Very pleased to have Morgan Stanley up next. Dan Simkowitz, Co-President, is with us. Before we begin, this discussion may include forward-looking statements which reflect Morgan Stanley's management's current estimates and subject to risks and uncertainties that may cause actual results to differ materially. Morgan Stanley does not undertake to update the forward-looking statements. The discussion, which is copyrighted by Morgan Stanley and may not be duplicated or reproduced without their consent, is not an offer to buy any security.
Great. Great, thanks, Jason.
Dan, welcome back. You've been at Morgan Stanley, what, I think 35 years now. Co-led strategy with Ted Pick, you know, ran Capital Markets, led Investment Management. I think Investment Management, you doubled assets organically, added Eaton Vance, made it triple. Now Co-President of Morgan Stanley, along with Andy Saperstein, who helped the insti- inst...
You head Institutional Securities, where you kind of spent the first 25 years of your career. So pleased to have you back. Kind of since we had you here last year, your role has changed, the firm changed, and maybe kind of discuss you know, how the firm has evolved over the past nine months or so, you know, under you know, Ted Pick as the new CEO and obviously other management changes underneath him.
Sure. Well, thanks, Jason, for inviting me back. So I would say, as you said, I, I've been at Morgan Stanley 34 years, 35 next year. I would say I, I'm as excited about the growth prospects and the competitive positioning as any time in that period. I think back to your question, it's a function of both what we've built over the last decade around capabilities and client access, but also the growth from here, and then just translating that into client value across all of our segments. I would say I, I'm biased, obviously, but the CEO transition has been incredibly successful. 19% ROTCE in the first half, and yet, you know, I don't think we're way below trend line in that first half on M&A and IPOs.
I think the franchise is really, really strong. I would say the transition also gets a lot of credit for being low drama, which I think has helped. I would say part of that success is because although we've had a CEO transition, we have not had a change effectively in leadership, strategy, and culture. Ted hosted a town hall for the entire firm this morning. What that has meant is we're set up for growth. I think both James and Ted deserve a lot of credit for being very intentional around those outcomes on strategy, culture, and leadership. I think James famously talks about his first meeting of when he became CEO, talked about succession, but the actions were really also very important.
So Andy, Ted, and I have attended every single board meeting for the last eight years. So the board, if it's been in non-executive session, we've been at every single session. So what I think that has meant is there are real, the leadership team is fully bought into the strategy, and then the leadership team we have now for the, the next, you know, part of our journey is really cohesive, and if I dare admit, it's sort of fun, as a team. But no doubt, strategic clarity has been critical, and you and I have talked about this. We think, it's pretty straightforward and powerful. We just help clients allocate capital, and get market access. And we do that with corporations, asset managers and asset owners, and individuals.
As James talked about, I think two sort of strategy sessions ago, and certainly we've experienced it, it wasn't always that way, right? We had Discover Card, we had prop trading. It's all about clients, it's all about markets, it's all around advice, and that is the global mission, right? We're not going to deviate from that. Where we stand today, when we think about it, is if you look at where we operate, in the areas where we generate revenue, we are the number one firm, tied for number one firm in that marketplace. We have both scale and focus. In the world we live in, giving financial advice, we're tied for number one. The other firm does a lot of other things, so they're a huge diversified financial services firm.
Importantly, all of our management team, all of our brand, all of our resources just focused on the financial advice market. Increasingly, what we're doing is that the entire firm is integrating that for the delivery into those client segments, which is exciting. Ted is, and Andy and I, super focused on bringing that whole firm, and we can do so because the strategy is really, really tight.
One of the things that we do preparing for this conference each summer is we take the summer and we kind of reread each annual letter-
Yeah.
From the CEOs. I think I counted 12 times, and Ted's used the term integrated firm. Maybe kind of expand upon more what that is, what makes it unique or differentiated, and, you know, kind of hear us kind of talk about something similar. So maybe, you know, what makes it successful at Morgan Stanley?
Yeah. I'll give you some philosophy, and then I'm going to give you real examples. I would say at the leadership level, we are laser focused on this, and I think we can, as I said, have that type of focus, because what we're doing in every part of the business is so linked and pretty much the same. Again, whether that advice is helping a corporation allocate capital or an asset manager allocate capital, or an asset owner, and oh, by the way, wealth management platforms, including our own, are just one large asset owner. I think, you know, that is part of the philosophy. What we're also-...
