- Net Revenues of $10.6 Billion and
Earnings per Diluted Share of $1.301
- Results Reflect Strong Performance
in Investment Banking and Sales and Trading
- Wealth Management Continued to
Deliver Solid Results with Pre-Tax Margin of 26.8%2
- Quarterly Dividend Increased to
$0.30 per Share; Share Repurchase of up to $4.7 Billion Authorized
through 2Q193
Financial Overview4
Morgan Stanley (NYSE: MS) today reported net revenues of
$10.6 billion for the second quarter ended June 30, 2018 compared
with $9.5 billion a year ago. For the current quarter, net income
applicable to Morgan Stanley was $2.4 billion, or $1.30 per diluted
share,5 compared with net income of $1.8 billion, or $0.87 per
diluted share, for the same period a year ago.5
Compensation expense of $4.6 billion increased from $4.3 billion
a year ago on higher revenues. Non-compensation expenses of $2.9
billion increased from $2.6 billion a year ago primarily reflecting
higher volume driven expenses. The Firm’s expense efficiency ratio
for the current quarter was 71% compared with 72% in the prior year
quarter reflecting continued expense discipline.6
The annualized return on average common equity was 13.0% and the
annualized return on average tangible common equity was 14.9% in
the current quarter.7
James P. Gorman, Chairman and Chief Executive Officer,
said, “We reported robust revenue and earnings growth this quarter
with strength across all businesses and geographies. The second
quarter performance reflected active markets and healthy client
engagement. Our strong global franchise positions us well to
continue to grow organically across each of our businesses and to
deliver operating leverage.”
Summary of Segment Results(dollars
in millions)
Net Revenues1
Pre-Tax Income8
2Q 2018 2Q 2017 2Q
2018 2Q 2017 Institutional Securities
$5,714 $4,762 $1,812 $1,443 Wealth Management
$4,325 $4,151 $1,157 $1,057 Investment
Management $691 $665 $140 $142 Firm
$10,610 $9,503 $3,109 $2,642
Business Highlights
- Institutional Securities net revenues
were $5.7 billion reflecting strong performance across our Sales
and Trading franchise and Investment Banking, with Global Announced
and Completed M&A and Global IPOs ranked #1.9
- Wealth Management net revenues were
$4.3 billion with a pre-tax margin of 26.8%2 reflecting continued
improvement in operating leverage.
- Investment Management net revenues were
$691 million on higher management fees. Assets under management of
$474 billion reflect continued positive long-term net flows in the
quarter.10
Institutional Securities
Institutional Securities reported pre-tax income from continuing
operations of $1.8 billion compared with pre-tax income of $1.4
billion a year ago. Net revenues for the current quarter were $5.7
billion compared with $4.8 billion a year ago.1
- Investment Banking revenues of $1.7
billion increased from $1.4 billion a year ago:
- Advisory revenues of $618 million
increased from $504 million a year ago on higher levels of
completed M&A activity across all regions.
- Equity underwriting revenues of $541
million increased from $405 million in the prior year quarter
primarily driven by higher revenues on IPOs.
- Fixed income underwriting revenues of
$540 million increased from $504 million in the prior year quarter
primarily driven by non-investment grade loan fees.
- Sales and Trading net revenues of $3.8
billion increased from $3.2 billion a year ago:
- Equity sales and trading net revenues
of $2.5 billion increased from $2.2 billion a year ago reflecting
strong performance across all products, particularly in our
financing business.
- Fixed Income sales and trading net
revenues of $1.4 billion increased from $1.2 billion a year ago
primarily driven by higher results in commodities and credit
products.
- Other sales and trading net losses of
$101 million compared with net losses of $208 million in the prior
year quarter reflecting higher revenues on economic hedges related
to the Firm’s long-term debt and corporate loan hedging
activity.
- Investment revenues of $89 million
compared with $37 million a year ago driven by higher gains on
business related investments.
- Compensation expense of $2.0 billion
increased from $1.7 billion a year ago on higher revenues.
