Morgan Stanley Reports Net Revenues of $15.7 Billion, EPS of
$2.19 and ROTCE of 21.1%
Morgan Stanley (NYSE: MS) today reported net revenues of
$15.7 billion for the first quarter ended March 31, 2021 compared
with $9.8 billion a year ago. Net income applicable to Morgan
Stanley was $4.1 billion, or $2.19 per diluted share,1 compared
with net income of $1.7 billion, or $1.01 per diluted share,1 for
the same period a year ago. The comparisons of current year results
to prior periods were impacted by the acquisitions of Eaton Vance
Corp. (“Eaton Vance”) completed on March 1, 2021, reported in the
Investment Management segment and E*TRADE Financial Corporation
(“E*TRADE”) completed in the fourth quarter of 2020, reported in
the Wealth Management segment.
James P. Gorman, Chairman and Chief Executive Officer,
said, “The Firm delivered record results. The integrated Investment
Bank continues to thrive. We closed the acquisition of Eaton Vance
which takes Investment Management to over $1.4 trillion of assets.
Wealth Management brought in record flows of $105 billion. The Firm
is very well positioned for growth in the years ahead.”
Financial Summary2,3,4
Highlights
Firm ($ millions, except per share
data)
1Q
2021
1Q
2020
- The Firm achieved record net revenues and net income5 with
strong contributions across each of our business segments.
- The Firm delivered ROTCE of 21.1% or 21.4% excluding the impact
of integration-related expenses.6,7
- The Firm expense efficiency ratio was 67% or 66% excluding the
impact of integration-related expenses. 7,8
- Common Equity Tier 1 capital standardized ratio was 16.8%.
- The Firm repurchased $2.1 billion of its outstanding common
stock.
- Institutional Securities reported record net revenues 5 up 66%
reflecting strength across businesses and geographies on continued
strong client engagement and higher volumes in a constructive
market environment, notwithstanding losses related to a single
client event in the quarter.
- Wealth Management delivered a pre-tax margin of 26.9% or 27.9%
excluding integration-related expenses. 7,9 Results reflect strong
levels of client engagement, record net new assets and fee-based
flows of $105 billion and $37 billion, respectively, and growth in
bank lending.
- Investment Management results reflect strong asset management
fees on AUM of $1.4 trillion, which include the impact of the Eaton
Vance acquisition, along with strong positive net flows across all
asset classes.
Net revenues
$15,719
$9,779
Provision for credit losses
$(98)
$407
Compensation expense
$6,798
$4,283
Non-compensation expenses
$3,675
$2,943
Pre-tax income10
$5,344
$2,146
Net income app. to MS
$4,120
$1,698
Expense efficiency ratio8
67%
74%
Earnings per diluted share
$2.19
$1.01
Book value per share
$52.71
$49.09
Tangible book value per share
$38.97
$43.28
Return on equity
16.9%
8.5%
Return on tangible equity6
21.1%
9.7%
Institutional Securities
Net revenues
$8,577
$5,178
Investment Banking
$2,613
$1,144
Equity
$2,875
$2,449
Fixed Income
$2,966
$2,062
Wealth Management
Net revenues
$5,959
$4,056
Fee-based client assets ($ billions)11
$1,574
$1,134
Fee-based asset flows ($ billions)12
$37.2
$18.4
Net new assets ($ billions)13
$104.9
$37.1
Loans ($ billions)
$104.9
$82.5
Investment Management
Net revenues
$1,314
$692
AUM ($ billions)14
$1,419
$584
Long-term net flows ($ billions)15
$16.3
$6.7
Institutional Securities
Institutional Securities reported net revenues for the current
quarter of $8.6 billion compared with $5.2 billion a year ago.
Pre-tax income was $3.4 billion compared with $950 million a year
ago.10
Investment Banking revenues up 128%
from a year ago:
- Advisory revenues increased from a year ago on higher completed
M&A volumes.
- Equity underwriting reported record revenues driven by higher
volumes in IPOs, blocks and follow-on offerings as issuers and
sellers took advantage of the strong market conditions.
- Fixed income underwriting revenues increased from a year ago on
higher non-investment grade bond and loan issuances driven by a
favorable market environment characterized by improved credit
spreads.