Hearing from clients, though, is that if we connect some of those client segments and some of that advice parameters, we drive even more client value and increase, I guess, the competitive advantage that we have. Two places where I would say are really scaled and big focus areas. The first one is the workplace. The workplace has been the primary driver in taking our U.S. wealth management household count from 2.5 million to 19 million households. And, you know, that access point that we have is really unique. Again, the only other firm that has scaled access into the workplace does not have, one, financial advisors, and two, they don't have corporate CEO advisory relationships. If you think about the workplace as being the funnel to all those households, it's at a corporation.
These are corporations that our investment banking division has relationships with. It's either companies that have been around for decades, where we have the relationship, or companies that are about to go public, and that funnel and that access point to wealth management is critically important. So if you combine our wealth management capabilities in delivering financial wellness into an employee base or ultimately to the end consumer, as well as our relationship capabilities in the investment bank, we're now not just a capital advisor, a risk management advisor, an M&A advisor, but we're also a talent advisor to all these corporates, and that puts us in a very special spot where, in essence, our corporate relationships, our corporate segment, and our wealth management segment are really aligned around a very big theme. This is the theme.
I'll get back to it, I'm sure, in one of the other questions, as we talked about it. The second one is, there are very few firms that are really global in our markets and our securities business. So we are really global in our markets business. We're multi-asset class. We do public and private markets. If you combine that with being the largest wealth manager in the world, and you combine it with the experience, thank you for the note earlier, of tripling asset management, then our ability to partner with an asset manager is pretty unrivaled. And so in that context, we can help them do product development.
So we know how to do product development in U.S. Wealth, clearly, but we also have relationships with every sovereign wealth fund, both as a ISG partner around Alpha, but also as an asset management partner. We are a distribution partner through prime brokerage, through Morgan Stanley Wealth Management. And then obviously, we're an Alpha partner, whether that's in research, but increasingly, as we move, you know, private credit goes up, private equity business is increasingly important, it's around deal flow. Deal flow in PE, deal flow in private credit, deal flow in structured finance. Strategic ideas, do you want. If you're a public asset manager, do you want to go into private credit? Well, we sort of live that, and we have relationships with every private credit manager.
That ability to holistically partner all the way from the analyst in the room, the portfolio manager, but all the way to the CEO of an asset manager, is a really unique element, and to be able to do it on a global basis. Across our entire business, I would say the focus has increased around not necessarily business lines or products, client segments. You know, Morgan Stanley right now is the premier and leading financial advice firm in the world. I mean, as I said, we're tied with number one, but we're the only one at that size who only does that. If we can bring those capabilities against those client segments in a more integrated way, we're already seeing there's real value in that proposition.
Got it. I may put up the first ARS question. Don't worry, Dan, I can ask you to respond to this again for all the companies. But, at least our big picture, a lot going on, markets, rate moves, geopolitical, U.S. elections. You're obviously out talking to clients, you know, on the corporate and investing side all day long. Before we dig in, perhaps you could tell us, you know, what they're thinking or feeling at the moment.
Yeah, I think there's cautious optimism around our client set. I think, you know, we've had to deal with and are dealing with elections in the U.K., the elections in France, obviously, and a really important election in the United States. We got political moves over the last week in Germany. We have a new prime minister coming in Japan, yet we continue to hear the feedback that it's the economy, right? It's the debate today of soft landing versus hard landing, and how does the Fed both react and be a function of that. And clearly, the debate was... There was some no-landing debate or reflation debate earlier in the summer. Our data indicated that was just the wrong debate.
And so I think there is an element of we are about to hit a cycle of interest rate cuts, so there's cautious optimism. I would say, we certainly, obviously, had a bout of extreme volatility, a pretty sharp but short-lived drawdown in the markets. It feels like the bulk of that pain was felt outside the U.S. in wealth management platforms, because what we're seeing with our client base, whether it's wealth management clients, asset managers, again, it's weird talking to a room of asset managers about asset managers, but, asset managers, hedge funds, long-short, macro quant, is that they are all pretty healthy coming out of that bout, and that the bias is to try to figure out how to generate returns and alpha into the end of the year and not just protect it. And so in that context-...
