MORGAN STANLEY

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Management’s Discussion and Analysis

Executive Summary

Overview of Financial Results

Consolidated Results—Three Months Ended March 31, 2024

•The Firm reported net revenues of $15.1 billion and net income of $3.4 billion with strong contributions across each of our businesses.

•The Firm delivered ROE of 14.5% and ROTCE of 19.7% (see “Selected Non-GAAP Financial Information” herein).

•The Firm’s expense efficiency ratio was 71% demonstrating operating leverage in an improving market environment.

•At March 31, 2024, the Firm’s Standardized Common Equity Tier 1 capital ratio was 15.0%.

•Institutional Securities net revenues of $7.0 billion reflect strong performance across the broad franchise, with particular strength in Equity as well as underwriting revenues, partially offset by lower results in Advisory.

•Wealth Management delivered a pre-tax margin of 26.3%. Net revenues were $6.9 billion on higher asset management revenues driven by the positive market environment. Net new assets for the quarter were $95 billion.

•Investment Management results reflect net revenues of $1.4 billion on higher average AUM of $1.5 trillion. The quarter included positive long-term net flows of $7.6 billion.

Net Income Applicable to Morgan Stanley

Earnings per Diluted Common Share

We reported net revenues of $15.1 billion in the quarter ended March 31, 2024 (“current quarter,” or “1Q 2024”), which increased by 4% compared with $14.5 billion in the quarter ended March 31, 2023 (“prior year quarter,” or “1Q 2023”). For the current quarter, net income applicable to Morgan Stanley was $3.4 billion, or $2.02 per diluted common share, which increased by 14%, or 19% compared with $3.0 billion, or $1.70 per diluted common share in the prior year quarter.

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Management’s Discussion and Analysis

•Compensation and benefits expenses of $6,696 million in the current quarter increased 4% from the prior year quarter, primarily due to an increase in the formulaic payout to Wealth Management representatives driven by higher compensable revenues and higher discretionary incentive compensation, partially offset by lower stock-based compensation expense in the prior year quarter.

•Non-compensation expenses of $4,051 million in the current quarter decreased 2% from the prior year quarter, primarily driven by lower legal and professional services expenses and lower marketing and business development costs, partially offset by an increased technology spend, an incremental FDIC special assessment cost of $42 million and higher execution-related expenses.

The Provision for credit losses on loans and lending commitments was a net release of $6 million, primarily as a result of improvements in the macroeconomic outlook. This was partially offset by provisions for certain specific commercial real estate and corporate loans and modest growth in certain other loan portfolios. The Provision for credit losses on loans and lending commitments in the prior year quarter was $234 million, primarily related to a deterioration in both the macroeconomic outlook and the commercial real estate portfolio.

For further information on the Provision for credit losses, see “Credit Risk” herein.

Business Segment Results

Net Revenues by Segment 1

Net Income Applicable to Morgan Stanley by Segment 1

1. The amounts in the charts represent the contribution of each business segment to the total of the applicable financial category and may not sum to the total presented on top of the bars due to intersegment eliminations. See Note 19 to the financial statements for details of intersegment eliminations.

•Institutional Securities net revenues of $7,016 million in the current quarter increased 3% from the prior year quarter, primarily reflecting higher underwriting revenues and higher Equity results, partially offset by lower Advisory and Fixed income results.

•Wealth Management net revenues of $6,880 million in the current quarter increased 5% from the prior year quarter, primarily reflecting higher Asset management revenues and Transactional revenues, partially offset by lower Net interest revenues.

•Investment Management net revenues of $1,377 million in the current quarter increased 7% from the prior year quarter, primarily reflecting an increase in Asset management and related fees.

Net Revenues by Region 1

1. For a discussion of how the geographic breakdown of net revenues is determined, see Note 22 to the financial statements in the 2023 Form 10-K.

•Americas net revenues in the current quarter increased 7% from the prior year quarter, driven by higher results across all business segments.

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Management’s Discussion and Analysis

•EMEA net revenues in the current quarter increased 5% from the prior year quarter, primarily driven by higher results from Investment Banking and Equity, partially offset by lower results from Fixed income within the Institutional Securities business segment.

•Asia net revenues in the current quarter decreased 12% from the prior year quarter, primarily driven by lower results from Fixed income and Equity within the Institutional Securities business segment.

Selected Financial Information and Other Statistical Data

1. The expense efficiency ratio represents total non-interest expenses as a percentage of net revenues.

2. ROE and ROTCE represent annualized earnings applicable to Morgan Stanley common shareholders as a percentage of average common equity and average tangible common equity, respectively.

3. Represents a non-GAAP financial measure. See “Selected Non-GAAP Financial Information” herein.

4. Pre-tax margin represents income before provision for income taxes as a percentage of net revenues.

5. For a discussion of Liquidity resources, see “Liquidity and Capital Resources—Balance Sheet—Liquidity Risk Management Framework—Liquidity Resources” herein.

