- Net Revenues of $8.9 Billion and
Earnings per Diluted Share from Continuing Operations of
$0.84
- Excluding DVA,1 Net
Revenues were $8.7 Billion and Earnings per Diluted Share from
Continuing Operations of $0.772,3
- Strong Performance in Wealth
Management with Pre-Tax Margin of 22%4; Record
Revenue per Financial Advisor
- Investment Banking Ranked #1 in
Global IPOs and #2 in Global Announced M&A5;
Continued Strength in Equity Sales & Trading
Morgan Stanley (NYSE: MS) today reported net revenues of $8.9
billion for the third quarter ended September 30, 2014 compared
with $8.0 billion a year ago. For the current quarter, income from
continuing operations applicable to Morgan Stanley was $1.7
billion, or $0.84 per diluted share,6 compared with income of $889
million, or $0.44 per diluted share6, for the same period a year
ago. The current quarter included a net discrete tax benefit of
$237 million or $0.12 per diluted share.7
Results for the current quarter included positive revenues
related to the change in the fair value of certain of the Firm’s
long-term and short-term borrowings resulting from the fluctuation
in the Firm’s credit spreads and other credit factors (Debt
Valuation Adjustment, DVA) of $215 million, compared with negative
revenues of $171 million a year ago.
Excluding DVA, net revenues for the current quarter were $8.7
billion compared with $8.1 billion a year ago.8 Income from
continuing operations applicable to Morgan Stanley was $1.6
billion, or $0.77 per diluted share, compared with income of $1.0
billion, or $0.50 per diluted share, a year ago. 2,3,8
Compensation expense of $4.2 billion increased from $4.0 billion
a year ago primarily driven by higher revenues. Non-compensation
expenses of $2.4 billion decreased from $2.6 billion a year ago
primarily reflecting lower litigation costs.
For the current quarter, net income applicable to Morgan
Stanley, including discontinued operations, was $1.7 billion or
$0.84 per diluted share,6 compared with net income of $906 million
or $0.45 per diluted share in the third quarter of 2013.6
Summary of Firm Results
(dollars in millions)
As Reported
Excluding DVA8
Net MS Income Net MS Income Revenues
Cont. Ops. Revenues Cont. Ops. 3Q 2014
$8,907 $1,718 $8,692 $1,581 2Q 2014 $8,608 $1,900 $8,521 $1,839 3Q
2013 $7,950 $889 $8,121
$1,010
Business Overview
- Institutional Securities net revenues
excluding DVA were $4.3 billion9 reflecting continued strength in
Investment Banking and Equity sales and trading and improved
results in Fixed Income and Commodities sales and trading.
- Wealth Management net revenues were
$3.8 billion and pre-tax margin was 22%.4 Fee based asset flows for
the quarter were $6.5 billion, with total client assets above $2.0
trillion at quarter end.
- Investment Management reported net
revenues of $655 million with assets under management or
supervision of $398 billion.
James P. Gorman, Chairman and Chief Executive Officer, said,
“Morgan Stanley has delivered another quarter of earnings growth
and strong performance based on consistent execution for our
clients. We are well positioned to create superior returns for our
shareholders, particularly as the U.S. economy continues to
strengthen.”
Summary of Institutional Securities
Results
(dollars in millions)
As Reported
Excluding DVA9
Net Pre-Tax Net Pre-Tax Revenues
Income Revenues Income 3Q 2014 $4,516 $1,225
$4,301 $1,010 2Q 2014 $4,248 $961 $4,161 $874 3Q 2013
$3,704 $396 $3,875 $567
INSTITUTIONAL SECURITIES
Institutional Securities reported pre-tax income from continuing
operations of $1.2 billion compared with $396 million in the third
quarter of last year. The quarter’s pre-tax margin was 27%
(excluding DVA, 23%).4,9 Income after the noncontrolling interest
allocation and before taxes was $1.2 billion.10 Net revenues for
the current quarter were $4.5 billion compared with $3.7 billion a
year ago. DVA resulted in positive revenues of $215 million in the
current quarter compared with negative revenues of $171 million a
year ago. Excluding DVA, net revenues for the current quarter of
$4.3 billion compared with $3.9 billion a year ago.9 The following
discussion for sales and trading excludes DVA.
- Advisory revenues of $392 million
increased from $275 million a year ago on higher levels of
completed M&A activity. Equity underwriting revenues of $464
million increased from $236 million a year ago reflecting higher
IPO volumes. Fixed income underwriting revenues of $484 million
were relatively unchanged from the prior year quarter, continuing
to reflect a favorable debt underwriting environment.
