1.8 trillion or 25% higher than last year. In the quarter, asset management revenues were $3.7 billion. Net new assets of $438 billion in the year represent 11% annual growth of beginning period assets.
Momentum was carried through the fourth quarter, which saw net new assets of $127 billion. We saw strong asset generation from both existing clients and net new clients, driven by the advisor life channel. We remain a destination of choice for advisors and continue to add strong teams and retain productive advisors. Net new assets growth is further buoyed by positive momentum in our newer channels, namely Workplace. Our results demonstrate the tremendous asset generation capability of our platform. Transactional revenues in the fourth quarter were $1 billion, declining 23% from the prior year, including the impact of DCP, which declined by approximately $300 million versus prior year. Revenues were flat. The Workplace continues to gain traction.
Our total number of participants we now reach stands at 5.6 million, 14% higher than last year, and unvested assets now exceed $500 billion. As James mentioned, we are reporting on a new metric to show the percentage of stock plan assets that vest and remain within Morgan Stanley Wealth Management. E*TRADE previously disclosed a similar metric. The definition going forward will measure the retention of the value of vested stocks on a rolling 12- to 24-month period. This new metric will allow us to measure the potential strength of Workplace to serve as a funnel to grow our asset base. We saw 24% retention in 2021, which compares to 21% in 2020. As James mentioned, over time, we believe that number can reach 30% retention for our stock plan administration business.
Going forward, we plan to disclose this metric annually. Bank lending balances grew by $31 billion in the year and now stand at $129 billion. Strong client demand for securities-based lending and mortgages drove the increase. Net interest income was $1.4 billion in the quarter, driven by strong lending growth and the benefit of fully phased in funding synergies. The fourth quarter NII is a reasonable base to inform 2022. This year, NII will be impacted by the forward curve and lending growth. On rates, while the timing and the magnitude of the rate hikes is uncertain, we should benefit from rising rates and the realization of the forward curve. This would imply an estimated $500 million of additional NII this year, largely weighted to the back half of the year.
On lending, we continue to see strong lending demand, and while growth is likely to moderate some, we expect approximately $20 billion of loan growth in the year. Finally, the integration of E*TRADE continues to go well. We are encouraged by continued client engagement and are seeing E*TRADE clients take advantage of Morgan Stanley capabilities being introduced on the E*TRADE platform. Building on our digital client experience, clients are now able to link their self-directed accounts via single sign-on. We have successfully merged E*TRADE's bank legal entities with Morgan Stanley's. Throughout the integration efforts, we continue to focus on a unified client experience while providing clients choice. Completing this integration successfully remains a key investment priority. Moving to investment management. The timing of the Eaton Vance acquisition makes comparisons to prior periods difficult. I will make my comments primarily on an absolute basis.
Investment Management reported annual revenues of $6.2 billion and quarterly revenues of $1.8 billion. Our results continue to demonstrate the diversification of this business and a greater contribution from more durable management fee revenue. Total AUM rose to a record high of $1.6 trillion, of which long-term AUM was also a record at $1.1 trillion. Total net flows were $12 billion in the quarter, driven by liquidity and overlay services. Long-term net flows were slightly negative. For the full year, net flows were $115 billion. Asset Management and related fees were $1.6 billion in the quarter. The 8% sequential increase was driven by higher performance fees. As a reminder, performance fees are mostly recognized in the fourth quarter.
Performance-based income and other revenues were $166 million, reflecting broad-based gains in our diversified, alternative platform. Finally, the integration with Eaton Vance remains on track. In the first half of this year, we will bring a number of Eaton Vance and Calvert funds onto our international distribution platform. We are also now offering MSIM model portfolios on the E*TRADE platform, and we are seeing positive traction. Turning to the balance sheet. Total spot assets were $1.2 trillion. Risk-weighted assets were essentially flat to the prior quarter at $472 billion. We adopted SA-CCR on December 1st, resulting in a $23 billion RWA increase. This was offset by a decline in activity and lower market levels towards the end of the quarter.
