Morgan Stanley Reports Net Revenues of $10.3 Billion and EPS
of $1.39
Morgan Stanley (NYSE: MS) today reported net revenues of
$10.3 billion for the first quarter ended March 31, 2019 compared
with $11.1 billion a year ago. Net income applicable to Morgan
Stanley was $2.4 billion, or $1.39 per diluted share,1 compared
with net income of $2.7 billion, or $1.45 per diluted share,1 for
the same period a year ago. The current quarter included
intermittent net discrete tax benefits of $101 million, or $0.06
per diluted share.
James P. Gorman, Chairman and Chief Executive Officer,
said, “We delivered solid earnings despite a slow start to the year
following the turbulent markets in the fourth quarter. With an ROE
of 13.1% and ROTCE of 14.9%, our results demonstrated the stability
and breadth of our global franchise. Even though risks to the
global environment remain, markets have recovered and we are well
positioned to serve our clients and invest in our businesses.”
Financial Summary2
($ millions, except per share data)
Highlights
Firm
1Q
2019
1Q
2018
- Firm net revenues declined 7% compared with a record quarter a
year ago.
- Firm compensation of $4.7 billion and non-compensation expenses
of $2.7 billion reflect our continued focus and discipline on
controllable expenses.
- Firm ROE and ROTCE were at the high end of our target range and
our capital ratios remain strong.
- Institutional Securities net revenues reflected solid results
despite a less favorable market environment characterized by lower
volumes and volatility compared with a year ago.
- Wealth Management delivered pre-tax income of $1.2 billion3 and
a pre-tax margin of 27.1%4 reflecting strong expense management
while continuing to invest in the business.
- Investment Management net revenues increased 12% on strong
principal investment gains and solid asset management fees.
Net revenues $10,286 $11,077 Compensation expense $4,651 $4,914
Non-compensation expenses $2,680 $2,743
Pre-tax income3
$2,955 $3,420
Net income app. to MS
$2,429 $2,668
Expense efficiency ratio5
71% 69% Earnings per diluted share $1.39 $1.45
Book value per share6
$42.83 $39.19
Tangible book value per share7
$37.62 $34.04
Return on equity8
13.1% 14.9%
Return on tangible equity8
14.9% 17.2%
Institutional Securities Net revenues $5,196 $6,100
Investment Banking $1,151 $1,513 Sales & Trading
$3,742 $4,402
Wealth Management
Net revenues $4,389 $4,374
Fee-based client assets ($ billions)9
$1,116 $1,058
Fee-based asset flows ($ billions)10
$14.8 $18.2 Loans ($ billions) $71.5
$68.3
Investment Management Net revenues $804
$718
AUM ($ billions)11
$480 $469
Long-term net flows ($ billions)12
$(0.4) $1.5
Institutional Securities
Institutional Securities reported net revenues for the current
quarter of $5.2 billion compared with $6.1 billion a year ago.
Pre-tax income was $1.6 billion compared with $2.1 billion a year
ago.3
Investment Banking revenues down 24%
from a year ago:
- Advisory revenues decreased from a year ago reflecting the
impact of lower M&A fee realizations.
- Equity underwriting revenues decreased from a year ago on lower
IPOs and follow-on offerings due to lower market volumes.
- Fixed income underwriting revenues decreased from a year ago
driven by lower non-investment grade loan issuances.
Sales and Trading net revenues down 15%
from a year ago:
- Equity sales and trading net revenues decreased 21% reflecting
declines in prime brokerage driven by lower client balances and
decreases in derivatives and cash equities on lower client activity
compared with a year ago.
- Fixed Income sales and trading net revenues decreased 9% from a
year ago primarily driven by lower results in rates and foreign
exchange. The decline was partially offset by gains in client
structuring activity within credit risk management and higher
results in credit products.
- Other sales and trading net revenues increased from a year ago
primarily driven by gains on investments associated with certain
employee deferred compensation plans, partially offset by losses on
hedges associated with corporate lending activity.
Investments and Other:
- Investment revenues increased from a year ago driven by a fund
distribution and gains on real estate limited partnerships.
- Other revenues increased from a year ago reflecting higher
mark-to-market gains associated with corporate lending
activity.
