Sharon Yeshaya
Chief Financial Officer at Morgan Stanley
Thank you, and good morning.
In the second quarter, the firm produced revenues of $15 billion. Our EPS was $1.82 and our ROTCE was 17.5%. Results highlight the power and scale of our integrated firm. The resilience of the US economy and a more stable near-term outlook on rates supported conviction amongst clients. Institutional securities drove performance, led by strength and equity and a pickup in investment banking. Wealth management also delivered on our established strategy, reporting record durable asset management fees and strong fee-based flows.
Together, improved confidence and higher client engagement along with our focus on prioritizing investments, yielded operating leverage, and profitability. The firm's year-to-date efficiency ratio was 72% benefiting from scale and reductions in our expense base. Year-to-date expenses benefited from lower litigation expenses, the absence of back office integration related costs and severance, as well as our dedicated effort to prioritize our current spend. On prioritization, we remain committed to client and asset growth, technology, and targeted investments to ensure robust infrastructure that supports growth and addresses ongoing regulatory expectations.
Now to the businesses. Institutional securities revenues of $7 billion increased 23% versus last year, capturing the strengths of the integrated investment bank across US, and international markets. Higher activity in Asia contributed to results. Strong performance in institutional equity, as well as debt underwriting, demonstrate the breadth of our client franchise. In our markets business, opportunities unfolded on the back of global political events and macroeconomic data. Investment banking revenues were $1.6 billion. The 51% increase from the prior year was broad-based.
We continue to invest in investment banking across talent and lending, broadening and deepening our global coverage footprint in key sectors, including financials, healthcare, technology, and industrials. These investments are beginning to have an impact as capital markets improve and activity picks up. Advisory revenues were $592 million, reflecting an increase in our completed M&A activity versus the prior year. The pre-announced M&A backlog continues to build and suggests diversification across sectors.
Equity underwriting revenues of $352 million improved versus the prior year, driven by increases across most products, but remain below historical averages. From a geographical perspective, we brought a number of transactions to market in Europe and Asia, demonstrating the importance of having a strong global market footprint. Fixed income underwriting revenues were $675 million, well above five-year historical averages. Results reflect a meaningful pickup in non-investment grade loan and bond issuance, as tighter spreads and strong CLO issuance provided opportunities for refinancing.
The investment banking backdrop continues to improve, led by the US, the advisory and underwriting pipelines are healthy across regions and sectors. Inflation data has continued to moderate, which has helped stabilize front-end rates and support boardroom confidence and sponsor reengagement. As buyers and sellers make progress to close the valuation gap, we expect that we are still in the early innings of an investment banking rebound. Subject to changes in rate path expectations and geopolitical developments, our integrated investment bank is well-positioned to service our clients.
Turning to equity, we continue to be a global leader in this business. Equity revenues of over $3 billion, up 18% compared to last year, reflect strong results across business and regions. Higher client engagement, dynamic risk management, and strength in Asia all contributed to performance. Prime brokerage revenues were strong and increased from the prior year as client balances reached new peaks. Regionally, we witnessed higher client activity in Asia and seasonal patterns in Europe.
Cash results increased versus last year, reflecting higher volumes across regions. Derivative results were up versus last year's second quarter as client activity was higher and the business navigated the market environment well. Further, the business benefited from corporate activity on the back of convertible issuances, additional evidence of the integrated firm at work. Fixed income revenues of $2 billion increased year-over-year. Macro performance was up versus the prior year. Despite lower realized volatility, clients were engaged around elections and political events in the quarter.
Micro results improved year-over-year, driven by the growth of our more durable revenues as we continue to support our clients with financing solutions. Solid results in commodities were in-line with the prior year. Turning to ISG lending and provisions. In the quarter, ISG provisions were $54 million, driven by certain individual commercial real estate loans. Net charge-offs were $48 million, primarily related to two commercial real estate loans for which we had previously already taken provisions.
Turning to Wealth Management. Wealth Management generated strong results generating revenues of $6.8 billion with record asset management fees. Our PBT margin continued to make progress towards our goal, demonstrating our ability to grow and generate operating leverage through the cycle. We are delivering on our differentiated, scaled multichannel asset gathering strategy. Wealth Management client assets reached $5.7 trillion.
Moving to our business metrics in the second quarter. Pretax profit was $1.8 billion up year-over-year with a reported margin of 26.8%. DCP negatively impacted our margin by approximately 100 basis points. The margin demonstrates the inherent operating leverage of our asset gathering strategy. We are improving the efficiency with which we run the business. Asset management revenues of $4 billion were up 16%. That is more than $500 million in fees versus the prior year. It's driven by higher average asset levels and the impact of cumulative positive fee-based flows.