- Equity sales and trading net revenues
of $1.8 billion increased from $1.7 billion a year ago reflecting
strong performance in prime brokerage, partly offset by lower
revenues in derivatives.11
- Fixed Income & Commodities sales
and trading net revenues of $997 million increased from $835
million a year ago.11 Results reflected higher revenues in foreign
exchange and securitized products, partly offset by lower results
in commodities and credit products.
- Other sales and trading net losses of
$84 million compared with a net loss of $158 million a year ago
reflecting lower costs related to the Firm’s long-term debt and
higher corporate lending and commitment revenues, partly offset by
losses related to investments in the Firm’s deferred compensation
plans.
- Investment revenues were $39 million
compared with $337 million in the third quarter of last year.
Results for the prior year period reflected a gain resulting from
the disposition of an investment in an insurance broker.
- Other revenues of $225 million
increased from $159 million a year ago reflecting gains related to
the sale of TransMontaigne Inc. and a retail property space, partly
offset by lower results in our Japanese joint venture Mitsubishi
UFJ Morgan Stanley Securities Co., Ltd.12
- Compensation expense of $1.8 billion
increased from $1.6 billion a year ago on higher revenues.
Non-compensation expenses of $1.5 billion for the current quarter
decreased from $1.7 billion a year ago driven primarily by lower
litigation costs.
- Morgan Stanley’s average trading
Value-at-Risk (VaR) measured at the 95% confidence level was $42
million compared with $48 million in the second quarter of 2014 and
$52 million in the third quarter of the prior year.13
Summary of Wealth Management
Results
(dollars in millions)
Net Pre-Tax Revenues
Income 3Q 2014 $3,785 $836 2Q 2014 $3,715 $767 3Q 2013
$3,481 $668
WEALTH MANAGEMENT
Wealth Management reported pre-tax income from continuing
operations of $836 million compared with $668 million in the third
quarter of last year. The quarter’s pre-tax margin was 22%.4 Net
revenues for the current quarter were $3.8 billion compared with
$3.5 billion a year ago.
- Asset management fee revenues of $2.2
billion increased from $1.9 billion a year ago primarily reflecting
market appreciation and positive flows.
- Transactional revenues14 of $912
million decreased from $1.0 billion a year ago reflecting losses
related to investments in the Firm’s deferred compensation plans
and lower fixed income activity, partly offset by an increase in
closed-end fund and other new issue activity.
- Other revenues of $112 million
increased from $75 million a year ago principally driven by a gain
related to the sale of a retail property space.12
- Net interest income of $601 million
increased from $493 million a year ago on higher deposits and loan
balances.
- Compensation expense for the current
quarter of $2.2 billion increased from $2.0 billion a year ago on
higher net revenues, partly offset by a decrease in the fair value
of deferred compensation plan referenced investments.
Non-compensation expenses of $767 million decreased from $796
million a year ago primarily due to operating efficiencies
resulting from the prior year’s completion of the joint venture
acquisition as well as continued expense discipline.
- Total client assets exceeded $2.0
trillion at quarter end. Client assets in fee based accounts of
$768 billion increased 18% compared with the prior year quarter.
Fee based asset flows for the quarter were $6.5 billion.
- Wealth Management representatives of
16,162 decreased from 16,517 compared with the prior year quarter.
Average annualized revenue per representative of $932,000 and total
client assets per representative of $124 million, both records,
increased 10% and 13%, respectively, compared with the prior year
quarter.
Summary of Investment Management Results
(dollars in millions)
Net Pre-Tax Revenues
Income 3Q 2014 $655 $188 2Q 2014 $692 $205 3Q 2013
$828 $300
INVESTMENT MANAGEMENT
Investment Management reported pre-tax income from continuing
operations of $188 million compared with pre-tax income of $300
million in the third quarter of last year.15 The quarter’s pre-tax
margin was 29%.4 Income after the noncontrolling interest
allocation and before taxes was $170 million.
- Net revenues of $655 million decreased
from $828 million in the prior year. Results reflect lower
investment gains and carried interest in the Merchant Banking and
Real Estate Investing businesses, partly offset by higher results
in Traditional Asset Management.16,17 The current quarter also
reflects lower revenues in the Real Estate Investing business
driven by the deconsolidation of certain legal entities associated
with a real estate fund sponsored by the Firm.
- Compensation expense for the current
quarter of $253 million decreased from $332 million a year ago,
principally due to a decrease in the fair value of deferred
compensation plan referenced investments. Non-compensation expenses
of $214 million increased from $196 million a year ago driven by
higher legal costs and brokerage and clearing expenses.