It's an okay market after, you know, a pretty volatile and somewhat challenging August.
Okay. Against that backdrop, maybe we can kind of run through each of the main businesses, talking about maybe key drivers and how things are playing out and the impact of the current backdrop. You know, start with Institutional Securities Group, given that's your current focus, maybe begin with investment banking, specifically. You know, in April, Sharon, you know, talked about the backlog continuing to improve with the advisory underwriting pipelines healthy across regions and sectors, and that we're in kind of the early innings of an investment banking rebound. I understand a lot has transpired since then, as you just talked about. Maybe just talk to kind of current pipelines and, you know, thoughts on realization of those pipelines.
I would say a year ago, you asked me the question, and I said we were predicting. We saw green shoots, and we were predicting a rebound, so just on the facts in the first half, our investment banking revenue is already up 30%. ECM is up 80%. The pipelines, as Sharon mentioned, and I'll comment right now, are accelerating, so I think our conviction and commentary that we're in the early stages of a multiyear capital markets recovery is very much intact and, you know, to a degree, in line with what we were predicting a year ago. You had different parts of the market moving at different elements.
Yet, the M&A and the IPO markets are still well below trend line, and you know that's not going to change in the third quarter, and so our pipelines are changing, but the revenue prospects are not fully there yet, but our conviction is higher than it was a year ago when I was here, well, a little guessing, and you were pushing me a little bit. Our conviction that in the case of those two categories, IPO market, M&A market, ramping up in 2025 and 2026, I would say that's still really high. I would say we are starting to see examples of corporate activity in M&A, and so last week there was a big corporate transaction in the TMT sector.
We underwrote a $10 billion bridge loan by ourselves, so that's encouraging. As an example, we are seeing private equity willing to buy. So one of our clients, big private equity firm, did their largest PE deal ever in Asia, out of Australia. It was in the data center sector, and so they were willing to put up, you know, immense amount of equity against a thematic, where I think it's still slower than we had expected, but it, our conviction around it happening is still strong, is PE be willing to monetize. Whether it's in M&A form or an IPO form, I think they are, they have structural ability to play optionality, and that optionality is they can wait.
I think as the summer began, they felt like they could wait and see what happened on rate cuts, and they can try to get a better price. I think as rate cuts happen and as LP pressure around return of capital and the portfolio starts to build, our view is the monetization of private equity portfolios into 2025 and 2026 will happen. On the other side of that, on the buy side of that trade, we do have a lot of private equity capital, and in fact, we had some reasonably good IPO and equity market executions. It's just we don't have a wave. We just have a couple of examples. I'll just give you one example, because it also ties around integrated firm.
I think the largest IPO in the last year or two has been a deal we did in July for Lineage Logistics, almost $5 billion IPO. And the book was great. The after-market's been strong, and what's great for us is we had raised capital for them well before going public. MSIM is an investor, and the leadership, our big wealth management clients. So we brought the whole firm together, and that data point, I think, is encouraging a higher level of dialogue around IPO filings. And then the last one is companies have to continue to risk manage around the world. I mean, there's been talk over the last year or two around de-globalization, but I would argue every asset manager and every multinational has to be thinking about this and risk managing.
As one of our clients is Walmart, and so they are doing really well with their stores in China, but they also, through M&A, owned 10% of a Chinese internet company. And so third week of August, not your typical slow August, you know, we, I think, traded almost $4 billion sold Walmart out of the Chinese internet company, which is a function of market strength after early August volatility, but also is an indication that we've got, you know, a leading Asian equity franchise. We're able to monetize that back into our corporate sector. So again, I think, the M&A business, the IPO business still is well below trend line, but, that'll continue probably for the rest of the year in terms of revenue.
I think in terms of activity based on the pipeline, 2025 and 2026 feel pretty good.
