- Record Net Revenues of $11.1 Billion
and Record Net Income of $2.7 Billion1,2,3
- Earnings per Diluted Share of
$1.45
- Strong Performance across all
Business Segments and Geographies
- Results Reflect Significant
Operating Leverage Achieved Through Strong Expense
Discipline
Financial Overview
Morgan Stanley (NYSE: MS) today reported net revenues of
$11.1 billion for the first quarter ended March 31, 2018 compared
with $9.7 billion a year ago. For the current quarter, net income
applicable to Morgan Stanley was $2.7 billion, or $1.45 per diluted
share,4 compared with net income of $1.9 billion, or $1.00 per
diluted share, for the same period a year ago.4
Compensation expense of $4.9 billion increased from $4.5 billion
a year ago on higher revenues. Non-compensation expenses of $2.7
billion increased from $2.5 billion a year ago principally on
higher volume driven expenses. The Firm’s expense efficiency ratio
for the current quarter was 69%.5
The annualized return on average common equity was 14.9% and
return on average tangible common equity was 17.2% in the current
quarter.6
James P. Gorman, Chairman and Chief Executive Officer,
said, “We delivered very strong results this quarter, with record
revenues and net income - and an ROE above our target range. Each
of our businesses performed well, with significant client
engagement across our global franchise, and Sales and Trading a
particular highlight in a more active environment.”
Summary of Segment Results
(dollars in millions)
Net Revenues
Pre-Tax Income7
1Q 2018 1Q 2017 1Q
2018 1Q 2017 Institutional Securities $6,100
$5,152 $2,112 $1,730 Wealth Management $4,374 $4,058
$1,160 $973 Investment Management $718 $609 $148 $103 Firm
$11,077 $9,745 $3,420 $2,808
Business Highlights
- Institutional Securities net revenues
were $6.1 billion reflecting strength across our sales and trading
franchise; Investment Banking Ranked #1 in Global Announced and
Completed M&A and Global Equity.8
- Wealth Management reported net revenues
of $4.4 billion, record pre-tax income of $1.2 billion and a
pre-tax margin of 26.5%;9 Strong fee-based asset flows of $18.2
billion for the quarter.
- Investment Management net revenues were
$718 million reflecting higher management fees; Continued positive
long-term net flows in the quarter.10
Institutional Securities
Institutional Securities reported pre-tax income from continuing
operations of $2.1 billion compared with pre-tax income of $1.7
billion a year ago. Net revenues for the current quarter were $6.1
billion compared with $5.2 billion a year ago.3
- Investment Banking revenues of $1.5
billion compared with $1.4 billion a year ago:
- Advisory revenues of $574 million
increased from $496 million a year ago reflecting the impact of
higher M&A fee realizations.
- Equity underwriting revenues of $421
million increased from $390 million in the prior year quarter
primarily reflecting higher market volumes.
- Fixed income underwriting revenues of
$518 million decreased from $531 million in the prior year quarter
primarily reflecting lower debt issuance volumes.
- Sales and Trading net revenues of $4.4
billion increased from $3.5 billion a year ago:
- Equity sales and trading net revenues
of $2.6 billion increased from $2.0 billion a year ago reflecting
strong performance across products and regions on higher levels of
client activity.
- Fixed Income sales and trading net
revenues of $1.9 billion increased from $1.7 billion a year ago
reflecting higher results in foreign exchange and commodities,
partially offset by lower results in credit products and
rates.
- Other sales and trading net losses of
$29 million compared with net losses of $234 million in the prior
year period reflecting higher revenues on economic hedges related
to the Firm’s long-term debt and lower losses associated with
corporate loan hedging activity.
- Other revenues of $136 million
decreased from $173 million a year ago primarily reflecting lower
gains associated with held-for-sale corporate loans.
- Compensation expense of $2.2 billion
increased from $1.9 billion a year ago driven by higher revenues.