- Assets under management or supervision
at September 30, 2014 of $398 billion increased from $360 billion a
year ago primarily due to market appreciation and positive flows.
The business recorded net flows of $7.6 billion in the current
quarter.
CAPITAL
As of September 30, 2014, the Firm’s Common Equity Tier 1
risk-based capital ratio was approximately 14.3% and its Tier 1
risk-based capital ratio was approximately 16.1%. The Firm is
subject to a “capital floor” such that these regulatory capital
ratios currently reflect the U.S. Basel III Advanced Approaches
(“Advanced Approach”) transitional rules, which represent the lower
of the Firm’s capital ratios calculated under the Advanced Approach
and U.S. Basel I and Basel 2.5 capital rules, taking into
consideration applicable transitional provisions under U.S. Basel
III.18
At September 30, 2014, book value and tangible book value per
common share were $34.17 and $29.25,19 respectively, based on
approximately 2.0 billion shares outstanding.
OTHER MATTERS
The effective tax rate from continuing operations for the
current quarter was 21.0%. The quarter included a discrete net tax
benefit of approximately $237 million primarily associated with the
repatriation of non-U.S. earnings at a cost lower than originally
estimated.
During the quarter ended September 30, 2014, the Firm
repurchased approximately $195 million of its common stock or
approximately 5.9 million shares.
The Firm declared a $0.10 quarterly dividend per common share,
payable on November 14, 2014 to common shareholders of record on
October 31, 2014.
Morgan Stanley is a leading global financial services firm
providing a wide range of investment banking, securities,
investment management and wealth management services. With offices
in more than 43 countries, the Firm’s employees serve clients
worldwide including corporations, governments, institutions and
individuals. For further information about Morgan Stanley, please
visit www.morganstanley.com.
A financial summary follows. Financial, statistical and
business-related information, as well as information regarding
business and segment trends, is included in the Financial
Supplement. Both the earnings release and the Financial Supplement
are available online in the Investor Relations section at
www.morganstanley.com.
# # #
(See Attached Schedules)
This earnings release contains forward-looking statements.
Readers are cautioned not to place undue reliance on
forward-looking statements, which speak only as of the date on
which they are made and which reflect management's current
estimates, projections, expectations or beliefs and which are
subject to risks and uncertainties that may cause actual results to
differ materially. For a discussion of additional risks and
uncertainties that may affect the future results of the Company,
please see “Forward-Looking Statements” immediately preceding Part
I, Item 1, “Competition” and “Supervision and Regulation” in Part
I, Item 1, “Risk Factors” in Part I, Item 1A, “Legal Proceedings”
in Part I, Item 3, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in Part II, Item 7
and “Quantitative and Qualitative Disclosures about Market Risk” in
Part II, Item 7A in the Company's Annual Report on Form 10-K for
the year ended December 31, 2013 and other items throughout the
Form 10-K, the Company’s Quarterly Reports on Form 10-Q and the
Company’s Current Reports on Form 8-K, including any amendments
thereto.
____________________________________
1 Represents the change in the fair value of certain of the
Firm’s long-term and short-term borrowings resulting from the
fluctuation in the Firm’s credit spreads and other credit factors
(Debt Valuation Adjustment, DVA).
2 From time to time, Morgan Stanley may disclose certain
“non-GAAP financial measures” in the course of its earnings
releases, earnings conference calls, financial presentations and
otherwise. For these purposes, “GAAP” refers to generally accepted
accounting principles in the United States. The Securities and
Exchange Commission (SEC) defines a “non-GAAP financial measure” as
a numerical measure of historical or future financial performance,
financial positions, or cash flows that is subject to adjustments
that effectively exclude, or include amounts from the most directly
comparable measure calculated and presented in accordance with
GAAP. Non-GAAP financial measures disclosed by Morgan Stanley are
provided as additional information to investors in order to provide
them with greater transparency about, or an alternative method for
assessing, our financial condition and operating results. These
measures are not in accordance with, or a substitute for 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 present the most directly
comparable financial measure calculated and presented in accordance
with GAAP, along with a reconciliation of the differences between
the non-GAAP financial measure we reference and such comparable
GAAP financial measure.