Non-compensation expenses of $1.9 billion for the current quarter
increased from $1.7 billion a year ago principally on higher volume
driven expenses.1
Morgan Stanley’s average trading Value-at-Risk (VaR) measured at
the 95% confidence level was $44 million compared with $46 million
from the first quarter of 2018 and $51 million in the second
quarter of the prior year.11
Wealth Management
Wealth Management reported pre-tax income from continuing
operations of $1.2 billion compared with $1.1 billion in the second
quarter of last year. The quarter’s pre-tax margin was 26.8%.2 Net
revenues for the current quarter were $4.3 billion compared with
$4.2 billion a year ago.
- Asset management revenues of $2.5
billion increased from $2.3 billion a year ago reflecting higher
asset levels and positive flows.
- Transactional revenues12 of $691
million decreased from $766 million a year ago reflecting lower
fixed income revenues and lower gains on investments associated
with certain employee deferred compensation plans.
- Net interest income of $1.0 billion
increased 3 percent compared with the same period a year ago.
Wealth Management client liabilities13 were $82 billion at quarter
end compared with $77 billion in the prior year quarter.
- Compensation expense for the current
quarter of $2.4 billion increased from $2.3 billion a year ago on
higher revenues. Non-compensation expenses of $812 million
increased from $797 million a year ago.
Total client assets were $2.4 trillion14 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 $15.3 billion.
Wealth Management representatives of 15,632 produced average
annualized revenue per representative of $1.1 million in the
current quarter.15
Investment Management
Investment Management reported pre-tax income from continuing
operations of $140 million compared with $142 million in the second
quarter of last year. Net revenues of $691 million increased from
$665 million in the prior year.1
- Asset management revenues of $610
million increased from $539 million in the prior year quarter
driven by higher levels of assets under management.
- Investment revenues of $55 million
decreased from $125 million in the prior year quarter driven by
lower investment gains and carried interest in infrastructure and
private equity funds.
- Compensation expense for the current
quarter of $272 million decreased from $288 million a year ago
principally due to a decrease in deferred compensation associated
with carried interest. Non-compensation expenses of $279 million
increased from $235 million a year ago driven by higher brokerage
and clearing expenses.1
- Total assets under management or
supervision at June 30, 2018 were $474 billion compared with $435
billion a year ago.
Capital
As of June 30, 2018, the Firm’s Common Equity Tier 1 and Tier 1
risk-based capital ratios under the fully phased-in Standardized
Approach were approximately 15.8% and 18.1%, respectively; the
fully phased-in Supplementary Leverage Ratio was approximately
6.4%.16,17
At June 30, 2018, book value and tangible book value per common
share were $40.34 and $35.19,18 respectively, based on
approximately 1.7 billion shares outstanding.
Other Matters
The effective tax rate from continuing operations for the
quarter of 20.6% reflects the impact of intermittent net discrete
tax benefits of $88 million primarily associated with new
information pertaining to the resolution of multi-jurisdiction tax
examinations and other matters.
During the quarter ended June 30, 2018, the Firm repurchased
approximately $1.25 billion of its common stock or approximately 24
million shares. The Board of Directors authorized a share
repurchase of up to $4.7 billion of common stock beginning in the
third quarter of 2018 through the end of the second quarter of
2019.3
The Board of Directors also declared a quarterly dividend to
$0.30 per share (an increase from $0.25 per share), payable on
August 15, 2018 to common shareholders of record on July 31,
2018.3
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.
# # #
(See Attached Schedules)
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, the Firm’s Quarterly Reports on Form 10-Q
and the Firm’s Current Reports on Form 8-K, including any
amendments thereto.
1 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. For the quarter
ended June 30, 2018, this change in presentation resulted in an
increase to net revenues and non-compensation expenses of $108
million, of which $101 million was reported in the Institutional
Securities segment and $21 million in the Investment Management
segment. In addition, the Firm included an intersegment elimination
of $(14) 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.
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 In the quarter ended June 30, 2018, Morgan Stanley announced
the capital actions in the Firm’s 2018 Capital Plan (“Capital
Plan”). The Capital Plan includes the repurchase of up to $4.7
billion of outstanding common stock for the four quarters beginning
in the third quarter of 2018 through the end of the second quarter
of 2019, and an increase in the Firm’s quarterly common stock
dividend to $0.30 per share from the current $0.25 per share,
beginning with the common dividend declared for the third quarter
of 2018. The Board of Governors of the Federal Reserve System
approved Morgan Stanley’s Capital Plan with a conditional
non-objection, where the only condition was that the capital
distributions not exceed the greater of distributions in the
previous year, or the annualized average of distributions over the
previous two years. The total amount of expected 2018 capital
distributions is consistent with the $6.8 billion of actual
dividends and gross share repurchases included in the Firm’s 2017
Capital Plan.