Equity net revenues up 17% from a year
ago:
- Equity net revenues increased from a year ago reflecting strong
performance across products and geographies, with notable strength
in derivatives, driven by continued client engagement and elevated
volumes. The current quarter includes a loss of $644 million
related to a credit event for a single prime brokerage client, and
$267 million of subsequent trading losses through the end of the
quarter related to the same event.
Fixed Income net revenues up 44% from a
year ago:
- Fixed Income net revenues increased significantly from a year
ago reflecting strong performance in credit products, which
benefitted from robust client activity particularly in securitized
products, partially offset by lower revenues in rates and foreign
exchange primarily due to more stable bid-offer spreads versus a
year ago.
($ millions)
1Q
2021
1Q
2020
Net Revenues4
$8,577
$5,178
Investment Banking
$2,613
$1,144
Advisory
$480
$362
Equity underwriting
$1,502
$336
Fixed income underwriting
$631
$446
Equity
$2,875
$2,449
Fixed Income
$2,966
$2,062
Other
$123
$(477)
Provision for credit
losses
$(93)
$388
Total Expenses4
$5,299
$3,840
Compensation
$3,114
$1,814
Non-compensation
$2,185
$2,026
Other:
- Other revenues increased from a year ago primarily driven by
lower mark-to-market losses on corporate loans held for sale, net
of related hedges, and gains on investments associated with certain
employee deferred compensation plans, compared with losses on the
investments in the prior year quarter.
Provision for credit losses:
- Provision for credit losses on loans and lending commitments of
$(93) million in the current quarter compared with $388 million in
the prior year reflects a release in the allowance for credit
losses driven by improvements in the outlook for macroeconomic
conditions.
Total Expenses:
- Compensation expense increased from a year ago on higher
revenues and increases in the fair value of deferred compensation
plan referenced investments.
- Non-compensation expenses increased from a year ago primarily
driven by higher volume related expenses.
Wealth Management
Wealth Management reported net revenues for the current quarter
of $6.0 billion compared with $4.1 billion from a year ago. Pre-tax
income of $1.6 billion10 in the current quarter resulted in a
reported pre-tax margin of 26.9% or 27.9% excluding the impact of
integration-related expenses.7,9 The comparisons of current year
results to prior periods were impacted by the acquisition of
E*TRADE.
Net revenues increased 47% from a year
ago:
- Asset management revenues increased from a year ago reflecting
higher asset levels and record fee-based flows.
- Transactional revenues16 increased 40% excluding the impact of
mark-to-market gains on investments associated with certain
employee deferred compensation plans. Results reflect incremental
revenues as a result of the E*TRADE acquisition and strong client
activity.
Total Expenses:
- Compensation expense increased from a year ago driven by
increases in the fair value of certain deferred compensation plan
referenced investments, higher compensable revenues, and
incremental compensation as a result of the E*TRADE acquisition.
7
- Non-compensation expenses increased from a year ago primarily
driven by incremental operating and other expenses as a result of
the E*TRADE acquisition. 7
($ millions)
1Q
2021
1Q
2020
Net Revenues4
$5,959
$4,056
Asset management
$3,191
$2,680
Transactional16
$1,228
$399
Net interest income
$1,385
$896
Other
$155
$81
Provision for credit
losses
$(5)
$19
Total Expenses4
$4,364
$2,982
Compensation
$3,170
$2,212
Non-compensation
$1,194
$770
Investment Management
Investment Management reported net revenues of $1.3 billion
compared with $692 million a year ago. Pre-tax income was $370
million compared with $143 million a year ago.10 The comparisons of
current year results to prior periods were impacted by the
acquisition of Eaton Vance which closed on March 1, 2021.
Net revenues increased 90% from a year
ago:
- Asset management and related fees increased from a year ago
driven by higher AUM on strong performance and positive net flows
across all asset classes, as well as incremental revenues as a
result of the Eaton Vance acquisition.
- Performance-based income and other revenues increased from a
year ago primarily on higher accrued carried interest in real
estate funds.
Total Expenses:
- Compensation expense increased from a year ago on higher asset
management revenues and carried interest as well as incremental
compensation expenses as a result of the Eaton Vance acquisition.