3 Earnings (loss) per diluted share amounts, excluding DVA, are
non-GAAP financial measures that the Firm considers useful for
investors to allow better comparability of period-to-period
operating performance. Such exclusions are provided to
differentiate revenues associated with Morgan Stanley borrowings,
regardless of whether the impact is either positive, or negative,
that result solely from fluctuations in credit spreads and other
credit factors. The reconciliation of earnings (loss) per diluted
share from continuing operations applicable to Morgan Stanley
common shareholders and average diluted shares from a non-GAAP to
GAAP basis is as follows (shares and DVA are presented in
millions):
3Q 2014 3Q
2013 Earnings (loss) per diluted share from cont. ops. –
Non-GAAP $0.77 $0.50 DVA impact $0.07 ($0.06) Earnings (loss) per
diluted share from cont. ops. – GAAP $0.84 $0.44 Average
diluted shares – Non-GAAP 1,971 1,965 DVA impact 0 0 Average
diluted shares – GAAP 1,971 1,965
4 Pre-tax margin is a non-GAAP financial measure that the Firm
considers useful for investors to assess operating performance.
Pre-tax margin represents income (loss) from continuing operations
before taxes divided by net revenues.
5 Source: Thomson Reuters – for the period of January 1, 2014 to
September 30, 2014 as of October 1, 2014.
6 Includes preferred dividends and other adjustments related to
the calculation of earnings per share for the third quarter of 2014
and 2013 of approximately $64 million and $26 million,
respectively. Refer to page 3 of Morgan Stanley’s Financial
Supplement accompanying this release for the calculation of
earnings per share.
7 The impact to earnings per diluted share from continuing
operations is calculated by dividing the net discrete tax benefit
by the average number of diluted shares outstanding.
8 Net revenues and income (loss) from continuing operations
applicable to Morgan Stanley, excluding DVA, are non-GAAP financial
measures that the Firm considers useful for investors to allow for
better comparability of period-to-period operating performance. The
reconciliation of net revenues and income (loss) from continuing
operations applicable to Morgan Stanley from a non-GAAP to GAAP
basis is as follows (amounts are presented in millions):
3Q 2014
2Q 2014 3Q 2013 Firm net revenues –
Non-GAAP $8,692 $8,521 $8,121 DVA impact $215 $87 $(171) Firm net
revenues – GAAP $8,907 $8,608 $7,950 Income (loss)
applicable to MS – Non-GAAP $1,581 $1,839 $1,010 DVA after-tax
impact $137 $61 $(121) Income (loss) applicable to MS – GAAP $1,718
$1,900 $889
9 Institutional Securities net revenues and pre-tax income
(loss), excluding DVA, are non-GAAP financial measures that the
Firm considers useful for investors to allow for better
comparability of period-to-period operating performance. The
reconciliation of net revenues and pre-tax income (loss) from a
non-GAAP to GAAP basis is as follows (amounts are presented in
millions):
3Q 2014
2Q 2014 3Q 2013 Net revenues – Non-GAAP
$4,301 $4,161 $3,875 DVA impact $215 $87 $(171) Net revenues – GAAP
$4,516 $4,248 $3,704 Pre-tax income (loss) – Non-GAAP $1,010
$874 $567 DVA impact $215 $87 $(171) Pre-tax income (loss) – GAAP
$1,225 $961 $396
10 Noncontrolling interests reported in the Institutional
Securities business segment includes the allocation to Mitsubishi
UFJ Financial Group, Inc. of Morgan Stanley MUFG Securities Co.,
Ltd., which the Firm consolidates.
11 Sales and trading net revenues, including Fixed Income &
Commodities (FIC) and Equity sales and trading net revenues
excluding DVA, are non-GAAP financial measures that the Firm
considers useful for investors to allow better comparability of
period-to-period operating performance. The reconciliation of sales
and trading, including FIC and Equity sales and trading net
revenues from a non-GAAP to GAAP basis is as follows (amounts are
presented in millions):
3Q 2014 3Q 2013 Sales & Trading –
Non-GAAP $2,697 $2,387 DVA impact $215 $(171) Sales & Trading –
GAAP $2,912 $2,216 FIC Sales & Trading – Non-GAAP $997
$835 DVA impact $132 $(141) FIC Sales & Trading – GAAP $1,129
$694 Equity Sales & Trading – Non-GAAP $1,784 $1,710 DVA
impact $83 $(30) Equity Sales & Trading – GAAP $1,867 $1,680
12 The third quarter ended September 30, 2014 included a pre-tax
gain of $141 million associated with the sale of a retail property
space, which was reflected in other revenues in each of the
business segments’ results as follows: Institutional Securities:
$84 million, Wealth Management: $40 million and Investment
Management: $17 million.
13 VaR represents the loss amount that one would not expect to
exceed, on average, more than five times every one hundred trading
days in the Firm’s trading positions if the portfolio were held
constant for a one-day period. Further discussion of the
calculation of VaR and the limitations of the Firm’s VaR
methodology is disclosed in Part II, Item 7A “Quantitative and
Qualitative Disclosures about Market Risk” included in Morgan
Stanley’s Annual Report on Form 10-K for the year ended December
31, 2013. Refer to page 7 of Morgan Stanley’s Financial Supplement
accompanying this release for the VaR disclosure.