Got it. I'll have to have you back next year to follow up on that, all right? And maybe shifting gears to markets, you know, $3 billion in equities, $2 billion in FICC in the second quarter. You know, you saw strength across the businesses and regions with client activity fairly active. Can you discuss the current backdrop and kind of what you're doing to sustain recent momentum? You know, where can Morgan Stanley grow share, whether it's pockets of clients, geographies, regions?
Yeah, again, I think at the overall ISG level, and I'll just come back to investment banking in a second. In the context of our brand and operating as an integrated firm and a view that we are about entering into this multi-year cycle, I think Ted started, and I'm continuing, investment into our investment banking franchise. So that's both senior talent and lending, and you're starting to see, you know, some of that share pick up. And in the place where that share has been most obvious because it's scaled, has been in the debt markets and in debt underwriting, as an example. And so I think, you know, that's something we'll continue. In the markets business, I would say the focus, and you called it markets, right?
If, you know, we don't like calling it trading, we like calling it markets, because I think the proportion of revenue around financing and solutions just keeps going up, throughout. And, what I would say is on the markets business, just in the, in the moment, is, and I mentioned August as a volatile month, it's holding up. But I would say more importantly, because either you've asked this or your peers have asked this from time to time, when we think longer term, we don't think the markets business, fixed income and equities, is at either a secular peak, a cyclical peak, or a Morgan Stanley market share peak. And I think just going piece by piece, I'll go really quick, backs up that view.
When you combine that with the view on investment banking, cycle recovery, you know, it's why we feel pretty good about the long, you know, certainly the next couple of years in ISG. Number one, government debt is not... is a growth business. I hate to say it. It is a growth business. As you look around the world, defense spending outside the United States is going up. Energy transition spending is going up, and there are a couple of economies where stimulus is going to get required. So government debt, i.e., macro, is not a declining business. I think secondly, despite the US being pretty mature in the equity market, being a remarkable capital market, the efficiency, you know, I travel around the world, it's just an incredible capital market, but it's relatively mature.
But we have equitization going on in Japan, in the Middle East, in India, in Brazil. And if you think about our franchise, our global franchise in equities, that we are active in all those markets. So if you're an asset manager, of all shapes and sizes and forms, and you want to partner with a global firm in those equitization trends, or even in Greater China, people still need to risk manage, they still need to get access, they still want to take advantage of market idiosyncratic elements. We're the leader, you know, as I said earlier, we and a few others are the leaders in Asian equities. And there's still equitization in countries like Germany, still probably multi-years, but still in front of us.
So despite the U.S. being relatively mature, and the equity market not really growing, buybacks outweighing IPOs, the rest of the world, where frankly, the margin and the value add that we bring is higher. The other one that I've talked a fair amount about, and different firms have different perspectives on this, is... and I haven't read all the Bar commentaries, so, and you'll ask me about it later. But generally speaking, the regulatory environment for banks lending money for the last few years, and probably for the next years, is not great. And in that context, as Ted has mentioned, in the world where financial repression is over and rates might be higher for longer, and you get paid better to be a lender, and banks aren't lending, then asset managers are going to fill the gap.
Asset managers are filling the gap, not just because the borrowers need them. We're seeing pension funds, sovereign wealth funds, wealth management clients all around the world starting to look at credit the first time. I mean, the endowment model did not have credit. Some of our biggest pension funds didn't have credit. A whole number of sovereign wealth funds just did equity, private equity, real estate, and treasuries. They didn't do credit. Now that credit demand is increasing, it's going to go through asset managers, and asset managers are really good for Morgan Stanley. I mean, I've said it before, but I'll just give you the simple example. When and we love commercial banks in the United States, but if a commercial bank, and you had one just earlier, but think truth down, maybe.
If you think about a commercial bank, we would do a bond deal for them in June, or in January when the year starts. We'd probably do a bond deal for them in July. That'll help them with their lending every ten years. If something great or really bad happens, we would raise equity for them, and that is it. And we would do M&A. I would say if you're a big asset manager and you're either doing CLOs or you got a high yield franchise, or you have a private credit franchise in particular, you're talking to Morgan Stanley every hour. And we're helping them raise the money. We're going to help them find the assets. We're going to help them finance the assets, and they're not generic.