7
- Non-compensation expenses increased from a year ago primarily
driven by higher brokerage and clearing costs, and incremental
operating and other expenses as a result of the Eaton Vance
acquisition. 7
($ millions)
1Q
2021
1Q
2020
Net Revenues4
$1,314
$692
Asset management and related
fees
$1,103
$665
Performance-based income and
other
$211
$27
Total Expenses
$944
$549
Compensation
$514
$257
Non-compensation
$430
$292
Other Matters
- The Firm resumed its Share Repurchase Program in the first
quarter of 2021, subject to limitations on distributions from the
Federal Reserve. The Firm repurchased $2.1 billion of its
outstanding common stock in the quarter.
- The Board of Directors declared a $0.35 quarterly dividend per
share, payable on May 14, 2021 to common shareholders of record on
April 30, 2021.
1Q
2021
1Q
2020
Capital17
Standardized Approach
CET1 capital18
16.8%
15.7%
Tier 1 capital18
18.5%
17.8%
Advanced Approach
CET1 capital18
17.3%
15.2%
Tier 1 capital18
19.1%
17.3%
Leverage-based capital
Tier 1 leverage19
7.5%
8.1%
SLR20
6.7%
6.2%
Common Stock
Repurchases
Repurchases ($ millions)
$2,135
$1,347
Number of Shares (millions)
28
29
Average Price
$77.47
$46.01
Period End Shares
(millions)
1,869
1,576
Tax Rate21
22.0%
17.1%
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,
including information provided on the Firm’s earnings conference
calls, may include certain non-GAAP financial measures. The
definition of such measures or reconciliation of such measures 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, 2020 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 $138 million and $108 million for the first
quarter of 2021 and 2020, respectively.
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 position, 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 capital
adequacy. 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 Our earnings releases, earnings conference calls, financial
presentations and other communications may also include certain
metrics which we believe to be useful to us, analysts, investors,
and other stakeholders by providing further transparency about, or
an additional means of assessing, our financial condition and
operating results.
4 As part of the Firm’s effort to continually improve the
transparency and comparability of our external financial reporting,
several updates to our financial presentation were implemented in
the first quarter of 2021. The presentation changes are as
follows:
(i)
The Provision for credit losses for loans and lending
commitments is now presented as a separate line in the consolidated
income statements.
(ii)
Gains and losses on external economic derivative hedges
associated with held-for-sale and held-for-investment corporate
loans, which were previously reported in Trading revenues, are now
reported within Other revenues in the consolidated income
statements.
(iii)
In the Institutional Securities segment, sales and trading net
revenues have been reorganized and reported into the following
categories, Equity, Fixed Income and Other. In addition, Equity and
Fixed Income now include certain Investments and Other revenues to
the extent directly attributable to those businesses. The remaining
Investments and Other revenues, along with amounts previously
disclosed as “Other sales and trading” will be shown as
“Other”.
(iv)
In the Investment Management segment, we have renamed the
previously disclosed revenue line “Asset management” to “Asset
management and related fees” and combined the remaining revenue
categories under a new line named “Performance-based income and
other”.
The corresponding reclassifications have been made to prior
periods to conform to the current presentation. For further
information about these changes, see the Firm’s first quarter 2021
financial supplement available online in the Investor Relations
section at www.morganstanley.com.
5 Firm and Institutional Securities net revenues and Firm net
income applicable to Morgan Stanley 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.
6 Return on average tangible common equity and return on average
tangible common equity excluding integration-related expenses are
non-GAAP financial measures that the Firm considers useful for
analysts, investors and other stakeholders to allow comparability
of period-to-period operating performance and capital adequacy. The
calculation of return on average tangible common equity represents
full year net income or annualized net income applicable for the
quarter applicable to Morgan Stanley less preferred dividends as a
percentage of average tangible common equity. Tangible common
equity, also a non-GAAP financial measure, represents common equity
less goodwill and intangible assets net of allowable mortgage
servicing rights deduction. The calculation of return on average
tangible common equity and return on average tangible common equity
excluding integration-related expenses are adjusted in both the
numerator and the denominator to exclude the integration-related
expenses associated with the acquisitions of E*TRADE and Eaton
Vance.