14 Transactional revenues include investment banking, trading,
and commissions and fee revenues.
15 Results for the third quarter of 2014 and 2013 included
pre-tax income of $17 million and $65 million, respectively,
related to investments held by certain consolidated real estate
funds. The limited partnership interests in these funds are
reported in net income (loss) applicable to nonredeemable
noncontrolling interests on page 10 of Morgan Stanley’s Financial
Supplement accompanying this release.
16 Net revenues for the current quarter included gains of $17
million compared with gains of $67 million in the prior year third
quarter related to investments held by certain consolidated real
estate funds.
17 Carried interest represents an additional allocation of fund
income to the Firm, as general partner upon exceeding cumulative
fund performance thresholds.
18 As an Advanced Approach banking organization, the Firm is
required to compute risk-based capital ratios using both (i)
standardized approaches for calculating credit risk weighted assets
(“RWAs”) and market risk RWAs (the “Standardized Approach”); and
(ii) an advanced internal ratings-based approach for calculating
credit risk RWAs, an advanced measurement approach for calculating
operational risk RWAs, and an advanced approach for market risk
RWAs calculated under Basel III (the “Advanced Approach”). To
implement a provision of the Dodd-Frank Act, U.S. Basel III
subjects Advanced Approach banking organizations which have been
approved by their regulators to exit the parallel run, such as the
Firm, to a permanent “capital floor”. In calendar year 2014, the
capital floor results in the Firm’s capital ratios being the lower
of the capital ratios computed under the Advanced Approach or the
U.S. Basel I-based rules as supplemented by the existing market
risk rules known as “Basel 2.5”. For the current quarter, the
Firm's capital floor is represented by the Advanced Approach.
Beginning on January 1, 2015, the capital floor will result in the
Firm’s capital ratios being the lower of the capital ratios
computed under the Advanced Approach or the Standardized Approach
under U.S. Basel III. These computations are preliminary estimates
as of October 17, 2014 (the date of this release) and could be
subject to revision in Morgan Stanley’s Quarterly Report on Form
10-Q for the quarter ended September 30, 2014. The methods for
calculating the Firm’s risk-based capital ratios will change
through 2022 as aspects of the U.S. Basel III final rule are phased
in. The Firm’s capital takes into consideration regulatory
capital requirements as well as capital required for organic
growth, acquisitions and other business needs.
19 Tangible common equity and tangible book value per common
share are non-GAAP financial measures that the Firm considers to be
useful measures of capital adequacy. Tangible common equity equals
common equity less goodwill and intangible assets net of allowable
mortgage servicing rights deduction. Tangible book value per common
share equals tangible common equity divided by period end common
shares outstanding.
MORGAN STANLEY
Quarterly Financial Summary
(unaudited, dollars in millions, except
for per share data)
Quarter Ended Percentage Change From: Nine
Months Ended Percentage Sept 30, 2014 June 30,
2014 Sept 30, 2013 June 30, 2014 Sept 30,
2013 Sept 30, 2014 Sept 30, 2013 Change
Net revenues Institutional Securities $ 4,516 $ 4,248 $
3,704 6 % 22 % $ 13,391 $ 12,161 10 % Wealth Management 3,785 3,715
3,481 2 % 9 % 11,122 10,482 6 % Investment Management 655 692 828
(5 %) (21 %) 2,087 2,146 (3 %) Intersegment Eliminations (49
) (47 ) (63 ) (4 %) 22 % (138 ) (156 )
12 % Consolidated net revenues $ 8,907 $ 8,608 $
7,950 3 % 12 % $ 26,462 $ 24,633 7 %