6. Includes loans held for investment, net of ACL, loans held for sale and also includes loans at fair value, which are included in Trading assets in the balance sheet.

7. Book value per common share and tangible book value per common share equal common equity and tangible common equity, respectively, divided by common shares outstanding.

8. Client assets represents Wealth Management client assets and Investment Management AUM. Certain Wealth Management client assets are invested in Investment Management products and are also included in Investment Management’s AUM.

9. For a discussion of our capital ratios, see “Liquidity and Capital Resources—Regulatory Requirements” herein.

Economic and Market Conditions

The market environment continued to improve in the first quarter of 2024, despite heightened geopolitical risks, continued inflationary concerns and uncertainty regarding the future path of interest rates, which have remained persistently high relative to recent years. The timing and pace of interest rate changes remain unknown and could impact capital markets in 2024. The market environment impacted our businesses, as discussed further in “Business Segments” herein, and, to the extent that it continues to remain uncertain, could adversely impact client confidence and related activity.

For more information on economic and market conditions, and the potential effects of geopolitical events and acts of war or aggression on our future results, refer to “Risk Factors” and “Forward-Looking Statements” in the 2023 Form 10-K.

Selected Non-GAAP Financial Information

We prepare our financial statements using U.S. GAAP. From time to time, we may disclose certain “non-GAAP financial measures” in this document or in the course of our earnings releases, earnings and other conference calls, financial presentations, definitive proxy statements and other public disclosures. A “non-GAAP financial measure” excludes, or includes, amounts from the most directly comparable measure calculated and presented in accordance with U.S. GAAP. We consider the non-GAAP financial measures we disclose to be useful to us, investors, analysts and other stakeholders by providing further transparency about, or an alternate means of assessing or comparing our financial condition, operating results and capital adequacy.

These measures are not in accordance with, or a substitute for, U.S. GAAP and may be different from or inconsistent with non-GAAP financial measures used by other companies. Whenever we refer to a non-GAAP financial measure, we will also generally define it or present the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP, along with a reconciliation of the differences between the U.S. GAAP financial measure and the non-GAAP financial measure.

We present certain non-GAAP financial measures that exclude the impact of mark-to-market gains and losses on DCP investments from net revenues and compensation expenses. The impact of DCP is primarily reflected in our Wealth Management business segment results. These measures allow for better comparability of period-to-period underlying operating performance and revenue trends,

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Management’s Discussion and Analysis

especially in our Wealth Management business segment. By excluding the impact of these items, we are better able to describe the business drivers and resulting impact to net revenues and corresponding change to the associated compensation expenses. For more information, see“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Summary” in the 2023 Form 10-K.

Tangible common equity is a non-GAAP financial measure that we believe analysts, investors and other stakeholders consider useful to allow for comparability to peers and of the period-to-period use of our equity. The calculation of tangible common equity represents common shareholders’ equity less goodwill and intangible assets net of allowable mortgage servicing rights deduction. In addition, we believe that certain ratios that utilize tangible common equity, such as return on average tangible common equity (“ROTCE”) and tangible book value per common share, also non-GAAP financial measures, are useful for evaluating the operating performance and capital adequacy of the business period-to-period, respectively. The calculation of ROTCE represents annualized earnings applicable to Morgan Stanley common shareholders as a percentage of average tangible common equity. The calculation of tangible book value per common share represents tangible common equity divided by common shares outstanding.

The principal non-GAAP financial measures presented in this document are set forth in the following tables.

Reconciliations from U.S. GAAP to Non-GAAP Consolidated Financial Measures

Non-GAAP Financial Measures by Business Segment

1. Net revenues and compensation expense are adjusted for DCP for both Firm and Wealth Management business segment. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Other Matters” in the 2023 Form 10-K for more information.

2. Average common equity and average tangible common equity for each business segment is determined using our Required Capital framework (see “Liquidity and Capital Resources—Regulatory Requirements—Attribution of Average Common Equity According to the Required Capital Framework” herein). The sums of the segments’ Average common equity and Average tangible common equity do not equal the Consolidated measures due to Parent Company equity.

3. The calculation of ROE and ROTCE by segment uses net income applicable to Morgan Stanley by segment less preferred dividends allocated to each segment, annualized as a percentage of average common equity and average tangible common equity, respectively, allocated to each segment.

Return on Tangible Common Equity Goal

We have an ROTCE goal of 20%. Our ROTCE goal is a forward-looking statement that is based on a normal market environment and may be materially affected by many factors.

See “Risk Factors” and “Forward-Looking Statements” in the 2023 Form 10-K for further information on market and economic conditions and their potential effects on our future operating results.

ROTCE represents a non-GAAP financial measure. For further information on non-GAAP measures, see “Selected Non-GAAP Financial Information” herein.