Our SA-CCR mitigation efforts were better than we anticipated and resulted in an impact lower than our initial guidance to produce a better outcome. We repurchased approximately $2.8 billion of common stock during the quarter. We remain well-capitalized post the adoption of SA-CCR, and our standardized CET1 ratio now stands at 16%, flat to the prior quarter. Our tax rate was 23.1% for the full year. Absent any changes to tax law, we expect our 2022 tax rate to be in line with 2021, which will exhibit some quarter-to-quarter volatility. In terms of our outlook for calendar year 2022, the exit rate of our Wealth and Investment Management asset base and the integrations of our acquisitions set these businesses up to continue to perform strongly.
In addition, as James discussed, the realization of the forward curve will only further support results. As it relates to Institutional Securities, while it remains difficult to forecast this business, the banking pipeline looks healthy and the year has started off well. That said, a lot will depend on monetary and fiscal policy and its impact on sentiment. With that, we will now open the line up to questions.
We are now ready to take questions. To get in the queue, you may press Star, then the number one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. You're allowed to ask one question and one follow-up, then we'll move to the next person in the queue. Please stand by while we compile the Q&A roster. The first question is from Christian Bolu with Autonomous.
Good morning, guys. So James, on the organic growth, it's been remarkably strong and, you know, you keep calling for a slowdown, you know, on organic growth, but we're not seeing any evidence of slowing. If anything, you're accelerating here. I guess a couple of questions on that. Can you give us a bit more flavor around, you know, what's driving organic growth? How much of it is retention versus recruiting? On recruiting, who are you gaining share from? And then I would imagine you have quite a bit of visibility into the recruiting pipeline. Any sense of like how long do you think this sort of strength can continue?
Good morning, Christian. I think you're talking about net new money, I assume, right?
Correct. Correct.
Yeah. Yeah. I mean, it's not a simple answer because in the old days it was simple. It was a function of money that you lost by financial advisors leaving and money you gain by recruiting financial advisors. Obviously that's a sort of sorry way to run a business. It basically settles your P&L for the next nine years to buy a little bit of joy in the near term. Fortunately, we've outgrown that. The source of net new money comes from several places. You know, number one, as you heard, the retention in the workplace space is much better than what we did, you know, pre E*TRADE.
I mean, I think it went from 21-24 last year, but pre E*TRADE it was much, much lower and pre Solium. Number two, you know, the reality is wealthy people get wealthier quicker than fast people who are less wealthy get wealthy, and we've got a lot of them. We, you know, now with our the sophistication of our network, the linkages we have to investment banking across our top financial advisors, the family office structure the team has put in place are all drivers of growth that we didn't have before. I mean, just the new assets that are brought in from our investment banking relationships sort of across the house, whereas in the past, we never really introduced across the house. It's truly running like one firm.
Thirdly, we're just not losing many people. I mean, that's the reality. Relative to previous years, we're being significant net gainers. That's not because we're doing stupid recruiting deals. That's because we're not losing a lot of people. Now, we are doing recruiting deals. There are talented people in the market where, you know, they're not coming from one particular firm or another. We don't, you know, we don't focus on firms. We focus on individuals. That has been doing well. You add in things like the technology the team has put in place in wealth management, so the virtual advisor type technology where you leverage the best talent we have across the whole country.
the alts platform that has been built out where we now provide the product that you would have had to go to another firm to get. Finally, you bring in the deposits and what we've done with the bank and you know, the online banking. You throw on top of that E*TRADE and what that's been doing in growth. Christian, it's an interesting story. It's many parts, which is why we're confident it's going to keep going for just recruiting. That's different. That you turn that spigot on or off, but it's not just recruiting. I think there's gonna be strong organic growth. I mean, these numbers we said unprecedented for a reason. We'd never seen, you know, it's 10%-11% organic growth year-over-year.
That's got to be the best in the industry and overwhelmingly the best in our history. It's better than, frankly, many of the traditional, you know, faster-growing, so-called faster-growing companies. You know, we're really excited about that. You know, I don't think 10 or 11% is realistic to hold, but certainly we're not going back to anywhere near where we were in the old days.
