Morgan Stanley Reports Net Revenues of $10.2 Billion and EPS
of $1.23
Morgan Stanley (NYSE: MS) today reported net revenues of
$10.2 billion for the second quarter ended June 30, 2019 compared
with $10.6 billion a year ago. Net income applicable to Morgan
Stanley was $2.2 billion, or $1.23 per diluted share,1 compared
with net income of $2.4 billion, or $1.30 per diluted share,1 for
the same period a year ago.
James P. Gorman, Chairman and Chief Executive Officer,
said, “We reported solid quarterly results across all our
businesses. Firmwide revenues were over $10 billion and we produced
an ROE within our target range, demonstrating the stability of our
franchise. We remain focused on serving our clients and pursuing
growth opportunities while diligently managing expenses.”
Financial Summary2 ($ millions,
except per share data)
Highlights
Firm
2Q
2019
2Q
2018
- Strong net revenues, exceeding $10 billion for four out
of the last six quarters.3
- Firm expenses decreased on continued disciplined expense
management and the impact of lower revenues.
- ROE of 12.1%4 and ROTCE of 13.8% 4 for the first half of
2019 remain in line with our target ranges.
- Quarterly dividend increased to $0.35 per share; 5
announced share repurchase of up to $6.0 billion through the second
quarter of 2020, an increase of approximately $1.3 billion.5
- Institutional Securities reflects solid performance despite a
mixed market backdrop.
- Wealth Management delivered record pre-tax income of $1.2
billion6 with a pre-tax margin of 28.2%7 reflecting record
quarterly net revenues and tightly managed non-compensation
costs.
- Investment Management net revenues increased 21% on strong
principal investment gains. The quarter reflects higher AUM and
positive long-term net flows across all asset classes.
Net revenues
$10,244
$10,610
Compensation expense
$4,531
$4,621
Non-compensation expenses
$2,810
$2,880
Pre-tax income6
$2,903
$3,109
Net income app. to MS
$2,201
$2,437
Expense efficiency ratio8
72%
71%
Earnings per diluted share
$1.23
$1.30
Book value per share9
$44.13
$40.34
Tangible book value per share10
$38.44
$35.19
Return on equity4
11.2%
13.0%
Return on tangible equity4
12.8%
14.9%
Institutional Securities
Net revenues
$5,113
$5,714
Investment Banking
$1,472
$1,699
Sales & Trading
$3,304
$3,758
Wealth Management
Net revenues
$4,408
$4,325
Fee-based client assets ($ billions)11
$1,159
$1,084
Fee-based asset flows ($ billions)12
$9.8
$15.3
Loans ($ billions)
$74.1
$70.0
Investment Management
Net revenues
$839
$691
AUM ($ billions)13
$497
$474
Long-term net flows ($ billions)14
$4.9
$3.5
Institutional Securities
Institutional Securities reported net revenues for the current
quarter of $5.1 billion compared with $5.7 billion a year ago.
Pre-tax income was $1.5 billion compared with $1.8 billion a year
ago.6
Investment Banking revenues down 13%
from a year ago:
- Advisory revenues decreased driven by lower market volumes
compared with a year ago.
- Equity underwriting revenues were essentially unchanged
from a year ago. The current quarter’s results reflect strength in
IPOs and follow-on offerings.
- Fixed income underwriting revenues decreased from a year
ago driven by declines in loan issuances on lower market
volumes.
Sales and Trading net revenues down 12%
from a year ago:
- Equity sales and trading net revenues decreased 14% from a year
ago principally driven by lower revenues in the financing business
reflecting lower client balances and realized spreads.
- Fixed Income sales and trading net revenues decreased 18%
from a year ago reflecting the effects of a decline in interest
rates and lower volatility, as well as a subdued level of
structured transactions. The net revenues decline was partially
offset by increases in credit products on strong client
activity.
- Other sales and trading net revenues increased from a
year ago reflecting lower costs due to a shift in funding mix and
balance sheet composition.
Investments and Other:
- Investment revenues increased from a year ago driven by
realized gains associated with an investment’s initial public
offering and subsequent mark-to-market gains on remaining holdings
subject to sales restrictions.