($ millions)
1Q
2019
1Q
2018
Net Revenues
$5,196 $6,100 Investment Banking
$1,151 $1,513 Advisory $406 $574 Equity underwriting
$339 $421 Fixed income underwriting $406 $518
Sales and Trading $3,742 $4,402 Equity $2,015
$2,558 Fixed Income $1,710 $1,873 Other $17 $(29)
Investments and Other $303 $185 Investments
$81 $49 Other $222 $136
Total Expenses $3,601
$3,988 Compensation $1,819 $2,160
Non-compensation
$1,782 $1,828
Total Expenses:
- Compensation expense decreased on lower
revenues resulting in a compensation ratio of 35.0%.
- Non-compensation expenses decreased
from a year ago on lower litigation costs and volume driven
expenses, partially offset by higher information processing and
professional services expenses.
Wealth Management
Wealth Management reported net revenues for the current quarter
of $4.4 billion and pre-tax income of $1.2 billion,3 both were
essentially unchanged from a year ago. The current quarter’s
pre-tax margin was 27.1%.4
Net revenues were essentially unchanged
from a year ago:
- Asset management revenues decreased from a year ago reflecting
lower asset level pricing, the result of fourth quarter market
declines.
- Transactional revenues13 increased from a year ago
reflecting gains on investments associated with certain employee
deferred compensation plans, partially offset by lower commissions
and fees.
- Net interest income increased 6% compared with a year ago
primarily driven by growth in bank lending and higher interest
rates. Wealth Management client liabilities14 were $82
billion at quarter end compared with $80 billion a year ago.
Total Expenses:
- Compensation expenses were essentially unchanged from a year
ago. Results in the current quarter reflected an increase in
the fair value of deferred compensation plan referenced investments
offset by decreases in compensable revenues and retention note
expense.
- Non-compensation decreased 3% from a year ago reflecting the
continued focus on expense discipline across the business.
($ millions)
1Q
2019
1Q
2018
Net Revenues $4,389 $4,374 Asset management
$2,361 $2,495 Transactional $817 $747 Net interest $1,130 $1,069
Other $81 $63
Total Expenses $3,201
$3,214 Compensation $2,462 $2,450 Non-compensation $739 $764
Investment Management
Investment Management reported net revenues of $804 million
compared with $718 million a year ago. Pre-tax income was $174
million compared with $148 million a year ago.3
Net revenues up 12% from a year
ago:
- Asset management revenues were essentially unchanged from a
year ago.
- Investment revenues increased from a year ago primarily driven
by higher investment gains and carried interest in Asia private
equity and infrastructure funds.
Total Expenses:
- Compensation expense increased from a year ago principally due
to an increase in deferred compensation associated with carried
interest.
- Non-compensation expenses were essentially unchanged from a
year ago.
($ millions)
1Q
2019
1Q
2018
Net Revenues $804 $718 Asset management $617
$626 Investments $191 $77 Other $(4) $15
Total
Expenses $630 $570 Compensation $370 $304
Non-compensation $260 $266
Other Matters
- At March 31, 2019, the Firm’s capital ratios are based on the
Standardized Approach.16
- The Firm repurchased $1.2 billion of its outstanding common
stock during the quarter as part of its Share Repurchase
Program.
- The Board of Directors declared a $0.30 quarterly dividend per
share, payable on May 15, 2019 to common shareholders of record on
April 30, 2019.
- The effective tax rate from continuing operations for the
quarter was 16.5%, which reflected a recurring-type of discrete tax
benefit of $107 million associated with employee share-based
payments. The current quarter also included
intermittent net discrete tax benefits of $101 million, primarily
associated with the remeasurement of reserves and related interest
due to new information related to multi-jurisdiction tax
examinations.
1Q
201915
1Q
2018
Capital
Common Equity Tier 1 capital16
16.5% 15.5%
Tier 1 capital16
18.8% 17.7%
Tier 1 leverage17
8.4% 8.2%
Supplementary leverage ratio18
6.5% 6.3%
Common Stock Repurchases Repurchases ($ millions)
$1,180 $1,250 Number of Shares (millions) 28 22 Average Price
$42.19 $55.98
Common Shares Outstanding -
period end (millions)
1,686 1,774
Tax Rate
16.5%
20.9%
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 41 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 and in the financial supplement
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 may contain forward-looking statements,
including the attainment of certain financial and other targets,
objectives and goals. Readers are cautioned not to place undue
reliance on forward-looking statements, which speak only as of the
date on which they are made, which reflect management’s current
estimates, projections, expectations, assumptions, interpretations
or beliefs and which are subject to risks and uncertainties that
may cause actual results to differ materially. For a discussion of
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
Risk” in Part II, Item 7A in the Firm’s Annual Report on Form 10-K
for the year ended December 31, 2018 and other items throughout the
Form 10-K and the Firm’s Current Reports on Form 8-K, including any
amendments thereto.