If I can also add to it, Christian, I would just say, if you actually look at the data, it's relatively, as James said, balanced across many of these different sectors. But as you think of just the advisor channel, you're seeing we've, I think, spent a lot of time speaking to the community around, assets held away. We are seeing existing clients bringing assets as well as new clients bringing assets to the advisor-like channel. You are seeing a balance of both.
Okay, thank you. For my second question, on expenses, really nice control in the quarter, but all your peers are speaking about elevated expense growth going forward to retain talent and just to invest for growth. Can you talk about just longer term, how you're thinking about balancing sort of that good expense control that we like while continuing to invest for the long term?
Yeah, I think we have managed expenses well. I think that we always are cognizant of the pressures around expenses, both on the wage side and on the non-comp side. If you think about the comp side, I think we constantly feel that we've paid for performance, and that's sort of been the motto that we have. As you also think about the non-comps, we're investing in our integration, we're investing in technology, resiliency, cyber. I think we're also putting in place different types of investments as you think about positioning Morgan Stanley up for growth and making sure that we have the right people and the processes in place to do that. There is also inherent operating margin in
Excuse me, operating leverage in the model, and that's been something that we've been able to demonstrate, I think, this quarter as well as over the course of the year.
Yeah. I'd say, Christian, obviously, this is gonna be a hot topic, because it's all anybody wants to talk about all of a sudden is expense management for 2022. I'm not gonna talk about competitors, but you've got to look at business models. I mean, we're a different business model. Just take our Wealth Management business, which is, you know, $24+ billion in revenue. Those advisors are paid on a grid. There is no inflation on it. It's based upon what they produce. Most of our investment bank is similarly paid based on bonus, and that's based on what they produce, what our performance is. If that goes up, they go up, which they did this year, and we were thrilled to do that. You know, we've invested a lot in technology, but we've also bought companies.
You know, I said before, we didn't just buy E*TRADE and Solium and Eaton Vance, we bought technology businesses within them, which we would have been developing ourselves. The online banking business within E*TRADE, the Solium workplace platform, which is basically, you know, it's basically software programming business. The Parametric platform within Eaton Vance. All of these are things which if we'd built, would have been very expensive. Buy versus build, we made that trade-off. It's a combination of all of those. We're very comfortable with our expense, you know, situation right now. You know, I don't know. I guess it's a different business model.
Okay, thank you.
The next question is from Brennan Hawken with UBS.
Good morning. Thanks for taking my question. Sharon, just wanted to ask a question on the slide that you've got in the deck on the realization of the forward curve, as well as the liquidity revenue and whatnot. I'm guessing that the $200 million in liquidity revenue is waivers and the recovery of waivers, but that number seems a little low. Wasn't the waiver in the third quarter $169 million? At least that's what was in the queue. Can you maybe help reconcile where you're currently running on waivers versus that $200 million?
Absolutely. This $200 million, what we're reflecting here, Brennan, it's a good question, is the forward curve. The forward curve has the first rate hike that we looked at from December 31. That's in the second quarter. Therefore, it's the amount that you would expect to realize this year should that forward curve play out. That's the way that the slide was illustrated. Just to draw the distinction, though, between what you see in the Q, the Q's has all different types of waivers. It's not just money market waivers. You're right to say that this number on a relative basis would be considered, quote, "low" if you're thinking about a full year context.
Got it. Okay. So we could calibrate both the NII number and the liquidity. Okay. Excellent. When we think about you made a comment, I think, Sharon, when you were talking about the impact in the fourth quarter of Wealth Management margins, clearly low, right? Full year impact of that benefit. It sounded like what you said was when we're thinking about entering 2022, that the full year is the way to think about it. That's just like I just want to sort of clarify to understand, did you mean that that was the jumping-off point or that that's the right way to think about 2022 in total?