Non-compensation expenses of $1.8 billion for the current quarter
increased from $1.6 billion a year ago principally on higher volume
driven expenses.3
Morgan Stanley’s average trading Value-at-Risk (VaR) measured at
the 95% confidence level was $46 million compared with $38 million
from the fourth quarter of 2017 and $44 million in the first
quarter of the prior year.11
Wealth Management
Wealth Management reported pre-tax income from continuing
operations of $1.2 billion compared with $973 million in the first
quarter of last year. The quarter’s pre-tax margin was 26.5%.9 Net
revenues for the current quarter were $4.4 billion compared with
$4.1 billion a year ago.
- Asset management revenues of $2.5
billion increased from $2.2 billion a year ago reflecting higher
asset levels and positive flows.
- Transactional revenues12 of $747
million decreased from $823 million a year ago primarily driven by
losses related to investments associated with certain employee
deferred compensation plans compared with gains in the prior year
quarter.
- Net interest income of $1.1 billion
increased from $994 million a year ago driven by higher interest
rates and growth in bank lending. Wealth Management client
liabilities were $80 billion at quarter end compared with $74
billion in the prior year quarter.13
- Compensation expense for the current
quarter of $2.5 billion increased from $2.3 billion a year ago on
higher revenues. Non-compensation expenses of $764 million were
essentially unchanged from a year ago.
Total client assets were $2.4 trillion and client assets in
fee-based accounts were $1.1 trillion at the end of the quarter.
Fee-based asset flows for the quarter were $18.2 billion.
Wealth Management representatives of 15,682 produced average
annualized revenue per representative of $1.1 million in the
current quarter.14
Investment Management
Investment Management reported pre-tax income from continuing
operations of $148 million compared with $103 million in the first
quarter of last year. Net revenues of $718 million increased from
$609 million in the prior year.3
- Asset management revenues of $626
million increased from $517 million in the prior year quarter
driven by higher levels of assets under management.
- Investment revenues of $77 million
decreased from $98 million in the prior year quarter primarily
driven by lower investment gains in certain private equity funds
compared with the quarter a year ago.
- Compensation expense for the current
quarter of $304 million increased from $279 million a year ago on
higher revenues. Non-compensation expenses of $266 million
increased from $227 million a year ago driven by higher brokerage
and clearing expenses.3
- Total assets under management or
supervision at March 31, 2018 were $469 billion compared with $421
billion a year ago.
Capital
As of March 31, 2018, the Firm’s Common Equity Tier 1 and Tier 1
risk-based capital ratios under the fully phased-in Standardized
Approach were approximately 15.6% and 17.8%, respectively; the
fully phased-in Supplementary Leverage Ratio was approximately
6.3%.15,16
At March 31, 2018, book value and tangible book value per common
share were $39.19 and $34.04,17 respectively, based on
approximately 1.8 billion shares outstanding.
Other Matters
The effective tax rate from continuing operations for the
quarter was 20.9%, which reflected a recurring-type of discrete tax
benefit of $147 million associated with employee share-based
payments.18
During the quarter ended March 31, 2018, the Firm repurchased
approximately $1.25 billion of its common stock or approximately 22
million shares.
The Board of Directors declared a $0.25 quarterly dividend per
share, payable on May 15, 2018 to common shareholders of record on
April 30, 2018.
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
Market Risk” in Part II, Item 7A in the Firm’s Annual Report on
Form 10-K for the year ended December 31, 2017 and other items
throughout the Form 10-K 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 Net revenues of $11.1 billion and net income applicable to
Morgan Stanley of $2.7 billion represent records for a reported
quarterly period after excluding the impact of debt valuation
adjustments (DVA), which were previously reflected in net revenues
in prior periods, and reflecting the current reporting structure of
the Firm (i.e. exclusive of discontinued operations). Net revenues
and net income applicable to Morgan Stanley, excluding the impact
of DVA, were non-GAAP financial measures in those prior periods
that were reconciled to the comparable GAAP financial measures in
the respective quarterly reports filed on Form 10-Q.
3 Effective January 1, 2018, the Firm adopted new accounting
guidance related to Revenue from Contracts with Customers, which
among other things, requires a gross presentation of certain costs
that were previously netted against net revenues. As a result, the
Firm recorded an increase to net revenues and non-compensation
expenses of $79 million, of which $72 million was reported in the
Institutional Securities segment and $23 million in the Investment
Management segment. In addition, the Firm included an intersegment
elimination of $(16) million related to intercompany activity. This
change in presentation did not have an impact on net income. Prior
periods have not been restated pursuant to this guidance.