1 Includes preferred dividends related to the calculation of
earnings per share of $93 million for the first quarter of 2019 and
2018. 2 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 analysts, investors and other
stakeholders 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. 3 Pre-tax income is a non-GAAP financial measure
that the Firm considers useful for analysts, investors and other
stakeholders to assess operating performance. Pre-tax income
represents income (loss) before taxes. 4 Pre-tax margin is a
non-GAAP financial measure that the Firm considers useful for
analysts, investors and other stakeholders to assess operating
performance. Pre-tax margin represents income (loss) before taxes
divided by net revenues. 5 The Firm expense efficiency ratio
represents total non-interest expenses as a percentage of net
revenues. 6 Book value per common share represents common
equity divided by period end common shares outstanding. 7
Tangible book value per common share is a non-GAAP financial
measure that the Firm considers to be a useful measure of capital
adequacy for analysts, investors and other stakeholders. Tangible
book value per common share represents tangible common equity
divided by period end common shares outstanding. Tangible common
equity, also a non-GAAP financial measure, represents common equity
less goodwill and intangible assets net of allowable mortgage
servicing rights deduction. 8 Annualized return on average
common equity and annualized return on average tangible common
equity are non-GAAP financial measures that the Firm considers
useful for analysts, investors and other stakeholders to allow
better comparability of period-to-period operating performance and
capital adequacy. The calculation of return on average common
equity and return on average tangible common equity represents
annualized net income applicable to Morgan Stanley less preferred
dividends as a percentage of average common equity and average
tangible common equity, respectively. 9 Wealth Management
fee-based client assets represent the amount of assets in client
accounts where the basis of payment for services is a fee
calculated on those assets. 10 Wealth Management fee-based
asset flows include net new fee-based assets, net account
transfers, dividends, interest, and client fees and exclude
institutional cash management related activity. 11 AUM is
defined as assets under management. 12 Long-term net flows
include the Equity, Fixed Income and Alternative/Other asset
classes and exclude the Liquidity asset class. 13
Transactional revenues include investment banking, trading, and
commissions and fee revenues. 14 Wealth Management client
liabilities reflect U.S. Bank Subsidiaries’ lending and
broker-dealer margin activity. U.S. Bank refers to the Firm's U.S.
Bank operating subsidiaries Morgan Stanley Bank, N.A. and Morgan
Stanley Private Bank, National Association. 15 Capital
ratios are estimates as of the press release date, April 17, 2019.
16 The Firm’s risk-based capital ratios for purposes of
determining regulatory compliance are the lower of the capital
ratios computed under the (i) standardized approaches for
calculating credit risk and market risk risk-weighted assets
(“RWAs”) (the “Standardized Approach”); and (ii) applicable
advanced approaches for calculating credit risk, market risk and
operational risk RWAs (the “Advanced Approach”). At March 31, 2019
and March 31, 2018, the Firm’s ratios are based on the Standardized
Approach. 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 2018 Form 10-K. 17 The Tier 1 leverage ratio is a
non-risk based capital requirement that measures the Firm’s
leverage. Tier 1 leverage ratio utilizes Tier 1 capital as the
numerator and average adjusted assets as the denominator. 18
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 Supplementary Leverage Ratio utilizes a Tier 1
capital numerator of approximately $71.8 billion and $69.2 billion,
and supplementary leverage exposure denominator of approximately
$1.10 trillion and $1.09 trillion, for the first quarter of 2019
and 2018, respectively. 19 The income tax consequences
related to employee share-based payments are recognized in
Provision for income taxes in the consolidated income statement,
and may be either a benefit or a provision. Conversion of employee
share-based awards to Firm shares will primarily occur in the first
quarter of each year. The impact of recognizing excess tax benefits
upon conversion of awards in the first quarter of 2019 was a
benefit of $107 million to Provision for income taxes. We consider
these employee share-based award related provisions or benefits to
be recurring-type (“Recurring”) discrete tax items, as we
anticipate conversion activity each year. Accordingly, these
Recurring discrete tax provisions or benefits are excluded from the
intermittent net discrete tax provisions or benefits disclosures.