4 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.
5 Includes preferred dividends and other adjustments related to
the calculation of earnings per share of $170 million for the
second quarter of 2018 and 2017.
6 The Firm Expense Efficiency Ratio represents total
non-interest expenses as a percentage of net revenues.
7 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 represents common
equity less goodwill and intangible assets net of allowable
mortgage servicing rights deduction.
8 Pre-tax income represents income (loss) from continuing
operations before taxes.
9 Source: Thomson Reuters – for the period of January 1, 2018 to
June 30, 2018 as of July 2, 2018.
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 Approximately $1 trillion in the segment of customer accounts
with assets of $10 million or more.
15 The average annualized revenue per Wealth Management
representative metric represents annualized net revenues divided by
average representative headcount.
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 June 30, 2018,
the Firm’s ratios are 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.
17 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 $70.0 billion and a fully
phased-in supplementary leverage exposure denominator of
approximately $1.10 trillion.
18 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 represents 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: Six Months Ended
Percentage
Jun 30, 2018
Mar 31, 2018
Jun 30, 2017
Mar 31, 2018
Jun 30, 2017
Jun 30, 2018
Jun 30, 2017
Change Net revenues Institutional Securities $ 5,714
$ 6,100 $ 4,762 (6 %) 20 % $ 11,814 $ 9,914 19 % Wealth Management
4,325 4,374 4,151 (1 %) 4 % 8,699 8,209 6 % Investment Management
691 718 665 (4 %) 4 % 1,409 1,274 11 % Intersegment Eliminations
(120 ) (115 ) (75 ) (4 %) (60 %) (235 )
(149 ) (58 %) Net revenues $ 10,610 $ 11,077 $
9,503 (4 %) 12 % $ 21,687 $ 19,248 13 %
Income (loss) from continuing operations before tax
Institutional Securities $ 1,812 $ 2,112 $ 1,443 (14 %) 26 % $
3,924 $ 3,173 24 % Wealth Management 1,157 1,160 1,057 -- 9 % 2,317
2,030 14 % Investment Management 140 148 142 (5 %) (1 %) 288 245 18
% Intersegment Eliminations 0 0
0 -- -- 0 2 * Income (loss) from
continuing operations before tax $ 3,109 $ 3,420 $
2,642 (9 %) 18 % $ 6,529 $ 5,450 20 %
Net Income (loss) applicable to Morgan Stanley Institutional
Securities $ 1,457 $ 1,627 $ 992 (10 %) 47 % $ 3,084 $ 2,206 40 %
Wealth Management 876 914 665 (4 %) 32 % 1,790 1,312 36 %
Investment Management 104 127 100 (18 %) 4 % 231 167 38 %
Intersegment Eliminations 0 0 0
-- -- 0 2 * Net Income (loss)
applicable to Morgan Stanley $ 2,437 $ 2,668 $ 1,757
(9 %) 39 % $ 5,105 $ 3,687 38 % Earnings
(loss) applicable to Morgan Stanley common shareholders $ 2,267
$ 2,575 $ 1,587 (12 %) 43 % $ 4,842 $
3,427 41 %
Financial Metrics: Earnings
per basic share $ 1.32 $ 1.48 $ 0.89 (11 %) 48 % $ 2.80 $ 1.91 47 %
Earnings per diluted share $ 1.30 $ 1.45 $ 0.87 (10 %) 49 % $ 2.75
$ 1.87 47 % Return on average common equity 13.0 % 14.9 %
9.1 % 13.9 % 9.9 % Return on average tangible common equity 14.9 %
17.2 % 10.4 % 16.0 % 11.4 % Book value per common share $
40.34 $ 39.19 $ 38.22 $ 40.34 $ 38.22 Tangible book value per
