- Net Revenues of $9.2 Billion and
Earnings per Diluted Share of $0.93
- Continued Strength in Investment
Banking and Solid Results in Sales and Trading
- Wealth Management Pre-Tax Margin of
26.5%;1,2 Record Fee-Based Assets of $1.0
Trillion
Morgan Stanley (NYSE: MS) today reported net revenues of
$9.2 billion for the third quarter ended September 30, 2017
compared with $8.9 billion a year ago. For the current quarter, net
income applicable to Morgan Stanley was $1.8 billion, or $0.93 per
diluted share,3 compared with net income of $1.6 billion, or $0.81
per diluted share,3 for the same period a year ago.
Compensation expense of $4.2 billion increased from $4.1 billion
a year ago driven by higher revenues, while maintaining a
disciplined compensation expense approach. Non-compensation
expenses of $2.5 billion increased from $2.4 billion a year ago
principally on higher volume driven expenses. The Firm’s expense
efficiency ratio for the current quarter was 73%.4
The effective tax rate for the current quarter of 28.1% reflects
the impact of a recurring-type of discrete tax benefit of $11
million related to employee share-based payments and other net
discrete tax benefits of $83 million primarily resulting from the
remeasurement of certain deferred taxes.
The annualized return on average common equity was 9.6 percent
in the current quarter and 9.8 percent for the first nine months of
2017.5
James P. Gorman, Chairman and Chief Executive Officer,
said, “Our third quarter results reflected the stability our Wealth
Management, Investment Banking and Investment Management businesses
bring when our Sales and Trading business faces a subdued
environment. Our balanced business model and the consistent
performance of our franchise enabled us to deliver solid returns
for our shareholders.”
Summary of Segment Results
(dollars in millions)
Net Revenues
Pre-Tax Income6
3Q
2017
3Q
2016
3Q
2017
3Q
2016
Institutional Securities $4,376 $4,553
$1,236 $1,383 Wealth Management
$4,220 $3,881 $1,119 $901
Investment Management $675 $552
$131 $97 Firm $9,197 $8,909
$2,482 $2,381
Business Highlights
- Institutional Securities net revenues
were $4.4 billion reflecting strong advisory results and solid
performance in underwriting and sales and trading.
- Wealth Management net revenues were
$4.2 billion and pre-tax margin was 26.5%.2 Fee-based asset flows
for the quarter were $15.8 billion.
- Investment Management net revenues were
$675 million with assets under management of $447 billion.
Institutional Securities
Institutional Securities reported pre-tax income from continuing
operations of $1.2 billion compared with pre-tax income of $1.4
billion a year ago. Net revenues for the current quarter were $4.4
billion compared with $4.6 billion a year ago.
- Investment Banking revenues of $1.3
billion increased from $1.1 billion a year ago:
- Advisory revenues of $555 million
increased from $504 million a year ago on higher levels of
completed M&A activity.
- Equity underwriting revenues of $273
million increased from $236 million in the prior year quarter
driven by higher revenues on follow-on offerings and IPOs.
- Fixed income underwriting revenues of
$442 million increased from $364 million in the prior year quarter
reflecting higher non-investment grade bond and loan fees.
- Sales and Trading net revenues of $2.9
billion compared with $3.2 billion a year ago:
- Equity sales and trading net revenues
of $1.9 billion were essentially unchanged from a year ago
reflecting higher results in our financing business offset by lower
results in the execution services business driven by declines in
derivatives.
- Fixed Income sales and trading net
revenues of $1.2 billion decreased from $1.5 billion a year ago
primarily driven by lower results in credit products and rates
reflecting lower volatility and subdued activity in the current
quarter.
- Other sales and trading net losses of
$147 million compared with net losses of $192 million in the period
a year ago primarily reflecting lower losses associated with
corporate loan hedging activity.
- Other revenues of $143 million
decreased from $243 million a year ago primarily reflecting lower
gains associated with held for sale corporate loans.
- Compensation expense of $1.5 billion
decreased from $1.7 billion a year ago on lower revenues.