Income (loss) from continuing
operations before tax
Institutional Securities $ 1,225 $ 961 $ 396 27 % * $ 3,557 $ 2,194
62 % Wealth Management 836 767 668 9 % 25 % 2,294 1,920 19 %
Investment Management 188 205 300 (8 %) (37 %) 656 647 1 %
Intersegment Eliminations 0 0 0
-- -- 0 0 -- Consolidated income
(loss) from continuing operations before tax $ 2,249 $ 1,933
$ 1,364 16 % 65 % $ 6,507 $ 4,761 37 %
Income (loss) applicable to Morgan Stanley
Institutional Securities $ 1,098 $ 1,294 $ 324 (15 %) * $ 3,317 $
1,549 114 % Wealth Management 501 471 430 6 % 17 % 1,395 1,012 38 %
Investment Management 119 135 135 (12 %) (12 %) 372 320 16 %
Intersegment Eliminations 0 0 0
-- -- 0 0 -- Consolidated income
(loss) applicable to Morgan Stanley $ 1,718 $ 1,900 $
889 (10 %) 93 % $ 5,084 $ 2,881 76 %
Earnings (loss) applicable to Morgan Stanley common shareholders $
1,649 $ 1,820 $ 880 (9 %) 87 % $ 4,918
$ 2,619 88 %
Earnings per basic share: Income
from continuing operations $ 0.86 $ 0.94 $ 0.45 (9 %) 91 % $ 2.54 $
1.39 83 % Discontinued operations $ - $ - $ 0.01 -- * $ 0.01 $
(0.02 ) * Earnings per basic share $ 0.86 $ 0.94 $ 0.46 (9 %) 87 %
$ 2.55 $ 1.37 86 %
Earnings per diluted share: Income
from continuing operations $ 0.84 $ 0.92 $ 0.44 (9 %) 91 % $ 2.48 $
1.36 82 % Discontinued operations $ - $ - $ 0.01 -- * $ 0.02 $
(0.02 ) * Earnings per diluted share $ 0.84 $ 0.92 $ 0.45 (9 %) 87
% $ 2.50 $ 1.34 87 %
Financial Metrics: Return
on average common equity from continuing operations 10.0 % 11.3 %
5.6 % 10.1 % 5.8 % Return on average common equity 10.0 % 11.3 %
5.7 % 10.2 % 5.7 % Return on average common equity from
continuing operations excluding DVA 9.0 % 10.7 % 6.3 % 9.4 % 6.1 %
Return on average common equity excluding DVA 9.0 % 10.7 % 6.4 %
9.4 % 6.0 % Common Equity Tier 1 capital ratio Advanced
(Transitional) 14.3 % 13.9 % 12.6 % Tier 1 capital ratio Advanced
(Transitional) 16.1 % 15.4 % 15.3 % Book value per common
share $ 34.17 $ 33.46 $ 32.13 Tangible book value per common share
$ 29.25 $ 28.51 $ 26.96 Notes:
-
Results for the quarters ended September
30, 2014, June 30, 2014 and September 30, 2013, include positive
(negative) revenue of $215 million, $87 million and $(171) million,
respectively, related to the change in the fair value of certain of
the Firm's long-term and short-term borrowings resulting from the
fluctuation in the Firm's credit spreads and other credit factors
(Debt Valuation Adjustment, DVA). The nine months ended September
30, 2014 and September 30, 2013, include positive (negative)
revenue of $428 million and $(313) million, respectively, related
to the movement in DVA.
-
The return on average common equity
metrics, return on average common equity excluding DVA metrics, and
tangible book value per common share are non-GAAP measures that the
Firm considers to be useful measures to assess operating
performance and capital adequacy.
-
In the quarter ended June 30, 2014, the
Firm began using the U.S. Basel III Advanced Approaches (Advanced
Approach) to calculate its regulatory capital requirements. Prior
periods have not been recast to reflect the new requirements.
-
Common Equity Tier 1 capital ratio
Advanced (Transitional) and the Tier 1 capital ratio Advanced
(Transitional) equals Common Equity Tier 1 capital divided by
risk-weighted assets (RWAs) and Tier 1 capital divided by RWAs,
respectively.
-
Book value per common share equals common
equity divided by period end common shares outstanding.
-
Tangible book value per common share
equals tangible common equity divided by period end common shares
outstanding.
-
See page 4 and related End Notes of the
Financial Supplement for additional information related to the
calculation of the financial metrics.