4 Includes preferred dividends and other adjustments related to
the calculation of earnings per share for the first quarter of 2018
and 2017 of approximately $93 million and $90 million,
respectively.
5 The Firm Expense Efficiency Ratio represents total
non-interest expenses as a percentage of net revenues.
6 Annualized return on average common equity, annualized return
on average tangible common equity and tangible common equity are
non-GAAP financial measures that the Firm considers useful for
investors and analysts 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 uses annualized net income
applicable to Morgan Stanley less preferred dividends as a
percentage of average common equity and average tangible common
equity, respectively. Tangible common equity equals common equity
less goodwill and intangible assets net of allowable mortgage
servicing rights deduction.
7 Pre-tax income represents income (loss) from continuing
operations before taxes.
8 Source: Thomson Reuters – for the period of January 1, 2018 to
March 31, 2018 as of April 2, 2018.
9 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.
10 Long-term net flows include the equity, fixed income and
alternative/other asset classes and exclude the liquidity asset
class.
11 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, 2017 (“2017
Form 10-K”). Refer to page 7 of Morgan Stanley’s Financial
Supplement accompanying this release for the VaR disclosure.
12 Transactional revenues include investment banking, trading,
and commissions and fee revenues.
13 Wealth Management client liabilities reflect U.S. Bank
Subsidiaries’ lending and broker dealer margin activity.
14 Annualized revenue per Wealth Management representative is
defined as annualized revenue divided by average representative
headcount.
15 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, 2018, the Firm’s
ratio is based on the Standardized Approach fully phased-in rules.
Regulatory compliance was determined based on capital ratios
calculated under transitional rules until December 31, 2017. 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 2017
10-K.
16 The Supplementary Leverage Ratio became effective as a
capital standard on January 1, 2018. As such, 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 fully phased-in Tier 1
capital numerator of approximately $69.2 billion and a fully
phased-in supplementary leverage exposure denominator of
approximately $1.09 trillion.
17 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 investors and analysts. Tangible book value per common
share equals tangible common equity divided by period end common
shares outstanding.
18 The income tax consequences related to 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 2018 was a benefit of $147 million to Provision for
income taxes.
Morgan Stanley
Consolidated Financial Summary
(unaudited, dollars in millions, except for
per share data) Quarter Ended
Percentage Change From: Mar 31, 2018 Dec 31,
2017 Mar 31, 2017 Dec 31, 2017 Mar 31,
2017 Net revenues Institutional Securities $ 6,100 $
4,523 $ 5,152 35 % 18 % Wealth Management 4,374 4,407 4,058 (1 %) 8
% Investment Management 718 637 609 13 % 18 % Intersegment
Eliminations (115 ) (67 ) (74 ) (72 %) (55 %)
Net revenues $ 11,077 $ 9,500 $ 9,745 17 % 14
%
Income (loss) from continuing operations before tax
Institutional Securities $ 2,112 $ 1,235 $ 1,730 71 % 22 % Wealth
Management 1,160 1,150 973 1 % 19 % Investment Management 148 80
103 85 % 44 % Intersegment Eliminations 0 6
2 * * Income (loss) from continuing operations
before tax $ 3,420 $ 2,471 $ 2,808 38 % 22 %
Net Income (loss) applicable to Morgan Stanley
Institutional Securities $ 1,627 $ 357 $ 1,214 * 34 % Wealth
Management 914 315 647 190 % 41 % Investment Management 127 (35 )
67 * 90 % Intersegment Eliminations 0 6
2 * * Net Income (loss) applicable to Morgan Stanley
$ 2,668 $ 643 $ 1,930 * 38 % Earnings (loss)
applicable to Morgan Stanley common shareholders $ 2,575 $
473 $ 1,840 * 40 %
Financial Metrics:
Earnings per basic share $ 1.48 $ 0.27 $ 1.02 * 45 %
Earnings per diluted share $ 1.45 $ 0.26 $ 1.00 * 45 % Earnings per
diluted share excluding intermittent net discrete tax provision /
benefit $ 1.45 $ 0.84 $ 1.01 73 % 44 % Return on average
common equity 14.9 % 2.7 % 10.7 % Return on average common equity
excluding intermittent net discrete tax provision / benefit 14.9 %
8.6 % 10.7 % Return on average tangible common equity 17.2 %
3.1 % 12.3 % Return on average tangible common equity excluding
intermittent net discrete tax provision / benefit 17.2 % 9.8 % 12.4
% Book value per common share $ 39.19 $ 38.52 $ 37.48
Tangible book value per common share $ 34.04 $ 33.46 $ 32.49
Notes:
-
Refer to End Notes, Definition of U.S.
