Morgan Stanley First Quarter 2019 Earnings Results – Business Wire

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NEW YORK–()–Morgan Stanley (NYSE: MS) today reported net revenues of $10.3
billion for the first quarter ended March 31, 2019 compared with $11.1
billion a year ago. Net income applicable to Morgan Stanley was $2.4
billion, or $1.39 per diluted share,1 compared with
net income of $2.7 billion, or $1.45 per diluted share,1 for
the same period a year ago. The current quarter included intermittent
net discrete tax benefits of $101 million, or $0.06 per diluted share.

James P. Gorman, Chairman and Chief Executive Officer, said,
We delivered solid earnings despite a slow start to the year following
the turbulent markets in the fourth quarter.
With an ROE of 13.1%
and ROTCE of 14.9%, our results demonstrated the stability and breadth
of our global franchise.
Even though risks to the global
environment remain, markets have recovered and we are well positioned to
serve our clients and invest in our businesses.”

             

Financial Summary2

($ millions, except per share data)

               

Highlights

Firm

1Q 2019

1Q 2018

  • Firm net revenues declined 7% compared with a record quarter a
    year ago.
  • Firm compensation of $4.7 billion and non-compensation expenses
    of $2.7 billion reflect our continued focus and discipline on
    controllable expenses.
  • Firm ROE and ROTCE were at the high end of our target range and
    our capital ratios remain strong.
  • Institutional Securities net revenues reflected solid results
    despite a less favorable market environment characterized by
    lower volumes and volatility compared with a year ago.
  • Wealth Management delivered pre-tax income of $1.2 billion3
    and a pre-tax margin of 27.1%4 reflecting strong
    expense management while continuing to invest in the business.
  • Investment Management net revenues increased 12% on strong
    principal investment gains and solid asset management fees.

 

Net revenues $10,286 $11,077
Compensation expense $4,651 $4,914
Non-compensation expenses $2,680 $2,743

Pre-tax income3

$2,955 $3,420

Net income app. to MS

$2,429 $2,668

Expense efficiency ratio5

71% 69%
Earnings per diluted share $1.39 $1.45

Book value per share6

$42.83 $39.19

Tangible book value per share7

$37.62 $34.04

Return on equity8

13.1% 14.9%

Return on tangible equity8

      14.9%     17.2%  
Institutional Securities
Net revenues $5,196 $6,100
Investment Banking $1,151 $1,513
Sales & Trading       $3,742     $4,402  
Wealth Management
Net revenues $4,389 $4,374

Fee-based client assets ($ billions)9

$1,116 $1,058

Fee-based asset flows ($ billions)10

$14.8 $18.2
Loans ($ billions)       $71.5     $68.3  
Investment Management
Net revenues $804 $718

AUM ($ billions)11

$480 $469

Long-term net flows ($ billions)12

      $(0.4)     $1.5  
 
 

Institutional Securities

Institutional Securities reported net revenues for the current quarter
of $5.2 billion compared with $6.1 billion a year ago. Pre-tax income
was $1.6 billion compared with $2.1 billion a year ago.3

               

Investment Banking revenues down 24% from a year ago:

 

  • Advisory revenues decreased from a year ago reflecting the
    impact of lower M&A fee realizations.
  • Equity underwriting revenues decreased from a year ago on lower
    IPOs and follow-on offerings due to lower market volumes.
  • Fixed income underwriting revenues decreased from a year ago
    driven by lower non-investment grade loan issuances.


Sales and Trading net revenues down 15% from a year ago:

  • Equity sales and trading net revenues decreased 21% reflecting
    declines in prime brokerage driven by lower client balances and
    decreases in derivatives and cash equities on lower client
    activity compared with a year ago.
  • Fixed Income sales and trading net revenues decreased 9% from a
    year ago primarily driven by lower results in rates and foreign
    exchange. The decline was partially offset by gains in client
    structuring activity within credit risk management and higher
    results in credit products.
  • Other sales and trading net revenues increased from a year ago
    primarily driven by gains on investments associated with certain
    employee deferred compensation plans, partially offset by losses
    on hedges associated with corporate lending activity.