11
MORGAN STANLEY
Quarterly Consolidated Income Statement
Information
(unaudited, dollars in
millions)
Quarter Ended Percentage Change From: Nine
Months Ended Percentage Sept 30, 2014 June 30,
2014 Sept 30, 2013 June 30, 2014 Sept 30,
2013 Sept 30, 2014 Sept 30, 2013 Change
Revenues: Investment banking $ 1,551 $ 1,633 $ 1,160 (5 %) 34 % $
4,492 $ 3,687 22 % Trading 2,448 2,516 2,259 (3 %) 8 % 7,926 7,847
1 % Investments 138 227 728 (39 %) (81 %) 724 1,254 (42 %)
Commissions and fees 1,124 1,138 1,079 (1 %) 4 % 3,478 3,463 --
Asset management, distribution and admin. fees 2,716 2,621 2,389 4
% 14 % 7,886 7,139 10 % Other 373 206
225 81 % 66 % 824 747 10
% Total non-interest revenues 8,350 8,341 7,840 -- 7 % 25,330
24,137 5 % Interest income 1,384 1,250 1,261 11 % 10 % 3,977
3,873 3 % Interest expense 827 983
1,151 (16 %) (28 %) 2,845 3,377
(16 %) Net interest 557 267
110 109 % * 1,132 496 128
% Net revenues 8,907 8,608 7,950
3 % 12 % 26,462 24,633 7 %
Non-interest expenses: Compensation and benefits 4,215 4,200 3,965
-- 6 % 12,720 12,282 4 % Non-compensation expenses:
Occupancy and equipment 349 359 372 (3 %) (6 %) 1,067 1,123 (5 %)
Brokerage, clearing and exchange fees 437 458 416 (5 %) 5 % 1,338
1,300 3 % Information processing and communications 396 411 404 (4
%) (2 %) 1,231 1,322 (7 %) Marketing and business development 160
165 151 (3 %) 6 % 472 448 5 % Professional services 522 532 447 (2
%) 17 % 1,506 1,345 12 % Other 579 550
831 5 % (30 %) 1,621 2,052
(21 %) Total non-compensation expenses 2,443 2,475 2,621 (1
%) (7 %) 7,235 7,590 (5 %) Total
non-interest expenses 6,658 6,675
6,586 -- 1 % 19,955 19,872
-- Income (loss) from continuing operations before
taxes 2,249 1,933 1,364 16 % 65 % 6,507 4,761 37 % Income tax
provision / (benefit) from continuing operations 472
15 363 * 30 % 1,267
1,288 (2 %) Income (loss) from continuing operations
1,777 1,918 1,001 (7 %)
78 % 5,240 3,473 51 % Gain (loss) from
discontinued operations after tax (5 ) (1 ) 17
* * 33 (33 ) * Net income (loss) $
1,772 $ 1,917 $ 1,018 (8 %) 74 % $ 5,273 $ 3,440 53 % Net income
applicable to redeemable noncontrolling interests 0 0 0 -- -- 0 222
* Net income applicable to nonredeemable noncontrolling interests
59 18 112 * (47 %)
156 370 (58 %) Net income (loss) applicable to
Morgan Stanley 1,713 1,899 906
(10 %) 89 % 5,117 2,848 80 %
Preferred stock dividend / Other 64 79
26 (19 %) 146 % 199 229
(13 %) Earnings (loss) applicable to Morgan Stanley common
shareholders $ 1,649 $ 1,820 $ 880 (9 %) 87 %
$ 4,918 $ 2,619 88 % Amounts applicable to
Morgan Stanley: Income (loss) from continuing operations 1,718
1,900 889 (10 %) 93 % 5,084 2,881 76 %
Gain (loss) from discontinued operations
after tax
(5 ) (1 ) 17
*
* 33 (33 ) * Net income (loss) applicable to
Morgan Stanley $ 1,713 $ 1,899 $ 906 (10 %) 89
% $ 5,117 $ 2,848 80 % Pre-tax profit margin
25 % 23 % 17 % 25 % 19 % Compensation and benefits as a % of net
revenues 47 % 49 % 50 % 48 % 50 % Non-compensation expenses as a %
of net revenues 27 % 29 % 33 % 27 % 31 % Effective tax rate
from continuing operations 21.0 % 0.8 % 26.6 % 19.5 % 27.1 %
Notes:
-
Pre-tax profit margin and return on
average common equity are non-GAAP financial measures that the Firm
considers to be a useful measure to assess operating
performance.
-
Other revenues for the quarter ended
September 30, 2014 included a gain of $141 million related to the
sale of a retail property space (allocated to the business segments
as follows: Institutional Securities: $84 million, Wealth
Management: $40 million and Investment Management: $17 million),
and a gain related to the sale of TransMontaigne Inc. reported in
the Institutional Securities business segment.
-
In the quarter ended September 30, 2014,
income tax provision / (benefit) from continuing operations
included a net discrete tax benefit of $237 million (reported in
the Institutional Securities business segment) primarily associated
with the repatriation of non-U.S. earnings at a cost lower than
originally estimated.
-
In the quarter ended June 30, 2014, income
tax provision / (benefit) from continuing operations included a net
discrete tax benefit of $609 million (primarily reported in the
Institutional Securities business segment) principally related to
the remeasurement of reserves and related interest due to new
information regarding the status of a multi-year tax authority
examination.
-
The quarter ended September 30, 2013
included a discrete net tax benefit of $73 million attributable to
tax planning strategies to optimize foreign tax credit utilization
in anticipation of the repatriation of earnings from certain
non-U.S. subsidiaries.