They got to customize all the way through the risk and reward structure, so they need us to structure the assets. So credit going to asset manager is a big secular trend that is good for Morgan Stanley. And then the last one I would say on the markets business is corporations and private equity in particular. I would say the big asset managers have had to live risk as a core competency their entire life. But if you're a corporation or even a private equity firm, you're all focused on just your business or that alpha. You have to risk manage. And so we've seen in the last few years, FX volatility, rates volatility. We have clients now in the private markets who will not do a deal without hedging in some form or fashion, both FX and rates.
I'll use the last one is on commodities. You know, we are the number one power trading firm in the United States, and you know, it used to be utilities and chemical companies and all the people who would use power. Our largest clients in the power business now are very large tech companies. And in one of those cases, and this gets back to integrated firm, we had a relationship with the CEO in wealth management, and he's super focused on, you know, the power dynamics and powering AI, and this is a board issue for this company. And actually, we had just written a research report. Here's a plug for research, Jason. We had just written a research report on powering AI at the beginning of the year.
We connected that CEO with a research analyst, who immediately connected them to the head of commodities. And now, through a wealth management connection, we're delivering not just investment banking, but commodities, power trading into the enterprise. And so again, we feel like there's all these elements around our markets business, and in a world where asset managers are putting an increased value on being global, increased value on being multi-asset, increased value on understanding both the public and private markets, and wanting to do less, you know, we think there's a share opportunity as well as sort of overall TAM. The TAM is not dead. That's one thing I want to leave with you.
That's an interesting perspective. As co-president, you obviously work closely with Andy Saperstein on wealth management and your former business investment management, and client assets now over $7 trillion, which is obviously a big number. You're a leader in wealth management. Maybe just talk to kind of what trends you're seeing in the wealth management business. You know, net new assets have been a bit lumpy, client engagement, maybe a little soft, and just, you know, how that's evolving and just how does that inform your kind of 30% pretax margin, you know, from kind of 27%-28% in the second quarter?
I'm going to be bigger and longer than I think your question. Just if you bear with me. So I had a really lucky seat the last few years as head of investment management and then co-head of strategy with Ted, in that I got to talk to everybody, you know, whether it's a securities firm, because MSIM was a client, asset managers, because it's so fragmented in active asset management. We all talk and commiserate and trade ideas, and then obviously, we were intensely focused on wealth management platforms all around the world, and then I had to incorporate that, Ted and I, into a strategic perspective. The growth opportunity at Morgan Stanley Wealth Management today, going forward, I would argue, is the number one scaled growth opportunity in financial services.
It's just to a degree. It's just competitive positioning and just really big math, right? There's $60 trillion of investable assets in the United States. Over the next eight to 10 years, it's going to be over $100 trillion. Within that, the million-dollar household is going to grow even more. It's gonna double in the next eight to 10 years. In that context, we have really unique client access through the workplace. So we've gone from 2.5 million households to 19 million households. So one of the challenges is how do you get to the client? We now have the ability, more so than any other wealth management firm with the brand, and I'll get to the capability set, to get to the client.
What's interesting is in that 2.5 million to 19 million households, we went from, I think 5 years ago or 6 years ago, $2.5 trillion of assets held away among our clients, and now $13 trillion of assets held away. And that household population is younger, and they have immense amount of wealth accumulation in front of them, because I think it's 15 years younger is the average client in the workplace versus our average advisory client. So in that context, if we've got access, that is really, really unique, and then we've got capability set.
The capability set is around taxes, Parametric, which we're using really well, and an incredible alternatives platform, which not only gets the best asset managers coming in to Morgan Stanley, but also the best structures to adapt to not even just wealth management. We're structuring things with our asset management partners that are segmented pieces of the Morgan Stanley Wealth Management infrastructure. So in that context, there's really intense capability. What I would argue is that there's not $40 trillion of assets available, there's probably greater than $50 trillion, and we have 10% market share right now. We should be able to get greater than 10% share of that increment. So in that context, it's a pretty powerful dynamic around the big picture in terms of that.
That is, I think, why you had a prediction around this answer, is why you want to be a number one, because that is the big play as we go forward.
Very helpful. I guess within wealth management, one area I still get a lot of questions on is net interest income and sweep deposits. Maybe just kind of give us your latest perspective on sweeps and wealth management NII.