- Other revenues decreased from a year ago primarily
reflecting lower mark-to-market gains on corporate lending
activity.
($ millions)
2Q
2019
2Q
2018
Net Revenues
$5,113
$5,714
Investment Banking
$1,472
$1,699
Advisory
$506
$618
Equity underwriting
$546
$541
Fixed income underwriting
$420
$540
Sales and Trading
$3,304
$3,758
Equity
$2,130
$2,470
Fixed Income
$1,133
$1,389
Other
$41
$(101)
Investments and Other
$337
$257
Investments
$194
$89
Other
$143
$168
Total Expenses
$3,650
$3,902
Compensation
$1,789
$1,993
Non-compensation
$1,861
$1,909
Total Expenses:
- Compensation expense decreased on lower revenues.
- Non-compensation expenses decreased from a year ago on lower
professional services and litigation costs.
Wealth Management
Wealth Management reported net revenues for the current quarter
of $4.4 billion compared with $4.3 billion a year ago. Pre-tax
income of $1.2 billion6 in the quarter resulted in a pre-tax margin
of 28.2%.7
Net revenues up 2% from a year
ago:
- Asset management revenues increased from a year ago reflecting
higher asset levels.
- Transactional revenues15 increased from a year ago reflecting
gains on investments associated with certain employee deferred
compensation plans.
- Net interest income declined 3% compared with a year ago
primarily driven by an increase in mortgage securities prepayment
amortization expense and higher cost of funds, partially offset by
the impact of growth in bank lending. Wealth Management client
liabilities16 were $84 billion at quarter end compared with $82
billion a year ago.
- Other revenues increased from a year ago driven by higher
realized gains on available for sale securities.
($ millions)
2Q
2019
2Q
2018
Net Revenues
$4,408
$4,325
Asset management
$2,544
$2,514
Transactional
$728
$691
Net interest
$1,016
$1,043
Other
$120
$77
Total Expenses
$3,165
$3,168
Compensation
$2,382
$2,356
Non-compensation
$783
$812
Total Expenses:
- Compensation expenses increased from a year ago primarily
driven by an increase in the fair value of deferred compensation
plan referenced investments.
- Non-compensation expenses decreased from a year ago reflecting
continued focus on management of controllable costs.
Investment Management
Investment Management reported net revenues of $839 million
compared with $691 million a year ago. Pre-tax income was $199
million compared with $140 million a year ago.6
Net revenues up 21% from a
year ago:
- Asset management revenues were essentially unchanged from a
year ago.
- Investment revenues increased
from a year ago reflecting higher investment gains and carried
interest in Asia private equity.
- Other revenues decreased from a
year ago primarily driven by higher funding costs and lower
revenues from equity method investments.
Total Expenses:
- Compensation expense increased from a year ago principally due
to an increase in deferred compensation associated with carried
interest.
- Non-compensation expenses were
essentially unchanged from a year ago.
($ millions)
2Q
2019
2Q
2018
Net Revenues
$839
$691
Asset management
$612
$610
Investments
$247
$55
Other
$(20)
$26
Total Expenses
$640
$551
Compensation
$360
$272
Non-compensation
$280
$279
Other Matters
- 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 authorized a share repurchase of up to $6.0
billion of common stock beginning in the third quarter of 2019
through the end of the second quarter of 2020. 5
- The Board of Directors declared a $0.35 quarterly
dividend per share (an increase from $0.30 per share), payable on
August 15, 2019 to common shareholders of record on July 31, 2019.
5
- The effective tax rate for the second quarter of 2018
included the impact of intermittent net discrete tax benefits of
$88 million primarily associated with new information pertaining to
the resolution of multi-jurisdiction tax examinations and other
matters.