'Cause I'd assume with a lot of the rate benefit coming, continued operating leverage and whatnot, you know, you'd be talking more about a jumping-off point than thinking about the full year. Am I reading too much into that?
Nope, you're not. Thank you for clarifying that. That's 100% accurate. What we were referring to is the first quarter of 2022 and using this full year number as a good launching off point is sort of setting you up. That's obviously E*TRADE integration for the first quarter.
Got it. Okay.
Yes, as rate rises, that should increase the margin as it goes forward, throughout the course of the year.
Okay. Hopefully, I can sneak one in 'cause it was a clarification question.
Sure. Go for it, Brennan.
Thank you. The investment management fee rate was, like, really, pleasantly surprisingly improved despite the fact that we're still waiving fees like we just talked about. Could you talk a little about it? I know Eaton Vance is early, and there's still, you know, that is still progressing and whatnot, but I kind of thought that the third quarter fee rate would have settled fully, but there was an improvement. Can you talk about what drove that improvement? Is that sustainable, or was there some one-time lumpiness in there?
It's the fourth quarter. You see some of the rates moving up in the fourth quarter, Brennan. Overall, I think as you look forward, and you think about fees more broadly, we obviously have a larger asset base. I think it all lends back to this idea of growth, and that's, I think, really ties to James' slide as well, which really thinks about what are we trying to build, leaning into growth, and really thinking about creating durable fee revenue streams over time.
when you say the fourth quarter, I mean, I was excluding the performance fee 'cause you guys break that out. Are there performance fees that are also embedded in the asset management line too that have the seasonality?
No.
No. Okay. The core fee rate is a good fee rate to think about going forward.
Yes. We also disclose them in the Q and in the K.
Excellent. Thanks for taking my questions. Appreciate it.
Of course.
The next question is from Glenn Schorr with Evercore ISI.
Hi. Thanks very much. James, a little tiny qualifier, if I could. Last quarter, I think you made the comment that, well, organic growth shouldn't be likely below 5%. Today, you said more like it won't be like the old days. Is it still like the old days, meaning that when you were in that 4% range pre all the additions and the opportunities you have in hand, are we still looking at, like, should be 5% and above? I don't mean to pin you down. I would just wanna make sure I'm getting the right context.
Yeah. I'm not sure I heard you correctly about what you said about what I said last quarter, but let me say what I'm gonna say this quarter. Listen, we historically, back in the bad old days, we actually had negative growth, right? We lost more money than we brought in. Then for a bunch of years through the early 2000s, you know, sort of 2012 through 2015, we were probably running at 1, 2%. The couple of years before the E*TRADE acquisition and before, frankly, the business really hit its stride, we were sort of running around, you know, 3, 4, 5%, and we kinda guided, you know, 4%-6% was reasonable for long-term projections.
This past year, I think we grew at 11%, which is, you know, I mean, it's freakish, right, Glenn? This is you're talking about over $400 billion of new money. There are a lot of asset management companies that aren't $400 billion in size. I don't think that's sustainable. I mean, God, I'd love it, but I don't think it's sustainable. We're not going back to, you know, 3%-4%. I don't know if it's 5, 6, 7, somewhere in that zone. It's gonna be very healthy growth rate. You compound that out over what is now $4.9 trillion, you know, you get to really big numbers, which is why combined with wealth and asset management, we put them together, and currently they're about $6.5 trillion.
We can see a path to $10 trillion here, and we want to call that because, you know, we believe that's gonna happen. You know, that's why we're in that sort of, I don't know, 4, 5, 6, 7. It's still. That's why I deliberately said in the script that it was too early to put a net new money target out there. We needed to see where this really settled.
Perfect. Exactly what I needed. Thanks. The other one, James, is the long-term goals. If you look at the last slide, I think those are great long-term goals, and if you could do that sustainably, I think you would get your multiple expansion. People would love it.
We'd be at $200 a stock, my friend.
The high-class problem that you have is you kinda did some of them this year or last year. So maybe if I could just have you parse some words and just go through how to think about sustainability and what you're building towards, what long-term means, just so we don't do the up and down game every quarter of like, "Oh, wait, you didn't hit your ROTCE target this quarter.