Morgan Stanley
Consolidated Income Statement Information (unaudited,
dollars in millions)
Quarter Ended Percentage Change From: Mar 31,
2019 Dec 31, 2018 Mar 31, 2018 Dec 31,
2018 Mar 31, 2018 Revenues: Investment banking $ 1,242 $
1,488 $ 1,634 (17 %) (24 %) Trading 3,441 1,736 3,770 98 % (9 %)
Investments 273 28 126 * 117 % Commissions and fees 966 1,046 1,173
(8 %) (18 %) Asset management 3,049 3,266 3,192 (7 %) (4 %) Other
301 (5 ) 207 * 45 % Total non-interest
revenues 9,272 7,559 10,102 23 % (8 %) Interest income 4,290
4,111 2,860 4 % 50 % Interest expense 3,276 3,122
1,885 5 % 74 % Net interest 1,014
989 975 3 % 4 % Net revenues
10,286 8,548 11,077 20 % (7 %)
Non-interest expenses: Compensation and benefits 4,651 3,787 4,914
23 % (5 %) Non-compensation expenses: Occupancy and
equipment 347 358 336 (3 %) 3 % Brokerage, clearing and exchange
fees 593 598 627 (1 %) (5 %) Information processing and
communications 532 529 478 1 % 11 % Marketing and business
development 141 220 140 (36 %) 1 % Professional services 514 605
510 (15 %) 1 % Other 553 594 652
(7 %) (15 %) Total non-compensation expenses 2,680 2,904 2,743 (8
%) (2 %) Total non-interest expenses
7,331 6,691 7,657 10 % (4 %)
Income (loss) from continuing operations before taxes 2,955 1,857
3,420 59 % (14 %) Income tax provision / (benefit) from continuing
operations 487 300 714 62 % (32
%) Income (loss) from continuing operations 2,468
1,557 2,706 59 % (9 %) Gain (loss) from
discontinued operations after tax 0 1
(2 ) * * Net income (loss) $ 2,468 $ 1,558 $ 2,704 58 % (9 %) Net
income applicable to nonredeemable noncontrolling interests
39 27 36 44 % 8 % Net income (loss)
applicable to Morgan Stanley 2,429 1,531
2,668 59 % (9 %) Preferred stock dividend / Other
93 170 93 (45 %) -- Earnings
(loss) applicable to Morgan Stanley common shareholders $ 2,336 $
1,361 $ 2,575 72 % (9 %)
The End Notes are an integral part of this
presentation. Refer to the Financial Supplement on pages 12-17 for
Definition of U.S. GAAP to Non-GAAP Measures,
Definition of Performance Metrics and
Terms, Supplemental Quantitative Details and Calculations, and
Legal Notice for additional information.
Morgan Stanley
Consolidated Financial Metrics and
Ratios and Statistical Data
(unaudited) Quarter Ended Mar 31, 2019
Dec 31, 2018 Mar 31, 2018 Financial
Metrics: Earnings per basic share $ 1.41 $ 0.81 $ 1.48
Earnings per diluted share $ 1.39 $ 0.80 $ 1.45 Return on
average common equity 13.1 % 7.7 % 14.9 % Return on average
tangible common equity 14.9 % 8.8 % 17.2 % Book value per
common share $ 42.83 $ 42.20 $ 39.19 Tangible book value per common
share $ 37.62 $ 36.99 $ 34.04 Excluding intermittent net
discrete tax provision / benefit Adjusted earnings per diluted
share $ 1.33 $ 0.73 $ 1.45 Adjusted return on average common equity
12.5 % 7.1 % 14.9 % Adjusted return on average tangible common
equity 14.2 % 8.1 % 17.2 %
Financial Ratios:
Pre-tax profit margin 29 % 22 % 31 % Compensation and
benefits as a % of net revenues 45 % 44 % 44 % Non-compensation
expenses as a % of net revenues 26 % 34 % 25 % Firm expense
efficiency ratio 71 % 78 % 69 % Effective tax rate from continuing
operations 16.5 % 16.2 % 20.9 %
Statistical
Data: Period end common shares outstanding (millions)
1,686 1,700 1,774 Average common shares outstanding (millions)
Basic 1,658 1,674 1,740 Diluted 1,677 1,705 1,771 Worldwide
employees 60,469 60,348 57,810
The End Notes are an integral part of this
presentation. Refer to the Financial Supplement on pages 12-17 for
Definition of U.S. GAAP to Non-GAAP Measures, Definition of
Performance Metrics and Terms, Supplemental Quantitative Details
and Calculations, and Legal Notice for additional information.
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Media Relations:Wesley McDade
212-761-2430Investor Relations:Sharon
Yeshaya 212-761-1632
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