Yeah, I know, I know you get these questions still. I mean, I think again, in the context of my last question, we are the premier financial advice franchise, not just at the firm level, but in wealth management. And deposits. You know, they're a feature in that, in that overall advice proposition. And I think as Sharon has said, in the last quarter, we saw some clients moving in segments of that advisory platform, their rate. We're not gonna compete just on that, but we moved some of the rate on those advisory accounts. We feel very comfortable that that move, in the context of the overall advisory proposition that we have with clients, is in good shape. And so I think you heard that. We're gonna keep saying it over and over again.
It's part of the package, but we feel pretty comfortable with the rate move that we made. It's reasonable, and it's defending our competitive position. We feel really confident about that. I would say, overall, with NII, as Sharon said, we had, I think, a modest decline in NII in the second quarter, and we still expect modest decline, comparable decline, in the third quarter. I again, as I indicated, we're still early innings in this capital markets recovery. But we are seeing clients in the wealth channel start to take a little bit more duration and start to look for increased return. You know, a little bit more equity risk, a little bit more credit risk. And so, you know, that has a deposit dynamic. I would say, though, we're still in the early innings.
Again, there’s an element of a natural sort of balance in our business, which is, as we have rate cuts and as we have risk tolerance going up, then, in 2025, and we have IPOs and M&A, they, they don’t just help the ISG line. In fact, they don’t just help the investment banking line. The hedging in our markets business goes up, the trading in our markets goes up. But where it’s really relevant to wealth is transactional revenue in the context of a M&A and IPO market increasing, which we are predicting in 2025, really plays through. And I think the second element you mentioned is we’ve had, we’ve had some great success just this year at the ultra-high net worth and family offices in NNA.
But where you could have real NNA breadth and a wave is if you start to have an IPO market, and companies start to get sold, big and small, for cash or for stock. The correlation around that capital markets recovery, as well as some NNA in the future, is pretty significant.
Then maybe rounding out the business line discussion, investment management, [audio distortion] . You know, here you've highlighted areas of secular growth, customization, direct indexing, private alternatives, you know, married with the global distribution platform. You know, where are you in fully capturing Eaton Vance revenue synergy opportunities, and where did you see the biggest growth opportunities in the medium term?
Yeah, I, I was gonna answer it, and now I'm gonna reverse the order I would answer. I would say, Eaton Vance brought sort of durability to the business, which links back to some of the themes I mentioned. So the first theme is, along with a private credit build, which I'll talk about in asset management, you know, they brought just a significant, larger proportion on the active side in fixed income. So now, if you believe my thesis that asset managers are a lot more important in the credit markets or in credit provision, Eaton Vance fixed income is very strong, and we've built a pretty sizable private credit business.
So, we were a little late in private credit, but four years ago, we were at $1 billion of private credit inside of MSIM, and now we're at $50 billion of private credit. So the sort of credit proportion of the business has gone up. But I would say the two secular themes, one of which is Eaton Vance acquisition-related, and the other one is organic, are around direct indexing and customization and then private markets. On the customization side, think of the Parametric element of Eaton Vance, along with the fixed income piece, along with some other tax innovation that they had around portfolios, has been a huge home run.
I mean, this year, this year to date alone, just in the wealth management part of Parametric, because they have institutional business as well, the flows are plus $27 billion. So taxes and customization matter to wealth management clients, whether they're at Morgan Stanley Wealth Management or all of the platforms, and the premier platform in the country is Parametric. And so in that sense, really good growth and flows, and really good front-to-back partnership that's going on between wealth management and investment management under Andy's sort of combined guidance. And then the second one is private markets. In the alternatives business combined with wealth management, we now have $500 billion of alternatives in between the two organizations.
If you think about them now reporting up to Andy, there's $500 billion of private markets. We think it's still a secular growth area. We think it grows, especially in wealth management platforms, not just in the United States, but outside the United States. As we look at countries where we do really well, either in ISG or in long-only active management, Italy and Japan and ultimately Germany and other countries, or even wealth management channels in some of the emerging markets, we're set up to go capture still a big wave around, I guess, the phrase, democratization of alternatives.