Yeah. Listen. This is the problem with putting goals out there. You hit them and everybody says, "Great. What's the new one?" You know, our goals last year, our two-year goals, were 14%-16% ROTCE. We happen to hit 20% this year. It was an unbelievably good year. You know, if we were really operating with a permanent 20%+ ROTCE, the stock would be much higher than it is now. In fact, I think it should be higher than it is now, but that's a different issue. So we put out 20%+. I don't think you're gonna find another bank in the world that's putting out a 20%+ ROTCE goal. You know, over long term, we're not saying forever.
That's why we separated client assets to $10 trillion as longer term. Not to be too cute about it, but we think that obviously just mathematically, if you do 5.5%, you know, net new money growth, you have 5%-6% market appreciation, you're talking about a sort of, just mathematically, four-year to five-year time zone to get to $10 trillion. By the way, in 2006, our total assets as a company were $1 trillion. We're now at $6.5 trillion. It's not like an impossible lift. On efficiency ratio, when I started in this job, I think our efficiency ratio was in the low 80s. We have ground down every single year, and our range of the last including this year, 2021, 2022 was 69%-72%. We obviously beat that.
We had, as I said, a blowout year. But we're consistently of the view that notwithstanding all the talk about expense pressure, our efficiency ratio will stay under 70%. You know, that for long-term management and managing growth and investing in the business, you've got to balance growth versus expense. I think that's a phenomenal outcome. Wealth management, you know, our long-term goals there were 69-72. I'm sorry, 26-30. We've now said 30%+. When we get the kicker from the forward curve, we get some of the rate increase the next couple of years, we finish the integration expenses, you're gonna see that number go up. No question about that. That's the context. Frankly, I just like the round, you know, 20, 70, 30, 10. Felt like a nice clean sheet.
Everybody can follow it. That's what we're planning on. Awesome. Thank you both.
The next question is from Steven Chubak with Wolfe Research.
Hi. Good morning, James. Good morning, Sharon.
Morning.
Hi, Steve.
I was hoping to unpack just some of the assumptions underpinning the 30% margin target for the wealth segment. Now, looking at the adjusted wealth management margin this past year of 27%, the 30% target is certainly a significant improvement from where you've been run-rate in over, like, the past decade plus. In this new world order, following the E*TRADE acquisition, it does feel a bit conservative when layering in the synergies as well as simply the realization of the forward curve. I wanted to see if we should expect the NII windfall to largely fall to the bottom line.
Can you speak to what you believe is an achievable margin goal when contemplating a lot of the tailwinds or benefits you cited from higher run rate organic growth, the upside from higher rates, and just the full realization of the E*TRADE synergies?
Steve, I have to say I love you. You're the first person in history to call a 30%+ pre-tax margin wealth management as conservative. I mean, we started, we were like 3%. Listen, there's nobody in history, I think, has ever generated 30%+ number. I think it was back if you go back, it was Shearson in the fourth quarter of 1999, I believe, generated a 29% margin. That was because they were doing, let's just say, a lot of internet-based buying and selling by the clients back then. That was like an artificial period. Listen, there's a reason we put the plus on it. We don't think 30% is the ceiling. You know, let's run before we sprint here.
You know, we've gone from 5% to 10% to 15% to 20% to 25%, you know, 27%, 28% margins with growth. That's a phenomenal story. If we can do 30%, which we will do because of the way rates are going, it gets even better. 30% plus, there's no great magic to it. It's just the math of how we think the business plays out the next couple of years. I don't know what the plus is gonna be. It might be point one or it might be five.
Fair enough, James. Although last year, I think you had a similar response when I pressed you on the ROTCE target and it was raised. Hopefully we'll see a similar outcome this go around.
Maybe, maybe you're clairvoyant. I don't know.