7 The Firm’s first quarter results include $75 million of
integration-related expenses on a pre-tax basis ($58 million
after-tax) as a result of the E*TRADE and Eaton Vance acquisitions.
The integration-related expenses include $33 million in
compensation expense and $42 million in non-compensation expense.
Wealth Management and Investment Management integration-related
expenses include $30 million and $3 million in compensation
expense, respectively, and $34 million and $8 million in
non-compensation expense, respectively.
8 The Firm expense efficiency ratio of 67% represents total
non-interest expenses as a percentage of net revenues. The Firm
expense efficiency ratio excluding integration-related expenses of
66% represents total non-interest expenses adjusted for
integration-related expenses as a percentage of net revenues. The
Firm expense efficiency ratio excluding integration-related
expenses is a non-GAAP financial measure that the Firm considers
useful for analysts, investors and other stakeholders to allow
comparability of period-to-period operating performance.
9 Pre-tax margin represents income before taxes divided by net
revenues. Wealth Management pre-tax margin excluding the
integration-related expenses represents income before taxes less
those expenses divided by net revenues. Wealth Management pre-tax
margin excluding integration-related expenses is a non-GAAP
financial measure that the Firm considers useful for analysts,
investors and other stakeholders to allow comparability of
period-to-period operating performance.
10 Pre-tax income represents income before taxes.
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 Wealth Management net new assets represents client inflows
(including dividend and interest) less client outflows (excluding
activity from business combinations/divestitures and impact of fees
and commissions).
14 AUM is defined as assets under management.
15 Long-term net flows include the Equity, Fixed Income and
Alternative and Solutions asset classes and exclude the Liquidity
and Overlay asset class.
16 Transactional revenues include investment banking, trading,
and commissions and fee revenues. Transactional revenues excluding
the impact of mark-to-market gains on investments associated with
certain employee deferred compensation plans is a non-GAAP
financial measure that the Firm considers useful for analysts,
investors and other stakeholders to allow better comparability of
period-to-period operating performance and capital adequacy.
17 Capital ratios are estimates as of the press release date,
April 16, 2021.
18 CET1 capital is defined as Common Equity Tier 1 capital. The
Firm’s risk-based capital ratios are computed under each of 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”). For
information on the calculation of regulatory capital and ratios,
and associated regulatory requirements, please refer to
"Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Liquidity and Capital Resources –
Regulatory Requirements" in the Firm’s Annual Report on Form 10-K
for the year ended December 31, 2020 (2020 Form 10-K).
19 The Tier 1 leverage ratio is a leverage-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’s supplementary leverage ratio (SLR) utilizes a Tier
1 capital numerator of approximately $84.1 billion and $73.9
billion, and supplementary leverage exposure denominator of
approximately $1.26 trillion and $1.19 trillion, for the first
quarter of 2021 and 2020, respectively. Based on a Federal Reserve
interim final rule in effect until March 31, 2021, our SLR and
supplementary leverage exposure as of March 31, 2021 reflect the
exclusion of U.S. Treasury securities and deposits at Federal
Reserve Banks. The exclusion of these assets had the effect of
increasing our SLR by 0.7% as of March 31, 2021.
21 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. The impacts of recognizing excess tax benefits upon
conversion of awards are $82 million and $99 million for the first
quarter of 2021 and 2020, respectively.