Non-compensation expenses of $1.6 billion for the current quarter
increased from $1.5 billion a year ago, reflecting higher volume
driven expenses and litigation costs.
Morgan Stanley’s average trading Value-at-Risk (VaR) measured at
the 95% confidence level was $43 million compared with $51 million
from the second quarter of 2017 and $42 million in the third
quarter of the prior year.7
Wealth Management
Wealth Management reported pre-tax income from continuing
operations of $1.1 billion compared with $901 million in the third
quarter of last year. The quarter’s pre-tax margin was 26.5%.2 Net
revenues for the current quarter were $4.2 billion compared with
$3.9 billion a year ago.
- Asset management fee revenues of $2.4
billion increased from $2.1 billion a year ago reflecting higher
asset levels and positive flows.
- Transactional revenues8 of $739 million
decreased from $791 million a year ago driven by lower fixed income
trading revenues and a decrease in commission and fees.
- Net interest income of $1.0 billion
increased from $885 million a year ago driven by growth in bank
lending and higher interest rates. Wealth Management client
liabilities were $78 billion at quarter end compared with $70
billion in the prior year quarter.9
- Compensation expense for the current
quarter of $2.3 billion increased from $2.2 billion a year ago
primarily driven by higher revenues. Non-compensation expenses of
$775 million were essentially unchanged from a year ago.
Total client assets were $2.3 trillion and client assets in
fee-based accounts were $1.0 trillion at the end of the quarter.
Fee-based asset flows for the quarter were $15.8 billion.
Wealth Management representatives of 15,759 produced average
annualized revenue per representative of $1.1 million in the
current quarter.10
Investment Management
Investment Management reported pre-tax income from continuing
operations of $131 million compared with $97 million in the third
quarter of last year. Net revenues of $675 million increased from
$552 million in the prior year.
- Asset management fee revenues of $568
million increased from $508 million in the prior year quarter on
higher levels of assets under management.
- Investment revenues of $114 million
increased from $51 million in the prior year quarter reflecting
higher investment gains and carried interest in Infrastructure
investments.
- Compensation expense for the current
quarter of $311 million increased from $237 million a year ago
driven by higher deferred compensation associated with increased
revenues. Non-compensation expenses of $233 million increased from
$218 million a year ago on higher brokerage and clearing
expenses.
- Assets under management or supervision
at September 30, 2017 were $447 billion compared with $417 billion
a year ago.
Capital
As of September 30, 2017, the Firm’s Common Equity Tier 1 and
Tier 1 risk-based capital ratios under Standardized Approach
transitional provisions were approximately 16.9% and 19.2%,
respectively.11
As of September 30, 2017, the Firm estimates its pro forma fully
phased-in Common Equity Tier 1 risk-based capital ratio under the
Standardized Approach and pro forma fully phased-in Supplementary
Leverage Ratio to be approximately 16.3% and 6.5%,
respectively.11,12,13
At September 30, 2017, book value and tangible book value per
common share were $38.87 and $33.86,14 respectively, based on
approximately 1.8 billion shares outstanding.
Other Matters
During the quarter ended September 30, 2017, the Firm
repurchased approximately $1.25 billion of its common stock or
approximately 27 million shares.
The Board of Directors declared a $0.25 quarterly dividend per
share, payable on November 15, 2017 to common shareholders of
record on October 31, 2017.
Morgan Stanley is a leading global financial services firm
providing a wide range of investment banking, securities, wealth
management and investment management services. With offices in more
than 42 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.
NOTICE:
The information provided herein may include certain non-GAAP
financial measures. The definition of such measures or
reconciliation of such metrics to the comparable U.S. GAAP figures
are included in this earnings release and the Financial Supplement,
both of which are available on www.morganstanley.com.
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 Firm,
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 Firm’s Annual Report on Form 10-K for the
year ended December 31, 2016 and other items throughout the Form
10-K, the Firm’s Quarterly Reports on Form 10-Q and the Firm’s
Current Reports on Form 8-K, including any amendments thereto.