Well, just for my follow-up, I wanted to ask around the upcoming changes to the capital regime. There's certainly some significant changes coming down the pike as part of Basel IV. I know we might be jumping the gun. We don't have a proposal yet from the Fed. I was hoping you could just share some preliminary thoughts on how you see this potentially impacting minimum capital requirements at the firm. Any learnings just from the SA-CCR experience in terms of your ability to mitigate some of those RWA inflationary pressures?
Sure. Why don't I take the last one first, which I think the overarching theme is really around adaptation. As it specifically relates to SA-CCR, I think there was data mitigation that we were able to achieve, and I think we're proud of being able to focus and move forward. As it relates to Basel, no surprise that you asked the question, Steven, so it's nice to hear from you on that one. Obviously, there's no final rule yet. I think there's the difficulty in saying something is that there's often and can be offsets between these rules. That's something that I would bear in mind as you think through it and as we all think through it.
What I think is really the point is that we have adopted really well, and we also have 280 basis points, I think, as James showed, of excess capital on the CET1 metric. I think we're really comfortable with our position and we're comfortable to better understand the capital rules as they come our way.
Got it. Thanks so much for taking my questions.
Thank you.
The next question is from Mike Mayo with Wells Fargo.
Hi. Since, James, you're looking for the 20% ROTCE, permanently, how much longer do you plan to stay as CEO? By setting, you know, such a high target, are you encouraging some extra risk-taking?
I'll take the second question, second part of the question first. No. We in fact did a 20% ROTCE this year without taking extra risk. With the movement in rates, the scale in the business, the completed integration to come of Eaton Vance and E*TRADE, and the removal of those costs, the moats around the business and the embedded growth we have in net new assets, I don't think these are involve risk-taking at all. This is not about growing the balance sheet and growing risk-weighted assets. This is about growing a durable fee sources, durable revenues, and managing our expenses. I don't know if we're gonna achieve it every single year, but we're certainly, you know, it's certainly a goal, and it's a goal for a reason. No, I don't think it involves taking extra risk.
I mean, fundamentally, our business model is different, Mike, as you know. You know, we generate $30 billion and it's going up from wealth and asset management that don't involve taking a lot of risk. Our investment bank, traditional investment banking doesn't involve taking a lot of risk. Some of the underwriting obviously does. Some of the trading does. But a lot of the, you know, look at equities. A lot of the equities business is buying and selling on behalf of clients. So no, that's not the plan is not, after all these years, to dial up the risk. You know, I'm not gonna repeat what I've said many times. I'm not leaving now, and I'm not gonna be here in five years, and it's up to the board. We're developing successors.
I'll be here a few years, and I wanna see these integrations done. I wanna see us firmly on this path, and I wanna hand it over to somebody else who can take us the next decade.
Great. Then one follow-up. As far as the ins and outs, that's helpful to give the market share. You know, the numbers speak for themselves, 15% investment banking market share, 23% equity share. On the one hand, I think you're one of the biggest providers to the tech industry, and with tech having some pain recently, I wonder what percent of your investment banking business is to the tech sector. Offseting that, perhaps there's some other industries that are coming back online after the pandemic.
Sure. I would actually point to the fact that what I said, I think, in the last two quarters is that we're seeing a broadening out of the advisor activity. It's not specific to any one sector. I think that's been what's really contributed to the healthy pipelines in that business across all the investment banking. As you look in sales and trading, it's a highly diversified model and is not really pinned down to any one specific sector.
All right. Thank you.
The next question is from Matt O'Connor with Deutsche Bank.
Good morning. Can you just talk a bit big picture on the industry wallet for both banking and trading as rates rise and as the Fed unwinds the balance sheet? Obviously there's been, you know, some benefits the last couple of years, and we're all trying to figure out, you know, do we anchor to the more recent last couple of years, go back to pre-COVID as we think about the wallet. My follow-up will be on your positioning specifically. Thank you.
Sure. I think if you think about the industry wallet, there have been a couple of things that I would mention. One is obviously, if you look specifically at investment banking, you've seen different types of activity. You see different types of corporates and sponsors, which has been one of the contributors of a greater wallet. But then if you also think about the sales and trading franchise and the movement there, the activity has changed. I think that you were looking back. If you think back to pre-2018, 2017, 2019, there was obviously less activity with central banks all having a very similar approach and one rate.