Consolidated Income Statement Information
(unaudited, dollars in millions)
Quarter Ended
Percentage Change
From:
Mar 31, 2021
Dec 31, 2020
Mar 31, 2020
Dec 31, 2020
Mar 31, 2020
Revenues: Investment banking
$
2,840
$
2,435
$
1,271
17
%
123
%
Trading
4,225
3,229
2,801
31
%
51
%
Investments
318
327
38
(3
%)
*
Commissions and fees
1,626
1,352
1,360
20
%
20
%
Asset management
4,398
3,926
3,417
12
%
29
%
Other
284
457
(464
)
(38
%)
*
Total non-interest revenues
13,691
11,726
8,423
17
%
63
%
Interest income
2,437
2,245
3,503
9
%
(30
%)
Interest expense
409
374
2,147
9
%
(81
%)
Net interest
2,028
1,871
1,356
8
%
50
%
Net revenues
15,719
13,597
9,779
16
%
61
%
Provision for credit losses
(98
)
4
407
*
*
Non-interest expenses: Compensation and benefits
6,798
5,450
4,283
25
%
59
%
Non-compensation expenses: Brokerage, clearing and exchange
fees
910
776
740
17
%
23
%
Information processing and communications
733
697
563
5
%
30
%
Professional services
624
679
449
(8
%)
39
%
Occupancy and equipment
405
456
365
(11
%)
11
%
Marketing and business development
146
161
132
(9
%)
11
%
Other
857
944
694
(9
%)
23
%
Total non-compensation expenses
3,675
3,713
2,943
(1
%)
25
%
Total non-interest expenses
10,473
9,163
7,226
14
%
45
%
Income before provision for income taxes
5,344
4,430
2,146
21
%
149
%
Provision for income taxes
1,176
1,018
366
16
%
*
Net income
$
4,168
$
3,412
$
1,780
22
%
134
%
Net income applicable to nonredeemable noncontrolling interests
48
27
82
78
%
(41
%)
Net income applicable to Morgan Stanley
4,120
3,385
1,698
22
%
143
%
Preferred stock dividend
138
119
108
16
%
28
%
Earnings applicable to Morgan Stanley common shareholders
$
3,982
$
3,266
$
1,590
22
%
150
%
The End Notes are an integral part of this
presentation. Refer to the Financial Supplement on pages 14 - 19
for Definition of U.S. GAAP to Non-GAAP Measures, Definitions of
Performance Metrics and Terms, Supplemental Quantitative Details
and Calculations, and Legal Notice for additional information.
Consolidated Financial Metrics, Ratios and
Statistical Data (unaudited) Quarter Ended
Percentage Change From: Mar 31, 2021 Dec 31,
2020 Mar 31, 2020 Dec 31, 2020 Mar 31,
2020 Financial Metrics: Earnings per basic
share
$
2.22
$
1.84
$
1.02
21
%
118
%
Earnings per diluted share
$
2.19
$
1.81
$
1.01
21
%
117
%
Return on average common equity
16.9
%
14.7
%
8.5
%
Return on average tangible common equity
21.1
%
17.7
%
9.7
%
Book value per common share
$
52.71
$
51.13
$
49.09
Tangible book value per common share
$
38.97
$
41.95
$
43.28
Excluding integration-related expenses Adjusted earnings per
diluted share
$
2.22
$
1.92
$
1.01
16
%
120
%
Adjusted return on average common equity
17.1
%
15.6
%
8.5
%
Adjusted return on average tangible common equity
21.4
%
18.7
%
9.7
%
Financial Ratios: Pre-tax profit margin
34
%
33
%
22
%
Compensation and benefits as a % of net revenues
43
%
40
%
44
%
Non-compensation expenses as a % of net revenues
23
%
27
%
30
%
Firm expense efficiency ratio
67
%
67
%
74
%
Firm expense efficiency ratio excluding integration-related
expenses
66
%
66
%
74
%
Effective tax rate
22.0
%
23.0
%
17.1
%
Statistical Data: Period end common
shares outstanding (millions)
1,869
1,810
1,576
3
%
19
%
Average common shares outstanding (millions) Basic
1,795
1,774
1,555
1
%
15
%
Diluted
1,818
1,802
1,573
1
%
16
%
Worldwide employees
70,975
68,097
60,670
4
%
17
%
Notes:
-
The Firm’s first quarter 2021
results include pre-tax integration-related expenses of $75 million
($58 million after-tax) reported in the Wealth Management and
Investment Management business segments. The Firm's fourth quarter
2020 results include pre-tax integration-related expenses of $231
million ($189 million after-tax) reported in the Wealth Management
business segment.
-
The End Notes are an integral
part of this presentation. Refer to the Financial Supplement on
pages 14 - 19 for Definition of U.S. GAAP to Non-GAAP Measures,
Definitions of Performance Metrics and Terms, Supplemental
Quantitative Details and Calculations, and Legal Notice for
additional information.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210416005252/en/
Media Relations: Wesley McDade 212-761-2430
Investor Relations: Sharon
Yeshaya 212-761-1632
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