GAAP to Non-GAAP Measures and Definition of Performance Metrics on
pages 13 - 16 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: Mar 31, 2018 Dec 31, 2017 Mar 31,
2017 Dec 31, 2017 Mar 31, 2017 Revenues:
Investment banking $ 1,634 $ 1,548 $ 1,545 6 % 6 % Trading 3,770
2,246 3,235 68 % 17 % Investments 126 325 165 (61 %) (24 %)
Commissions and fees 1,173 1,064 1,033 10 % 14 % Asset management
3,192 3,102 2,767 3 % 15 % Other 207 220
229 (6 %) (10 %) Total non-interest revenues
10,102 8,505 8,974 19 % 13 % Interest income 2,860 2,586
1,965 11 % 46 % Interest expense 1,885 1,591
1,194 18 % 58 % Net interest 975
995 771 (2 %) 26 % Net revenues
11,077 9,500 9,745 17 % 14 %
Non-interest expenses: Compensation and benefits 4,914 4,279 4,466
15 % 10 % Non-compensation expenses: Occupancy and equipment
336 339 327 (1 %) 3 % Brokerage, clearing and exchange fees 627 537
509 17 % 23 % Information processing and communications 478 471 428
1 % 12 % Marketing and business development 140 190 136 (26 %) 3 %
Professional services 510 547 527 (7 %) (3 %) Other 652
666 544 (2 %) 20 % Total
non-compensation expenses 2,743 2,750 2,471 -- 11 %
Total non-interest expenses 7,657 7,029
6,937 9 % 10 % Income (loss) from
continuing operations before taxes 3,420 2,471 2,808 38 % 22 %
Income tax provision / (benefit) from continuing operations
714 1,810 815 (61 %) (12 %)
Income (loss) from continuing operations 2,706
661 1,993 * 36 % Gain (loss) from discontinued
operations after tax (2 ) 2 (22 ) * 91
% Net income (loss) $ 2,704 $ 663 $ 1,971 * 37 % Net income
applicable to nonredeemable noncontrolling interests 36
20 41 80 % (12 %) Net income
(loss) applicable to Morgan Stanley 2,668 643
1,930 * 38 % Preferred stock dividend / Other
93 170 90 (45 %) 3 %
Earnings (loss) applicable to Morgan Stanley common shareholders $
2,575 $ 473 $ 1,840 * 40 % Pre-tax
profit margin 31 % 26 % 29 % Compensation and benefits as a % of
net revenues 44 % 45 % 46 % Non-compensation expenses as a % of net
revenues 25 % 29 % 25 % Firm expense efficiency ratio 69 % 74 % 71
% Effective tax rate from continuing operations 20.9 % 73.2 % 29.0
% Notes: - Refer to End Notes, Definition of
U.S. GAAP to Non-GAAP Measures and Definition of Performance
Metrics on pages 13 - 16 from the Financial Supplement for
additional information.
8
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180418005595/en/
Morgan StanleyMedia Relations: Michele Davis,
212-761-9621Investor Relations: Sharon Yeshaya,
212-761-1632
Morgan Stanley (NYSE:MS)
Historical Stock Chart
From Mar 2024 to Apr 2024
Morgan Stanley (NYSE:MS)
Historical Stock Chart
From Apr 2023 to Apr 2024