In the quarter, fee-based flows of $26 billion were strong, marking the seventh consecutive quarter of over $20 billion, bringing the year-to-date fee-based flows to $52 billion. We are seeing a steady migration of assets from adviser-led brokerage accounts to fee-based accounts, evidence that investments in our client acquisition funnel are paying-off. Fee-based assets now stand at $2 trillion.
Net new assets were $36 billion reflecting headwinds from seasonal tax payments. Year-to-date, net new assets are $131 billion representing 5% annualized growth of beginning period assets. Net flows will be lumpy in any given period of time and impacted by both the macroeconomic environment and business specific factors. We believe both tax-related outflows and increased spending, particularly among high net worth clients, impacted flows this quarter. Still our first half NNA growth remains solid.
Transactional revenues were $782 million. Excluding the impact of DCP revenues were up 5% versus last year. The increase was primarily driven by higher equity-related transactions. Bank lending balances grew by $4 billion to $151 billion evidence that as the macroeconomic backdrop stabilizes, our lending capabilities can be met and can meet our diversified client needs. Total deposits of $343 billion remains stable, with sweep deposits down approximately $10 billion sequentially mostly offset by growth in CDs.
Net interest income was down modestly to $1.8 billion reflecting the decline in sweeps, which was largely attributable to the seasonality of tax payments. The Wealth Management business continued to perform well, aggregating assets, generating fees and benefiting from scale and our differentiated offering, consistently earning approximately $100 million a day. In the third quarter, we intend to make changes to our advisory sweep rates against the backdrop of changing competitive dynamics. The impact of these intended changes will be largely offset with the expected gains from the repricing of our investment portfolio.
Therefore third quarter NII will be primarily driven by the path of sweeps, and NII could decline modestly in the third quarter. Importantly inclusive of these pricing changes, the rate path and our expectations around client behavior, we believe that NII should inflect higher as you look out into next year. Our Wealth Management strategy is predicated on gathering assets, meeting our clients' lending needs and offering advice. Asset management fees, the core of our Wealth Management strategy, continues to produce strong results reaching a record this quarter. Taken together, we delivered a strong margin, and we continue to work towards 30% margins over time.
This quarter, we reached approximately $19 million in relationships across our three channels, and we continue to invest in order to deepen engagement. AI tools are helping advisers grow, and Wealth Management's partnership with institutional securities is increasing connectivity around our workplace offering. These investments have supported flows to our adviser-led channel, where average client duration is nearly 15 years and growing. The steady progress supports our journey towards $10 trillion-plus in total client assets.
Turning to Investment Management. Revenues of $1.4 billion increased 8% from the prior second quarter, supported by higher asset management revenue. Asset management and related fees were $1.3 billion up 6% year-over-year, reflecting higher average AUM. Total AUM ended the quarter at $1.5 trillion. Performance-based income and other revenues were $44 million as gains were driven primarily by our infrastructure, US private credit and US private equity funds, reflecting our investments in secular growth areas.
We recorded long-term net outflows of approximately $1 billion. We continue to see strong momentum across areas of strategic focus, namely Parametric. Consistent with current industry trends, we saw outflows in our active equity strategies. Our business is well-positioned given strength in areas of secular growth, such as customization, direct indexing and private alternatives. Our continued focus on global distribution combined with our deep structuring and product creation capabilities, should support incremental growth.
Turning to the balance sheet. Total spot assets decreased $16 billion from the prior quarter to $1.2 trillion. Our standardized CET1 ratio was 15.2%. Client activity was strong and markets were open. We actively supported clients with a focus on velocity of resources. We also grew our CET1 capital by $1.5 billion, reflecting strong earnings and continued capital distribution.
The most recent stress test results reaffirm our durable business model and strong capital position. For the third year in a row, we announced a quarterly dividend increase of $0.075. Having generated over $3.85 of earnings per share and an 18.6% ROTCE year-to-date, we enter the back half of the year from a position of strength, with a robust capital base to support clients. Investment Banking pipelines are healthy and diverse, dialogues are active and markets are open.
In Wealth Management, strong fee-based flows and the realization of operating leverage continue to demonstrate that our strategy is working. As capital markets become more active, we see opportunities for retail clients to engage and over time deploy their cash and cash equivalent balances into fee-based products.
With that, we will now open the line up to questions.