2Q
201917
2Q
2018
Capital
Common Equity Tier 1
capital18
16.3%
15.8%
Tier 1 capital18
18.5%
18.1%
Tier 1 leverage19
8.4%
8.2%
Supplementary leverage
ratio20
6.5%
6.4%
Common Stock
Repurchases
Repurchases ($ millions)
$1,180
$1,250
Number of Shares (millions)
26
24
Average Price
$44.53
$52.43
Common Shares Outstanding -
period end (millions)
1,659
1,750
Tax Rate
22.6%
20.6%
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. The Firm does not
undertake to update the forward-looking statements to reflect the
impact of circumstances or events that may arise after the date
such forward-looking statements were made. 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, the Firm’s Quarterly Reports on Form 10-Q 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 $170 million for the second 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 Net revenues of $10.2 billion represents the fourth quarter
that the Firm has exceeded net revenues of $10 billion for a
reported quarterly period after excluding the impact of debt
valuation adjustments (DVA), which were previously reflected in net
revenues in prior periods (reported periods prior to March 31,
2016), and reflecting the current reporting structure of the Firm
(i.e. exclusive of discontinued operations). Net revenues 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.
4 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.
5 On June 27, 2019, the Firm announced that the Board of
Governors of the Federal Reserve System did not object to the
Firm’s 2019 Capital Plan (“Capital Plan”). The Capital Plan
includes the repurchase of up to $6.0 billion of outstanding common
stock for the four quarters, beginning in the third quarter of 2019
through the end of the second quarter of 2020, an increase from
$4.7 billion for the comparable four quarter period in the 2018
Capital Plan, as well as an increase in the Firm’s quarterly common
stock dividend to $0.35 per share from the current $0.30 per share,
beginning with the common dividend declared in the third quarter of
2019.
6 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.
7 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.
8 The Firm expense efficiency ratio represents total
non-interest expenses as a percentage of net revenues.
9 Book value per common share represents common equity divided
by period end common shares outstanding.
10 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.
11 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.
12 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.
13 AUM is defined as assets under management.
14 Long-term net flows include the Equity, Fixed Income and
Alternative/Other asset classes and exclude the Liquidity asset
class.
15 Transactional revenues include investment banking, trading,
and commissions and fee revenues.
16 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.
17 Capital ratios are estimates as of the press release date,
July 18, 2019.
18 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, 2019
and June 30, 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.
19 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.
20 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 $72.7 billion
and $70.0 billion, and supplementary leverage exposure denominator
of approximately $1.12 trillion and $1.10 trillion, for the second
quarter of 2019 and 2018, respectively.
Morgan Stanley
Consolidated Income Statement Information (unaudited,
dollars in millions) Quarter Ended Percentage
Change From: Six Months Ended Percentage Jun
30, 2019 Mar 31, 2019 Jun 30, 2018 Mar 31,
2019 Jun 30, 2018 Jun 30, 2019 Jun 30,
2018 Change Revenues: Investment banking
$ 1,590
$ 1,242
$ 1,793
28%
(11%)
$ 2,832
$ 3,427
(17%)
Trading
2,732
3,441
3,293
(21%)
(17%)
6,173
7,063
(13%)
Investments
441
273
147
62%
200%
714
273
162%