Obviously, as interest rates rising, you would expect or one should expect different types of volatility and different diversification among products, which could contribute to it a bigger or a, you know, a different type of wallet that you saw in the early 2020 to 2015 period. That being said, I mean, obviously none of us have a crystal ball. I think right now what we do know is that activity is high. I think there's a lot of client differentiation and a robustness really in that type of wallet more broadly. But we'll have to see what, how it goes. I think the point I was trying to make in my conclusion is we don't know how any of it will impact sentiment, and I think that's the big piece that is out there as a factor that we have to watch.
Fair enough. In terms of your positioning, obviously slide six of your deck, you know, shows very strong market share gains the last few years. As you think about, the market kind of ebbing and flowing, you know, is the goal to hold the share? This kind of ties back into some of the expense, you know, pressures in the industry where some of your peers are either invested quite a bit this last year or plan to, in the future years. You know, how do we think about the segments? I mean, you already have such strong share in equities, for example. You know, fixed income is an area where, you know, you've talked about, being somewhere in between, on the slides.
How do you think about those businesses from a competitive point of view going forward?
I think that what we would point to is I think this is a really, it's a scale-driven model. We've put a lot of moats in place. I think having a global reach across different pieces contributes to the ability to actually hold or gain share across the investment banking division or excuse me, the institutional securities franchise more broadly. If you think about the equities, we have a very strong franchise there. Investment banking, as I've said before, we continue to invest in that business. Then if you look at fixed income, I think we continue to feel good about that business, our client positioning, and we've gained share over the last couple of years, and we feel good about being right-sized and there for our clients as it relates to those needs.
Okay, that's helpful. Thank you.
The next question is from Ebrahim Poonawala with Bank of America.
Good morning. I guess, Sharon, I was wondering if, one, we could just get a mark to market in terms of an update on all the integration, where we are and when do we expect to fully get that behind us. Just tied to that, I think, James, you've, in the past, talked about looking at E*TRADE, scaling that up internationally. Just give us a sense of is that something that can happen in the near term, and what's the optionality there on E*TRADE in taking it global?
Why don't I start on the integration. I think what we had said was we looked for approximately a three-year integration period. We have seen some, and this is specific to E*TRADE, we have seen obviously a portion of the integration-related spend over the course of the last 2 years. We would expect the vast majority of the integration-related expenses to be pulled forward into 2022, with a slight residual in 2023, but most of that happening in 2022. I think that what you'll see later in the 2023 space will be more on the back end and not really client-facing. As it relates to the actual cost synergies that we've seen, we're in a very good place.
I think that it's exceeded our expectations, in terms of the guidance that we gave in terms of a timeline and seeing those come through. But on a holistic basis, we stick to the cost synergy, guidance that we gave when we first announced the transaction.
Yeah, on the international, I mean, E*TRADE already manages some plans internationally. We don't have immediate plans to take the platform outside the U.S., but it's certainly part of the long-term strategy. I'd say right now let's get the integration done. Let's prove out the case here. Get the cost synergies we talked about, sort of close the books on that, and then we're looking for further expansion.
Got it. Just a separate question around there's some concern that the Fed is behind the curve in terms of monetary policy. How concerned are you in terms of the risk of an accident happening with one of your clients within the capital markets business if the Fed has to hike faster or get to QT sooner than expected? Any thoughts around that?
We've got, you know, a lot of clients. I'm sure some of them are well positioned for rate hikes, some aren't. It's, you know, very hard to predict. The dot plot suggests we're gonna get, you know, three-four rate hikes this year and three-four next year. That feels kind of right. That gets us back to sort of near normal. Normal would be about ten increases from here. It gets us to about 2.5%. If people aren't positioned to manage getting back to normal, then it's kind of, you know, it's sort of their problem. It's not. I'm not particularly worried about it, to be honest.
