MORGAN STANLEY

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Management’s Discussion and Analysis

Executive Summary

Overview of Financial Results

Consolidated Results—Three Months Ended June 30, 2024

•The Firm reported net revenues of $15.0 billion, balanced across Wealth Management and Institutional Securities.

•The Firm delivered ROE of 13.0% and ROTCE of 17.5% (see “Selected Non-GAAP Financial Information” herein).

•The Firm’s expense efficiency ratio was 72% for both the second quarter and first half of the year, benefiting from our scale and intentional expense management.

•The Firm accreted $1.5 billion of Common Equity Tier 1 capital while supporting our clients and executing capital actions. At June 30, 2024, the Firm’s Standardized Common Equity Tier 1 capital ratio was 15.2%.

•Institutional Securities net revenues of $7.0 billion reflect strong performance across the franchise, with notable strength in Equity, driven by higher client activity, and in Investment Banking, on robust debt underwriting results.

•Wealth Management delivered a pre-tax margin of 26.8%. Net revenues were $6.8 billion on higher asset management revenues driven by cumulative fee-based asset flows and a positive market environment. Fee-based asset flows were $26 billion for the second quarter and $52 billion for the first half of the year. The business added net new assets of $36 billion in the quarter and $131 billion in the first half of the year.

•Investment Management results reflect net revenues of $1.4 billion, primarily driven by increased asset management revenues on higher long-term average AUM.

Net Income Applicable to Morgan Stanley

Earnings per Diluted Common Share

We reported net revenues of $15.0 billion in the quarter ended June 30, 2024 (“current quarter,” or “2Q 2024”), which increased by 12% compared with $13.5 billion in the quarter ended June 30, 2023 (“prior year quarter,” or “2Q 2023”). Net income applicable to Morgan Stanley was $3.1 billion in the current quarter, which increased by 41% compared with $2.2 billion in the prior year quarter. Diluted earnings per common share was $1.82, which increased by 47% compared with $1.24 in the prior year quarter.

We reported net revenues of $30.2 billion in the six months ended June 30, 2024 (“current year period,” or “YTD 2024”), which increased by 8% compared with $28.0 billion in the six months ended June 30, 2023 (“prior year period,” or “YTD 2023”). Net income applicable to Morgan Stanley was $6.5 billion in the current year period, which increased by 26%, compared with $5.2 billion in the prior year period. Diluted earnings per common share was $3.85, which increased by 31% compared with $2.95 in the prior year period.

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Management’s Discussion and Analysis

•Compensation and benefits expenses of $6,460 million in the current quarter and $13,156 million in the current year period increased 3% and 4%, respectively, compared with the prior year periods, primarily due to higher formulaic payout to Wealth Management representatives driven by higher compensable revenues and higher discretionary compensation on higher revenues. This was partially offset by lower severance costs and lower expenses related to certain employee deferred cash-based compensation plans linked to investment performance (“DCP”).

•Non-compensation expenses of $4,409 million in the current quarter and $8,460 million in the current year period increased 4% and 1%, respectively, compared with the prior year periods, primarily due to higher execution-related expenses and increased technology spend, partially offset by lower legal expenses and professional services expenses.

The Provision for credit losses on loans and lending commitments of $76 million in the current quarter was primarily related to provisions for certain specific commercial real estate loans, mainly in the office sector and modest growth in the corporate loan portfolio. The Provision for credit losses on loans and lending commitments in the prior year quarter was $161 million, primarily related to credit deterioration in commercial real estate lending, mainly in the office sector, and modest growth in certain other loan portfolios.

The Provision for credit losses on loans and lending commitments of $70 million in the current year period was primarily related to provisions for certain specific commercial real estate loans, mainly in the office sector, modest growth in certain corporate and other loan portfolios and provisions for certain specific securities-based loans. The impact was partially offset by improvements in the macroeconomic outlook. The Provision for credit losses on loans and lending commitments of $395 million in the prior year period was primarily related to credit deterioration in commercial real estate lending, mainly in the office sector, modest growth in certain loan portfolios, as well as deterioration in the macroeconomic outlook.

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

Business Segment Results

Net Revenues by Segment 1

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Management’s Discussion and Analysis

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 $6,982 million in the current quarter and $13,998 million in the current year period increased 23% and 12%, respectively, compared with the prior year periods, primarily reflecting higher Equity, Fixed Income and underwriting results within Investment Banking.

•Wealth Management net revenues of $6,792 million in the current quarter and $13,672 million in the current year period increased 2% and 3%, respectively, compared with the prior year periods, primarily reflecting higher Asset management revenues, partially offset by lower Net interest income.

•Investment Management net revenues of $1,386 million in the current quarter and $2,763 million in the current year period increased 8% in both periods, compared with the prior year periods, reflecting higher Asset management and related fees and Performance based income and other revenues.

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 increased 8% in both the current quarter and the current year period, primarily driven by higher results across businesses within the Institutional Securities business segment and higher Asset management revenues within the Wealth Management business segment.

•EMEA net revenues in the current quarter increased 25% from the prior year quarter, primarily driven by higher results across business segments. EMEA net revenues in the current year period increased 14% from the prior year period, primarily driven by higher results from Equity and Investment Banking within the Institutional Securities business segment.

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Management’s Discussion and Analysis

•Asia net revenues in the current quarter increased 20% from the prior year quarter, primarily driven by higher results from Equity and Investment Banking within the Institutional Securities business segment. Asia net revenues in the current year period increased 2% from the prior year period, primarily driven by higher results from Equity and Investment Banking, partially offset by lower results from Fixed Income 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 economic environment, client and investor confidence and overall market sentiment improved in the first half of 2024. However, geopolitical risks, inflation and uncertainty regarding the U.S. political cycle and the future path of interest rates, which have remained high relative to recent years, present ongoing risks to the economic environment. These factors have impacted, and could continue to impact capital markets and our businesses, as discussed further in “Business Segments” herein.

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, net of financing costs on DCP investments from net revenues. We also exclude the impact of mark-to-market gains and losses on DCP from compensation expenses. The impact of DCP investments and DCP are primarily reflected in our Wealth Management business segment results. These measures allow for better comparability of period-to-period underlying

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Management’s Discussion and Analysis

operating performance and revenue trends. 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.

Compensation expense for DCP awards is calculated based on the notional value of the award granted, adjusted for changes in the fair value of the referenced investments that employees select. Compensation expense is recognized over the vesting period relevant to each separately vesting portion of deferred awards.

We invest directly, as principal, in financial instruments and other investments to economically hedge certain of our obligations under these DCP awards. Changes in the fair value of such investments, net of financing costs, are recorded in net revenues, and included in Transactional revenues in the Wealth Management business segment. Although changes in compensation expense resulting from changes in the fair value of the referenced investments will generally be offset by changes in the fair value of investments recognized in net revenues, there is typically a timing difference between the immediate recognition of gains and losses on our investments and the deferred recognition of the related compensation expense over the vesting period. While this timing difference may not be material to our Income before provision for income taxes in any individual period, it may impact the Wealth Management business segment reported ratios and operating metrics in certain periods due to potentially significant impacts to net revenues and compensation expenses.

For more information, see“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Other Matters” 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

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Management’s Discussion and Analysis

Non-GAAP Financial Measures by Business Segment

1. Net revenues and compensation expense are adjusted for DCP investments and 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.