common share $ 35.19 $ 34.04 $ 33.24 $ 35.19 $ 33.24
Excluding intermittent net discrete tax provision / benefit
Adjusted earnings per diluted share $ 1.25 $ 1.45 $ 0.87 (14 %) 44
% $ 2.70 $ 1.88 44 % Adjusted return on average common equity 12.5
% 14.9 % 9.1 % 13.7 % 9.9 % Adjusted return on average tangible
common equity 14.3 % 17.2 % 10.5 % 15.7 % 11.4 % 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: Six Months Ended
Percentage Jun 30, 2018 Mar 31, 2018 Jun
30, 2017 Mar 31, 2018 Jun 30, 2017 Jun 30,
2018 Jun 30, 2017 Change Revenues: Investment
banking $ 1,793 $ 1,634 $ 1,530 10 % 17 % $ 3,427 $ 3,075 11 %
Trading 3,293 3,770 2,931 (13 %) 12 % 7,063 6,166 15 % Investments
147 126 163 17 % (10 %) 273 328 (17 %) Commissions and fees 1,039
1,173 1,027 (11 %) 1 % 2,212 2,060 7 % Asset management 3,189 3,192
2,902 -- 10 % 6,381 5,669 13 % Other 243 207
199 17 % 22 % 450 428
5 % Total non-interest revenues 9,704 10,102 8,752 (4 %) 11
% 19,806 17,726 12 % Interest income 3,294 2,860 2,106 15 %
56 % 6,154 4,071 51 % Interest expense 2,388
1,885 1,355 27 % 76 % 4,273
2,549 68 % Net interest 906 975
751 (7 %) 21 % 1,881
1,522 24 % Net revenues 10,610 11,077
9,503 (4 %) 12 % 21,687
19,248 13 % Non-interest expenses: Compensation and benefits
4,621 4,914 4,252 (6 %) 9 % 9,535 8,718 9 % Non-compensation
expenses: Occupancy and equipment 346 336 333 3 % 4 % 682 660 3 %
Brokerage, clearing and exchange fees 609 627 525 (3 %) 16 % 1,236
1,034 20 % Information processing and communications 496 478 433 4
% 15 % 974 861 13 % Marketing and business development 179 140 155
28 % 15 % 319 291 10 % Professional services 580 510 561 14 % 3 %
1,090 1,088 -- Other 670 652 602
3 % 11 % 1,322 1,146 15 % Total
non-compensation expenses 2,880 2,743 2,609 5 % 10 % 5,623 5,080 11
% Total non-interest expenses
7,501 7,657 6,861 (2 %) 9
% 15,158 13,798 10 % Income
(loss) from continuing operations before taxes 3,109 3,420 2,642 (9
%) 18 % 6,529 5,450 20 % Income tax provision / (benefit) from
continuing operations 640 714
846 (10 %) (24 %) 1,354 1,661
(18 %) Income (loss) from continuing operations 2,469
2,706 1,796 (9 %) 37 % 5,175
3,789 37 % Gain (loss) from discontinued
operations after tax (2 ) (2 ) (5 ) -- 60 %
(4 ) (27 ) 85 % Net income (loss) $ 2,467 $ 2,704 $
1,791 (9 %) 38 % $ 5,171 $ 3,762 37 % Net income applicable to
nonredeemable noncontrolling interests 30 36
34 (17 %) (12 %) 66 75
(12 %) Net income (loss) applicable to Morgan Stanley
2,437 2,668 1,757 (9 %) 39 %
5,105 3,687 38 % Preferred stock
dividend / Other 170 93 170
83 % -- 263 260 1 % Earnings
(loss) applicable to Morgan Stanley common shareholders $ 2,267
$ 2,575 $ 1,587 (12 %) 43 % $ 4,842 $
3,427 41 % Pre-tax profit margin 29 % 31 % 28 % 30 %
28 % Compensation and benefits as a % of net revenues 44 % 44 % 45
% 44 % 45 % Non-compensation expenses as a % of net revenues 27 %
25 % 27 % 26 % 26 % Firm expense efficiency ratio 71 % 69 % 72 % 70
% 72 % Effective tax rate from continuing operations 20.6 % 20.9 %
32.0 % 20.7 % 30.5 % 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
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Morgan StanleyMedia Relations: Michele Davis,
212-761-9621Investor Relations: Sharon Yeshaya,
212-761-1632
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