1 The Firm prepares its Consolidated Financial Statements using
accounting principles generally accepted in the United States (U.S.
GAAP). 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. The Securities and Exchange Commission 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 U.S. GAAP. Non-GAAP financial measures
disclosed by Morgan Stanley are provided as additional information
to investors and analysts in order to provide them with greater
transparency about, or an alternative method for assessing, our
financial condition, operating results, or prospective regulatory
capital requirements. 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 non-GAAP financial measure we reference and such
comparable U.S. GAAP financial measure.
2 Pre-tax margin is a non-GAAP financial measure that the Firm
considers useful for investors and analysts to assess operating
performance. Pre-tax margin represents income (loss) from
continuing operations before taxes divided by net revenues.
3 Includes preferred dividends and other adjustments related to
the calculation of earnings per share for the third quarter of 2017
and 2016 of approximately $93 million and $79 million,
respectively.
4 The Firm Expense Efficiency Ratio is a non-GAAP financial
measure that the Firm considers useful for investors and analysts
to assess operating performance. The Firm Expense Efficiency Ratio
represents total non-interest expenses as a percentage of net
revenues.
5 Annualized return on average common equity is a non-GAAP
financial measure that the Firm considers useful for investors and
analysts to allow better comparability of period-to-period
operating performance. The calculation of return on average common
equity uses annualized net income applicable to Morgan Stanley less
preferred dividends for the current quarter and first nine months
of 2017 as a percentage of average common equity for each
respective period.
6 Pre-tax income represents income (loss) from continuing
operations before taxes.
7 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 the Annual
Report on Form 10-K for the year ended December 31, 2016 (“2016
Form 10-K”). Refer to page 7 of Morgan Stanley’s Financial
Supplement accompanying this release for the VaR disclosure.
8 Transactional revenues include investment banking, trading,
and commissions and fee revenues.
9 Wealth Management client liabilities reflect U.S. Bank
Subsidiaries’ lending and broker dealer margin activity.
10 Annualized revenue per Wealth Management representative is
defined as annualized revenue divided by average representative
headcount.
11 The Firm’s binding risk-based capital ratios for regulatory
purposes are the lower of the capital ratios computed under the (i)
standardized approaches for calculating credit risk risk-weighted
assets (RWAs) and market risk RWAs (the “Standardized Approach”);
and (ii) applicable advanced approaches for calculating credit
risk, market risk and operational risk RWAs (the “Advanced
Approach”). At September 30, 2017, the binding ratio is based on
the Standardized Approach transitional rules. For prior periods,
the binding ratio was based on the Advanced Approach transitional
rules. For information on the calculation of regulatory capital and
ratios for prior periods, please refer to Part II, Item 7
“Liquidity and Capital Resources – Regulatory Requirements” in the
Firm’s 2016 10-K and Part I, Item 2 “Liquidity and Capital
Resources – Regulatory Requirements” in the Firm’s 10-Q for the
quarter ended June 30, 2017.
12 The pro forma fully phased-in Common Equity Tier 1 risk-based
capital ratio and pro forma fully phased-in Supplementary Leverage
Ratio are non-GAAP financial measures that the Firm considers to be
useful measures for investors and analysts to evaluate compliance
with new regulatory capital requirements that have not yet become
effective.
13 The Firm is required to disclose information related to its
supplementary leverage ratio, which through the end of 2017 will
include the effects of transitional provisions. The supplementary
leverage ratio will become effective as a capital standard on
January 1, 2018. Specifically, beginning on January 1, 2018, the
Firm must maintain a Tier 1 supplementary leverage capital buffer
of at least 2% in addition to the 3% minimum supplementary leverage
ratio (for a total of at least 5%), in order to avoid limitations
on capital distributions, including dividends and stock
repurchases, and discretionary bonus payments to executive
officers. The Firm’s pro forma Supplementary Leverage Ratio
estimate utilizes a fully phased-in Tier 1 capital numerator of
approximately $70.2 billion and a fully phased-in supplementary
leverage exposure denominator of approximately $1.09 trillion. The
Firm’s estimates are subject to risks and uncertainties that may
cause actual results to differ materially from estimates based on
these regulations. Further, these expectations should not be taken
as projections of what the Firm’s supplementary leverage ratios or
earnings, assets or exposures will actually be at future dates. See
“Risk Factors” in Part I, Item 1A in the 2016 Form 10-K for a
discussion of risks and uncertainties that may affect the future
results of the Firm.
