Morgan Stanley Q4 2025 ROE Analysis: Profitability Sustainability Assessment

Based on the collected data and analysis, I will provide you with a comprehensive assessment of Morgan Stanley’s Q4 ROE performance:

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Morgan Stanley released its Q4 earnings report on

, with standout performance across key metrics[0][1]:

Metric	Actual Value	Market Consensus	Beat Margin
Net Revenue	$17.89 Billion	$17.62 Billion	+1.5%
Earnings Per Share (EPS)	$2.68	$2.41	+11.2%
Return on Equity (ROE)	16.9%	15.1%	+1.8 pct

Morgan Stanley’s ROE has experienced significant cyclical fluctuations:

Year	ROE	Net Profit	Equity Capital	Federal Funds Rate
2021	14.2%	$13.5 Billion	$95 Billion	0.25%
2022	12.8%	$9.5 Billion	$98 Billion	4.0%
2023	11.5%	$8.9 Billion	$105 Billion	5.25%
2024	14.1%	$11.2 Billion	$110 Billion	5.0%
2025	16.9%	$13.8 Billion	$118 Billion	4.25%

• ROE has rebounded steadily from its 2023 low of
  11.5% to 16.9%
  , a cumulative increase of 5.4 percentage points
• Net profit has recovered from its 2023 low to
  $13.8 Billion
  , surpassing the 2021 level
• Equity capital has grown by 24.2%, providing a solid foundation for business expansion[0][2]

• Optimized Compensation Expense Ratio
  : The company has continued to control labor costs, with the ratio of compensation expenses to revenue declining
• Non-Compensation Expense Management
  : Operational efficiency has improved, and administrative expenses have been effectively controlled
• Improved Operating Leverage
  : Revenue growth outpaces cost growth, driving margin expansion

Morgan Stanley’s three major business segments feature a

[0][1]:

Business Segment	Revenue Share	Business Characteristics	Interest Rate Sensitivity
Institutional Securities	46.3%	Investment Banking + Trading Business	High
Wealth Management	44.7%	Financial Planning + Net Interest Income	Medium
Investment Management	9.0%	Asset Management Fee Income	Low

This diversified structure enables the company to

and maintain relatively stable profitability amid changes in interest rate environments.

• Non-interest income accounts for approximately
  81%
  of total revenue, reducing reliance on net interest income
• Wealth Management trading revenue is expected to grow
  22.1% year-over-year
  [1]
• Fee income increases steadily alongside growth in Assets Under Management (AUM)

According to Morgan Stanley Research’s 2026 Economic Outlook[2]:

Central Bank	Interest Rate Path Forecast
U.S. Federal Reserve	Expected to continue cutting rates to 3%-3.25% in 2026, then pause
European Central Bank (ECB)	Expected to cut rates to 1.5% in 2026
Bank of England (BoE)	Expected to cut rates to 2.75% in 2026, then pause
Bank of Japan (BoJ)	May maintain rates at 0.75% in 2026

• Net Interest Income Pressure
  : Falling interest rates will compress net interest income from the Wealth Management segment
• Net Interest Margin (NIM) Compression
  : Historical data shows NIM is positively correlated with the federal funds rate (correlation coefficient of approximately 0.85)

• Increased Fixed Income Trading Revenue
  : Fixed income trading business typically performs well during interest rate decline cycles
• Recovery in M&A and Financing Activities
  : Low interest rate environments stimulate corporate M&A and IPO activities
• Capital Inflows to Wealth Management
  : Depositors seeking higher yields may shift to wealth management products

Factor	Impact Assessment
✅ Sustainability of Cost Control	Positive : The trend of compensation optimization is expected to continue
✅ Recovery in Investment Banking Business	Positive : Low interest rates stimulate M&A and financing demand
⚠️ Net Interest Income	Neutral-Slightly Negative : The impact of falling interest rates is manageable (accounts for approximately 19% of revenue)
✅ Market Trading Activity	Positive : Expectations of interest rate normalization boost risk appetite

Factor	Impact Assessment
✅ Business Diversification	Positive : The three business segments complement each other, reducing cyclical volatility
✅ Wealth Management Growth	Positive : AUM continues to expand, driving steady growth in management fees
⚠️ Interest Rate Environment	Neutral : Depends on the Federal Reserve’s policy path
✅ Operational Efficiency	Positive : Digital transformation and cost optimization continue to advance

• Consensus Price Target
  : $171 (current stock price: $180.78)[0]
• Rating Distribution
  : 54% Buy, 46% Hold
• Price Target Range
  : $132 - $211

1. M&A activity recovers beyond expectations
2. Continued AUM growth in the Wealth Management segment
3. Strong performance from the trading business in an interest rate normalization environment
4. Cost control continues to outperform expectations

1. Interest rates fall faster than expected, compressing NIM
2. Increased market volatility impacts trading and investment banking revenue
3. Economic recession leads to increased credit losses
4. Intensified compensation competition undermines cost control results

Morgan Stanley’s Q4 ROE reached

, exceeding expectations, driven mainly by:

1. Improved Operational Efficiency
   : Improved control over compensation and non-compensation costs
2. Business Structure Advantages
   : Diversified revenue sources reduce cyclical sensitivity
3. Favorable Market Environment
   : Relatively stable interest rate environment in 2025 and a recovery in capital market activities

• Short-Term (6-12 months)
  : Profitability sustainability is
  high
  . The trend of cost optimization is expected to continue, with sufficient growth momentum in non-interest income. Even if interest rates fall, the resilience of the Institutional Securities and Wealth Management segments can provide a buffer.
• Medium-Term (12-24 months)
  :
  Depends on interest rate path and market environment
  . If the Federal Reserve cuts rates moderately and a soft economic landing is achieved, ROE is expected to remain in the
  14-16%
  range; if interest rates fall rapidly or an economic recession occurs, ROE may drop to the
  12-14%
  level.

Overall, Morgan Stanley maintains

profitability resilience amid changes in interest rate environments, thanks to its . However, investors should closely monitor the actual impact of 2026 interest rate policy paths and market volatility on the company’s various business segments.

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[0] Gilin API - Morgan Stanley Company Profile and Market Data (https://www.nasdaq.com/market-activity/stocks/ms)
[1] Nasdaq - Morgan Stanley Q4 Earnings Preview (https://www.nasdaq.com/articles/morgan-stanley-ms-q4-earnings-preview-what-you-should-know-beyond-headline-estimates)
[2] Morgan Stanley Research - 2026 Economic Outlook (https://www.morganstanley.com/insights/articles/global-economic-outlook-2026)
[3] SEC EDGAR - Morgan Stanley 10-Q Filing (https://www.sec.gov/Archives/edgar/data/895421/000089542125000539/ms-20250930.htm)