We don't try and project how people are gonna change their positioning with what is a fairly predictable set of outcomes, which is we will have a normalization of interest rates at some point in the next couple of years.
Got it. Thank you.
The next question is from Jeremy Sigee with BNP Paribas.
Thanks very much. I just wanted to ask a couple of follow-up questions. They're two related questions really about the wealth management growth, 'cause obviously that's just such a strong theme in what you're doing. The first one is, I think the new metric you're giving us there, the retention of vested assets, that's an interesting metric and a useful one. Could you talk about how you're driving that, in terms of how you're gonna get that higher, in terms of how you're approaching those clients and what product you're putting in front of them to drive that higher? And the second question related, are you seeing any cross-sell or revenue synergy between your three wealth management channels, advisory, workplace, self-directed, or is it still too early for that?
Sure. On the new metric, I think that the first driver you're gonna see is a lot of the companion accounts, right? We've talked about the fact that we would expect to give everybody in the U.S. a companion account or at least be at 90% by the end of this year, and that's still on track. What that will allow for is as those assets from stock plan vest into a companion account, you retain them in a Morgan Stanley self-directed type of way, and then you use, this will lead to the second question that you asked and sort of tying it together, products like Lead IQ or technology investments like Project Genome that better understand our clients and offer us the technology and that agility to give advisors and to provide the right advisors to the right workplace participants.
We are already doing that. We already have pilots in place where we are giving different workplace advisors. I would say that this, the first step is really getting everybody a companion account, and that's part of the integration process. The second part is using technology to better match clients such that while they still get client choice, we're able to offer them the full advice network that Morgan Stanley has to offer.
That's great. Thank you. Could I just ask an unrelated follow-up on do you need to get the CET1 ratio down to support your ROTCE target staying above 20%?
No, this is a longer-term target. I think you saw it even this year. I would just retort with, look at this particular year and where we were in terms of our CET1, and obviously say we were able to do it given the market circumstance. I'd say that over time, however, you know, we continue to look at capital as we think about how do we best use that capital for investment, returning it to shareholders with dividends, looking at buybacks, and then other ways and uses of capital as we have over the course of the last decade.
That's great. Thank you.
The next question is from Dan Fannon with Jefferies.
Thanks. Good morning. I was hoping you could discuss the profitability of the asset management business now that you've had several quarters of Eaton Vance. I know that deal wasn't cost-driven, but wondering if there's any additional synergies. As you think about money market fee waivers coming through, as you mentioned earlier, the incremental margin on that in the context of the overall profitability of that business.
Sure. I think that the free fee waivers sort of speak for themselves, and so I think that gives you a direct number. On the E*TRADE and the investment management and the Eaton Vance integration, I think that the way to think about it is it wasn't ever a cost savings transaction. The idea was always to marry the platforms, and you've already begun to see that. If you think about the diversification of the product suite itself, you're in a position where if you see flows in one business go down, you've seen flows go up in other businesses. That's given you this ballast almost in that business specifically.
In addition to that, and I mentioned this in my prepared remarks, if you look at the second thing that we had highlighted a lot when we purchased Eaton Vance was the different distribution networks. We have an international, or Morgan Stanley IM had an international distribution capability that Eaton Vance didn't have. A product such as Calvert, where you have a cyclical tailwind in terms of, and a secular tailwind, in terms of people being interested in that sustainability space, that is going to be sold using our international distribution channels beginning in the first half of this year. I think that shows the progress and momentum that we have in place as you're marrying those two, different corporate sort of companies, and they're coming together as one.
Thanks. One of the other, you know, attributes you've highlighted is the Parametric opportunity within Wealth. I guess, is it too early to talk about uptake of that, some of the tax-advantaged strategies they offer, in terms of your Wealth clients?
Well, Parametric was already offered and very well-received within the Wealth Management platform. I think we're looking for more ways to offer that product, I should say, within different parts of the Wealth Management channel.
Got it. Thank you.
There are no questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you everyone for participating. You may now disconnect.