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MS · Forward model · Intersegment Eliminations · Bull case

What has to happen in Intersegment Eliminations

Model as of

This page changes Intersegment Eliminations inside the complete MS model. Every other vertical, corporate programme and valuation assumption stays in the selected portfolio case.

MS forward model
Horizon
Consolidated fair value $250.33 all other verticals held in this portfolio case
Final-quarter revenue −$245M -1% of company revenue
Explicit segment contribution −$255M EBITDA less segment capex, before corporate items

The cycle has further to run and Morgan Stanley is over-capitalised into it. Investment Banking rose 58% across all three legs at once - advisory $798M, equity underwriting $851M, fixed income underwriting $788M - which is a reopened window rather than one hot product, and Equity net revenues were a record $6,300M. The balance sheet is not the constraint: 306 basis points and $18.0B of CET1 sit above an 11.8% Standardized requirement the Federal Reserve has confirmed holds until 1 October 2027, while the board reauthorised $20B of buybacks from the third quarter and raised the dividend 15% to $1.15. This case holds Institutional Securities near its record margin and lets Wealth Management sit above the 30% goal rather than reverting to it, at a 9.0% cost of equity and an 11.54x exit - a 15x P/E grossed down by tax. What it does NOT reach is a permanent re-rating onto a different business: $250.33 a share, +16.51%, an implied 4.707x tangible book, an all-time-high multiple on a franchise earning first-half-2026 returns.

Intersegment Eliminations

Basis quarter−$194M
Final quarter−$245M
Final revenue mix-1%

The fourth reported line in Morgan Stanley's own segment table and the reason the other three sum above the firm. It is NEGATIVE in every one of the fourteen quarters, -$194M of net revenues and -$15M of pre-tax income in the basis quarter, and it has grown roughly in step with intersegment activity (from -$128M in 2023 Q1). It is carried as its own vertical because without it the verticals would overstate reported net revenues by 0.91% in the basis quarter and the reconciliation would not close. It is not a business and has no thesis beyond that.

Last four quarters
2025 Q3 −$184M Reported
2025 Q4 −$190M Reported
2026 Q1 −$195M Reported
2026 Q2 −$194M Reported
Elimination of revenue recognised in two segments (principally Wealth Management referrals and bank funding recharges)
Sequential growth +1.0%/qtr decaying toward +1.2% Applied to a NEGATIVE base, so 1.0% deepens the drag. Below the 4.17% trailing-eight mean of the magnitude.
Intersegment Eliminations

Latest: −$245M (2031Q2E)

Period Value
2023Q1 −$128M
2023Q2 −$138M
2023Q3 −$136M
2023Q4 −$153M
2024Q1 −$137M
2024Q2 −$141M
2024Q3 −$157M
2024Q4 −$165M
2025Q1 −$173M
2025Q2 −$167M
2025Q3 −$184M
2025Q4 −$190M
2026Q1 −$195M
2026Q2 −$194M
2026Q3E −$196M
2026Q4E −$198M
2027Q1E −$200M
2027Q2E −$202M
2027Q3E −$205M
2027Q4E −$207M
2028Q1E −$209M
2028Q2E −$212M
2028Q3E −$214M
2028Q4E −$217M
2029Q1E −$219M
2029Q2E −$222M
2029Q3E −$225M
2029Q4E −$227M
2030Q1E −$230M
2030Q2E −$233M
2030Q3E −$236M
2030Q4E −$239M
2031Q1E −$242M
2031Q2E −$245M

Assumptions & reasoning

  • This is the structural difference between the Morgan Stanley page and the Goldman page. Goldman has three segments that sum exactly to total net revenues with no elimination; Morgan Stanley has three segments PLUS a published Intersegment Eliminations line, and reconciliation requires all four. Without it the verticals would overstate reported net revenues by 0.91% in the basis quarter.
  • Nothing here is invented. The line is printed in the Consolidated Financial Summary of every quarterly financial supplement, on BOTH the net revenue table and the pre-tax income table: -$194M of net revenues and -$15M of income before provision for income taxes in the basis quarter, and negative in all fourteen quarters back to -$128M in 2023 Q1.
  • The 7.732% margin is -$15M over -$194M. BOTH figures are negative, so the ratio is POSITIVE, and a positive margin applied to negative revenue correctly reproduces negative pre-tax income: -194 x 7.732% = -15.0. The terminal 7.0% sits between the 6.86% fourteen-quarter blend and the 8.16% last-six blend; the ratio is stable and immaterial.
  • capexIntensity is EXACTLY ZERO, and this is the one place the 0.2% premises convention must not be applied. Revenue is negative in all fourteen quarters, so a positive intensity would produce a negative capex - a phantom cash inflow that would flatter free cash flow. For the same reason this vertical carries NO seasonal factors: multiplying a negative base by a factor above 1.0 deepens the drag in exactly the quarters a factor above 1.0 is meant to signal strength.
  • Every scenario neutralises this line. bear, bull and pick each carry a verticalDelta on intersegmentEliminations that exactly cancels the firm-wide marginDelta, because a reconciling line is not a business and should not respond to a view on the cycle.
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