14 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 for investors and analysts.
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
Consolidated Financial Summary (unaudited, dollars in
millions, except for per share data)
Quarter Ended Percentage Change From:
Nine Months Ended Percentage Sept
30, 2017 June 30, 2017 Sept 30,
2016 June 30, 2017 Sept 30, 2016 Sept
30, 2017 Sept 30, 2016 Change Net
revenues Institutional Securities $ 4,376 $ 4,762 $ 4,553 (8 %)
(4 %) $ 14,290 $ 12,845 11 % Wealth Management 4,220 4,151 3,881 2
% 9 % 12,429 11,360 9 % Investment Management 675 665 552 2 % 22 %
1,949 1,612 21 % Intersegment Eliminations (74 ) (75
) (77 ) 1 % 4 % (223 ) (207 ) (8 %) Net
revenues $ 9,197 $ 9,503 $ 8,909 (3 %) 3 % $
28,445 $ 25,610 11 %
Income (loss) from continuing operations before tax
Institutional Securities $ 1,236 $ 1,443 $ 1,383 (14 %) (11 %) $
4,409 $ 3,797 16 % Wealth Management 1,119 1,057 901 6 % 24 % 3,149
2,546 24 % Investment Management 131 142 97 (8 %) 35 % 376 259 45 %
Intersegment Eliminations (4 ) 0 0
* * (2 ) 0 * Income (loss) from
continuing operations before tax $ 2,482 $ 2,642 $
2,381 (6 %) 4 % $ 7,932 $ 6,602 20 %
Net Income (loss) applicable to Morgan Stanley Institutional
Securities $ 973 $ 992 $ 966 (2 %) 1 % $ 3,179 $ 2,545 25 % Wealth
Management 698 665 564 5 % 24 % 2,010 1,573 28 % Investment
Management 114 100 67 14 % 70 % 281 195 44 % Intersegment
Eliminations (4 ) 0 0 * *
(2 ) 0 * Net Income (loss) applicable to Morgan
Stanley $ 1,781 $ 1,757 $ 1,597 1 % 12 % $
5,468 $ 4,313 27 % Earnings (loss) applicable to
Morgan Stanley common shareholders $ 1,688 $ 1,587 $
1,518 6 % 11 % $ 5,115 $ 3,999 28 %
Financial Metrics: Earnings per basic share $ 0.95 $
0.89 $ 0.83 7 % 14 % $ 2.86 $ 2.15 33 % Earnings per diluted share
$ 0.93 $ 0.87 $ 0.81 7 % 15 % $ 2.79 $ 2.11 32 % Return on
average common equity 9.6 % 9.1 % 8.7 % 9.8 % 7.7 % Return on
average common equity excluding DVA 9.5 % 9.0 % 8.7 % 9.7 % 7.7 %
Book value per common share $ 38.87 $ 38.22 $ 37.11 $ 38.87
$ 37.11 Tangible book value per common share $ 33.86 $ 33.24 $
32.13 $ 33.86 $ 32.13 Notes:
-
Refer to End Notes, Definition of U.S.
GAAP to Non-GAAP Measures and Definition of Performance Metrics on
pages 13 - 15 from the Financial Supplement for additional
information related to the calculation of the financial
metrics.