12
MORGAN STANLEY
Quarterly Earnings Per Share
(unaudited, dollars in millions, except
for per share data)
Quarter Ended Percentage Change From: Nine
Months Ended Percentage Sept 30, 2014
June 30, 2014 Sept 30, 2013 June 30, 2014
Sept 30, 2013 Sept 30, 2014 Sept 30, 2013
Change Income (loss) from continuing
operations $ 1,777 $ 1,918 $ 1,001 (7 %) 78 % $ 5,240 $ 3,473
51 % Net income applicable to redeemable noncontrolling interests 0
0 0 -- -- 0 222 * Net income applicable to nonredeemable
noncontrolling interests 59 18
112 * (47 %) 156 370 (58 %) Net income (loss)
from continuing operations applicable to noncontrolling interests
59 18 112 * (47 %) 156 592 (74 %)
Income (loss) from
continuing operations applicable to Morgan Stanley 1,718 1,900
889 (10 %) 93 % 5,084 2,881 76 % Less: Preferred Dividends 62 76 24
(18 %) 158 % 192 72 167 %
Less: Morgan Stanley Smith Barney Joint
Venture Redemption Adjustment
- - - -- -- - 151
*
Income (loss) from continuing operations applicable to
Morgan Stanley, prior to allocation of income to Participating
Restricted Stock Units 1,656 1,824 865 (9 %) 91 % 4,892 2,658
84 %
Basic EPS Adjustments: Less: Allocation of
earnings to Participating Restricted Stock Units 2
3 2 (33 %) -- 7 6 17 %
Earnings (loss) from continuing operations applicable to Morgan
Stanley common shareholders $ 1,654 $
1,821 $ 863 (9 %) 92 %
$ 4,885
$ 2,652 84 % Gain (loss) from discontinued
operations after tax (5 ) (1 ) 17 * * 33 (33 ) * Less: Gain (loss)
from discontinued operations after tax applicable to noncontrolling
interests 0 0 0 -- -- 0
0 --
Gain (loss) from discontinued operations
after tax applicable to Morgan Stanley (5 ) (1 ) 17 * * 33 (33
) * Less: Allocation of earnings to Participating Restricted Stock
Units 0 0 0 -- -- 0
0 --
Earnings (loss) from discontinued operations
applicable to Morgan Stanley common shareholders (5
) (1 ) 17 * *
33 (33
) *
Earnings (loss) applicable to Morgan Stanley
common shareholders $ 1,649 $ 1,820
$ 880 (9 %) 87 %
$ 4,918 $
2,619 88 % Average basic common shares outstanding
(millions) 1,923 1,928 1,909 -- 1 % 1,925 1,906 1 %
Earnings per
basic share: Income from continuing operations
$
0.86 $ 0.94 $ 0.45 (9 %) 91 %
$ 2.54 $ 1.39 83 % Discontinued
operations
$ - $ - $ 0.01
-- *
$ 0.01 $ (0.02 ) * Earnings
per basic share
$ 0.86
$ 0.94 $ 0.46 (9
%) 87 %
$ 2.55 $
1.37 86 %
Earnings (loss) from
continuing operations applicable to Morgan Stanley common
shareholders $ 1,654 $ 1,821
$ 863 (9 %) 92 %
$ 4,885 $
2,652 84 %
Earnings (loss) from discontinued
operations applicable to Morgan Stanley common shareholders $
(5 ) $ (1 ) $ 17 * * $ 33 $ (33 ) *
Earnings (loss)
applicable to Morgan Stanley common shareholders $
1,649 $ 1,820 $ 880 (9 %) 87 %
$ 4,918 $ 2,619 88 % Average
diluted common shares outstanding and common stock equivalents
(millions) 1,971 1,969 1,965 -- -- 1,970 1,952 1 %
Earnings per
diluted share: Income from continuing operations
$
0.84 $ 0.92 $ 0.44 (9 %) 91 %
$ 2.48 $ 1.36 82 % Discontinued
operations
$ - $ - $ 0.01
-- *
$ 0.02 $ (0.02 ) * Earnings
per diluted share
$ 0.84
$ 0.92 $ 0.45 (9
%) 87 %
$ 2.50 $
1.34 87 %
Notes:
-
The Firm calculates earnings per share
using the two-class method as described under the accounting
guidance for earnings per share. For further discussion of the
Firm's earnings per share calculations, see page 13 of the
Financial Supplement and Note 15 to the consolidated financial
statements in the Firm's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2014.
13
Morgan StanleyMedia Relations:Michele Davis,
212-761-9621orInvestor Relations:Celeste Mellet Brown,
212-761-3896
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