Commissions and fees
979
966
1,039
1%
(6%)
1,945
2,212
(12%)
Asset management
3,220
3,049
3,189
6%
1%
6,269
6,381
(2%)
Other
253
301
243
(16%)
4%
554
450
23%
Total non-interest revenues
9,215
9,272
9,704
(1%)
(5%)
18,487
19,806
(7%)
Interest income
4,506
4,290
3,294
5%
37%
8,796
6,154
43%
Interest expense
3,477
3,276
2,388
6%
46%
6,753
4,273
58%
Net interest
1,029
1,014
906
1%
14%
2,043
1,881
9%
Net revenues
10,244
10,286
10,610
--
(3%)
20,530
21,687
(5%)
Non-interest expenses: Compensation and benefits
4,531
4,651
4,621
(3%)
(2%)
9,182
9,535
(4%)
Non-compensation expenses: Occupancy and equipment
353
347
346
2%
2%
700
682
3%
Brokerage, clearing and exchange fees
630
593
609
6%
3%
1,223
1,236
(1%)
Information processing and communications
538
532
496
1%
8%
1,070
974
10%
Marketing and business development
162
141
179
15%
(9%)
303
319
(5%)
Professional services
537
514
580
4%
(7%)
1,051
1,090
(4%)
Other
590
553
670
7%
(12%)
1,143
1,322
(14%)
Total non-compensation expenses
2,810
2,680
2,880
5%
(2%)
5,490
5,623
(2%)
Total non-interest expenses
7,341
7,331
7,501
--
(2%)
14,672
15,158
(3%)
Income (loss) from continuing operations before taxes
2,903
2,955
3,109
(2%)
(7%)
5,858
6,529
(10%)
Income tax provision / (benefit) from continuing operations
657
487
640
35%
3%
1,144
1,354
(16%)
Income (loss) from continuing operations
2,246
2,468
2,469
(9%)
(9%)
4,714
5,175
(9%)
Gain (loss) from discontinued operations after tax
0
0
(2)
--
*
0
(4)
* Net income (loss)
$ 2,246
$ 2,468
$ 2,467
(9%)
(9%)
$ 4,714
$ 5,171
(9%)
Net income applicable to nonredeemable noncontrolling interests
45
39
30
15%
50%
84
66
27%
Net income (loss) applicable to Morgan Stanley
2,201
2,429
2,437
(9%)
(10%)
4,630
5,105
(9%)
Preferred stock dividend / Other
170
93
170
83%
--
263
263
--
Earnings (loss) applicable to Morgan Stanley common shareholders
$ 2,031
$ 2,336
$ 2,267
(13%)
(10%)
$ 4,367
$ 4,842
(10%)
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.
8
Morgan Stanley
Consolidated Financial Metrics and Ratios and Statistical
Data (unaudited) Quarter Ended Percentage
Change From: Six Months Ended Percentage Jun
30, 2019 Mar 31, 2019 Jun 30, 2018 Mar 31,
2019 Jun 30, 2018 Jun 30, 2019 Jun 30,
2018 Change Financial Metrics:
Earnings per basic share
$ 1.24
$ 1.41
$ 1.32
(12%)
(6%)
$ 2.65
$ 2.80
(5%)
Earnings per diluted share
$ 1.23
$ 1.39
$ 1.30
(12%)
(5%)
$ 2.62
$ 2.75
(5%)
Return on average common equity
11.2%
13.1%
13.0%
12.1%
13.9%
Return on average tangible common equity
12.8%
14.9%
14.9%
13.8%
16.0%
Book value per common share
$ 44.13
$ 42.83
$ 40.34
$ 44.13
$ 40.34
Tangible book value per common share
$ 38.44
$ 37.62
$ 35.19
$ 38.44
$ 35.19
Excluding intermittent net discrete tax provision / benefit
Adjusted earnings per diluted share
$ 1.23
$ 1.33
$ 1.25
(8%)
(2%)
$ 2.56
$ 2.70
(5%)
Adjusted return on average common equity
11.2%
12.5%
12.5%
11.8%
13.7%
Adjusted return on average tangible common equity
12.8%
14.2%
14.3%
13.5%
15.7%
Financial Ratios: Pre-tax profit margin
28%
29%
29%
29%
30%
Compensation and benefits as a % of net revenues
44%
45%
44%
45%
44%
Non-compensation expenses as a % of net revenues
27%
26%
27%
27%
26%
Firm expense efficiency ratio
72%
71%
71%
71%
70%
Effective tax rate from continuing operations
22.6%
16.5%
20.6%
19.5%
20.7%
Statistical Data: Period end common
shares outstanding (millions)
1,659
1,686
1,750
(2%)
(5%)
Average common shares outstanding (millions) Basic
1,634
1,658
1,720
(1%)
(5%)
1,646
1,730
(5%)
Diluted
1,655
1,677
1,748
(1%)
(5%)
1,666
1,760
(5%)
Worldwide employees
59,513
60,469
58,010
(2%)
3%
____________________________________________ 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 ofPerformance Metrics and Terms, Supplemental
Quantitative Details and Calculations and Legal Notice for
additional information.
9
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