7
Morgan Stanley
Consolidated Income Statement Information (unaudited,
dollars in millions) Quarter
Ended Percentage Change From: Nine
Months Ended Percentage Sept 30, 2017
June 30, 2017 Sept 30, 2016 June 30,
2017 Sept 30, 2016 Sept 30, 2017
Sept 30, 2016 Change Revenues: Investment banking $
1,380 $ 1,530 $ 1,225 (10 %) 13 % $ 4,455 $ 3,556 25 % Trading
2,704 2,931 2,609 (8 %) 4 % 8,870 7,420 20 % Investments 167 163 87
2 % 92 % 495 179 177 % Commissions and fees 937 1,027 991 (9 %) (5
%) 2,997 3,066 (2 %) Asset management, distribution and admin. fees
3,026 2,902 2,686 4 % 13 % 8,695 7,943 9 % Other 200
199 308 1 % (35 %) 628
631 -- Total non-interest revenues 8,414 8,752 7,906
(4 %) 6 % 26,140 22,795 15 % Interest income 2,340 2,106
1,734 11 % 35 % 6,411 5,148 25 % Interest expense 1,557
1,355 731 15 % 113 %
4,106 2,333 76 % Net interest 783
751 1,003 4 % (22 %)
2,305 2,815 (18 %) Net revenues 9,197
9,503 8,909 (3 %) 3 %
28,445 25,610 11 % Non-interest expenses:
Compensation and benefits 4,169 4,252 4,097 (2 %) 2 % 12,887 11,795
9 % Non-compensation expenses: Occupancy and equipment 330
333 339 (1 %) (3 %) 990 997 (1 %) Brokerage, clearing and exchange
fees 522 525 491 (1 %) 6 % 1,556 1,440 8 % Information processing
and communications 459 433 456 6 % 1 % 1,320 1,327 (1 %) Marketing
and business development 128 155 130 (17 %) (2 %) 419 418 --
Professional services 534 561 489 (5 %) 9 % 1,622 1,550 5 % Other
573 602 526 (5 %) 9 %
1,719 1,481 16 % Total non-compensation
expenses 2,546 2,609 2,431 (2 %) 5 % 7,626 7,213 6 %
Total non-interest expenses 6,715
6,861 6,528 (2 %) 3 %
20,513 19,008 8 % Income (loss) from
continuing operations before taxes 2,482 2,642 2,381 (6 %) 4 %
7,932 6,602 20 % Income tax provision / (benefit) from continuing
operations 697 846 749
(18 %) (7 %) 2,358 2,160 9 % Income
(loss) from continuing operations 1,785 1,796
1,632 (1 %) 9 % 5,574
4,442 25 % Gain (loss) from discontinued operations after
tax 6 (5 ) 8 * (25 %) (21
) 1 * Net income (loss) $ 1,791 $ 1,791 $ 1,640 -- 9
% $ 5,553 $ 4,443 25 % Net income applicable to nonredeemable
noncontrolling interests 10 34
43 (71 %) (77 %) 85 130 (35 %)
Net income (loss) applicable to Morgan Stanley 1,781
1,757 1,597 1 % 12 % 5,468
4,313 27 % Preferred stock dividend / Other
93 170 79 (45 %) 18 %
353 314 12 % Earnings (loss) applicable
to Morgan Stanley common shareholders $ 1,688 $ 1,587
$ 1,518 6 % 11 % $ 5,115 $ 3,999 28 %
Pre-tax profit margin 27 % 28 % 27 % 28 % 26 % Compensation and
benefits as a % of net revenues 45 % 45 % 46 % 45 % 46 %
Non-compensation expenses as a % of net revenues 28
%
27 % 27 % 27 % 28 %
Firm expense efficiency ratio
73
%
72
%
73
%
72
%
74
%
Effective tax rate from continuing operations 28.1 % 32.0 % 31.5 %
29.7 % 32.7 %
Notes:
-
Refer to End Notes, Definition of U.S.
GAAP to Non-GAAP Measures and Definition of Performance Metrics on
pages 13 - 15 from the Financial Supplement for additional
information.
8
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Morgan StanleyMedia Relations: Michele Davis,
212-761-9621Investor Relations: Sharon Yeshaya,
212-761-1632
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