Got it. Let me pull up the next ARS question. But maybe just talk to expenses for a moment. You know, year-to-date efficiency ratio, 72%, I think you targeted at or below 70%. 30% pretax margin kind of gets you halfway there in wealth management. You know, kind of what else needs to be done, and kind of what other investments are needed?
Look, the integrated firm focus is not just at the client level, and it's not just on the revenue side. As we've gotten on the other side of integration, then I think there's a real focus on trying to use the scale of the firm to drive some efficiencies. And so I think you saw some relative progress in our efficiency ratio in the first half. I think, again, we're trying to leverage technology wherever possible, both on the client side as well as on the productivity side. So you've read a lot about, you know, the wealth management platform and the use of automation and next best action, and now AI at the platform, but we're also investing in the technology to continue to be a leader in electronic trading.
But at the firm level, the use of technology to create not just productivity or client value, but to make the place safer and more durable for growth in the context of what I talked about earlier, is really important. Now, we're going to have idiosyncratic events. You know, for example, the SEC raised trading fees dramatically in the United States, and we had a really big volume month in August. So you're going to have spikes around things, but those are spikes around things we don't really control. Around things we control, where do we invest? How do we leverage technology? How do we make the place both more efficient, safer, and higher value to our production layer?
And that production could be layer, could be a financial advisor, it could be a trader, it could be a portfolio manager, it could even be an investment banker in the future around some elements of AI. You know, there's still focus on driving and taking advantage of operating leverage as the business grows on the revenue side.
Got it. Next ARS question. So I'm not going to ask you to comment on what Bar said, because he said it as we were on stage. But I think-
I did, I didn't bring my phone, so the phone is out there, so.
But conceptually, it seems like market risk, operational risk, you know, things that impact Morgan Stanley are going to get curtailed. So just, you know, against that backdrop, maybe just generally, how you're thinking about capital allocation?
Does anyone else feel like déjà vu all over again? So Jason asked me the exact same question, and my response will be largely the same as a year ago. And James and Ted and Andy and I were all, and Sharon, all really on this, which is we didn't think the original proposal was good for the consumer, wasn't good for the economy, wasn't good for U.S. banks, and we also felt like it was really going to change. I just didn't know that some of the change was going to show up a year later on the day that I was presenting again. Again, I think it's the changes are necessary. I don't know whether they're sufficient. I do know that we're still early, and so I think in that context, you know, we have to see.
You know, we are, you know, we run a pretty conservative capital framework. With our business mix and stable earnings, we are super committed to a really healthy dividend and increasing it. We have seen a real ability to invest capital into our client franchises and generate returns in the last year, well above our cost of capital, but we wanted to stay safe and buffered for even more client business, but also whatever the vagaries of Basel III would be. You know, we still see that capital strength as a competitive strength, as we move forward.
Then in our 30 seconds remaining, you know, you referenced Eaton Vance multiple times. E*TRADE obviously been additive, so clearly Morgan Stanley has benefited from inorganic growth. We're now a few years removed from those acquisitions. Are there other areas you think you could be beneficial?
Yeah, it's interesting. We did our town hall this morning, and both Andy and I talked about these just great successes. But again, those deals, plus Solium and a little one, Mesa West, and if you go far enough back, Smith Barney, they're all really tight within the strategic umbrella of Morgan Stanley. And so, as I hope it's clear, we see so much growth in essence, taking what we've built and bought, again, Ted, what Ted has done with an integrated investment bank, and then what we've acquired, we have all the tools to deliver a really intense client value over the next year. So we M&A, although we're really good at it and we're always looking, is just not front foot on it. Front foot is the workplace. Front foot is asset management capability.
Front foot is investing and taking advantage of the, you know, investment banking revival. It's around the market, things that I argue, and the secular areas we are in investment management, and doing it across client segments and connecting the firm under Ted's leadership. And so I think that is our primary focus versus, you know, a big deal, which they were great and they were successful, but they were all very strategically oriented. They were not opportunistic in their strategic element. They may have been opportunistic at the moment, COVID and the two big ones, but they were so tight within the strategy, and right now, the tightness of the strategy is to go focus on client segments.
Great. With that, please join me in thanking Dan for his time today.
Thank you.