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Backed by record equity trading revenue, healthy net new asset accumulation, and solid cost control, Morgan Stanley (MS) comfortably beat 1Q25 EPS and revenue estimates, displaying its resiliency and the advantages of its diversified revenue streams. There were pockets of weakness, though, including an equity underwriting business that saw a deceleration in IPO activity towards the end of the quarter. Furthermore, while MS didn't provide formal guidance for FY25, it warned that an already murky dealmaking climate has been exacerbated by trade tensions and weak IPO debuts, dampening IPO and advisory pipelines in the near term. The company also noted that tariff-induced inflationary pressures could lead to steeper yield curves, which would push borrowing costs higher, reduce confidence levels, and lead to fiscal strains.

• The clear standout in Q1 was the equity trading business as revenue surged by 45% yr/yr to a record $4.13 bln. The unit benefitted from heightened volatility triggered by President Trump's tariffs, and to a lesser degree, China's launch of its GenAI model, DeepSeek. These events led to increased trading activity as investors rebalanced their portfolios and hedged against economic uncertainty.
• Staying in the Institutional Securities segment, which accounts for approximately 40% of total revenue, Advisory was also strong with revenue up 22.1% to $563 mln. MS benefitted from a resurgence in M&A activity, especially in the technology and industrial sectors as companies sought consolidation and strategic partnerships. However, with interest rates rising and with inflationary pressures intensifying amid a trade war, it's likely that dealmaking will slow in the coming quarters.
• Unsurprisingly, MS's equity underwriting business experienced a slowdown as IPO activity decelerated late in the quarter. Equity underwriting revenue fell by nearly 26% to $319 mln, after showing impressive growth of 102% last quarter.
• An important competitive advantage that MS holds, especially during times of high volatility and economic stress, is its diversified revenue streams. In particular, the company's Wealth Management segment (about 35% of total revenue) provides stability and is less capital-intensive than the investment banking arm. In Q1, Wealth Management generated net new assets of $94.0 bln, pushing total client assets higher by 10% yr/yr to $7.7 trillion. Over time, MS aims to grow client assets to $10.0 trillion as it leverages its strong client trust and diversified services. 
• On the cost side, MS's expense efficiency ratio improved to 68% compared to 69% last quarter and 71% in the year-earlier quarter. Compensation expense rose by only 12.3%, reflecting a disciplined approach to costs.

MS reported strong Q1 results, driven by outstanding equity trading performance, strong Wealth Management flows, and a rebound in advisory revenue. The company's diversified revenue streams are a key advantage during times of economic uncertainty, but it still faces considerable risks from the fallout of a global trade war, leading to weakness in dealmaking activity.