 

Investments and Other:

 

  • Investment revenues increased from a year ago driven by a fund
    distribution and gains on real estate limited partnerships.
  • Other revenues increased from a year ago reflecting higher
    mark-to-market gains associated with corporate lending activity.

 

  ($ millions)  

1Q 2019

 

1Q 2018

Net Revenues

$5,196 $6,100
 
Investment Banking $1,151 $1,513
Advisory $406 $574
Equity underwriting $339 $421
Fixed income underwriting $406 $518

 

Sales and Trading $3,742 $4,402
Equity $2,015 $2,558
Fixed Income $1,710 $1,873
Other $17 $(29)
 
Investments and Other $303 $185
Investments $81 $49
Other $222 $136
 
Total Expenses $3,601 $3,988
Compensation $1,819 $2,160

Non-compensation

$1,782 $1,828
             

Total Expenses:

  • Compensation expense decreased on lower revenues resulting in a
    compensation ratio of 35.0%.
  • Non-compensation expenses decreased from a year ago on lower
    litigation costs and volume driven expenses, partially offset by
    higher information processing and professional services expenses.

Wealth Management

Wealth Management reported net revenues for the current quarter of $4.4
billion and pre-tax income of $1.2 billion,3 both were
essentially unchanged from a year ago. The current quarter’s pre-tax
margin was 27.1%.4

                 

Net revenues were essentially unchanged from a year ago:

 

  • Asset management revenues decreased from a year ago reflecting
    lower asset level pricing, the result of fourth quarter market
    declines.
  • Transactional revenues13 increased from a year ago
    reflecting gains on investments associated with certain employee
    deferred compensation plans, partially offset by lower
    commissions and fees.
  • Net interest income increased 6% compared with a year ago
    primarily driven by growth in bank lending and higher interest
    rates. Wealth Management client liabilities14 were
    $82 billion at quarter end compared with $80 billion a year ago.

Total Expenses:

 

  • Compensation expenses were essentially unchanged from a year
    ago. Results in the current quarter reflected an increase in the
    fair value of deferred compensation plan referenced investments
    offset by decreases in compensable revenues and retention note
    expense.
  • Non-compensation decreased 3% from a year ago reflecting the
    continued focus on expense discipline across the business.

 

  ($ millions)  

1Q 2019

 

1Q 2018

Net Revenues $4,389 $4,374
Asset management $2,361 $2,495
Transactional $817 $747
Net interest $1,130 $1,069
Other $81 $63
 
Total Expenses $3,201 $3,214
Compensation $2,462 $2,450
Non-compensation $739 $764
             

Investment Management

Investment Management reported net revenues of $804 million compared
with $718 million a year ago. Pre-tax income was $174 million compared
with $148 million a year ago.3

                 

Net revenues up 12% from a year ago:

  • Asset management revenues were essentially unchanged from a year
    ago.
  • Investment revenues increased from a year ago primarily driven
    by higher investment gains and carried interest in Asia private
    equity and infrastructure funds.

Total Expenses:

 

  • Compensation expense increased from a year ago principally due
    to an increase in deferred compensation associated with carried
    interest.
  • Non-compensation expenses were essentially unchanged from a year
    ago.

 

 

  ($ millions)  

1Q 2019

 

1Q 2018

Net Revenues $804 $718
Asset management $617 $626
Investments $191 $77
Other $(4) $15
 
Total Expenses $630 $570
Compensation $370 $304
Non-compensation $260 $266
             
 

 

                 

Other Matters

  • At March 31, 2019, the Firm’s capital ratios are based on the
    Standardized Approach.16
  • The Firm repurchased $1.2 billion of its outstanding common
    stock during the quarter as part of its Share Repurchase Program.
  • The Board of Directors declared a $0.30 quarterly dividend per
    share, payable on May 15, 2019 to common shareholders of record
    on April 30, 2019.
  • The effective tax rate from continuing operations for the
    quarter was 16.5%, which reflected a recurring-type of discrete
    tax benefit of $107 million associated with employee share-based
    payments.   The current quarter also included intermittent net
    discrete tax benefits of $101 million, primarily associated with
    the remeasurement of reserves and related interest due to new
    information related to multi-jurisdiction tax examinations.

 

   

1Q 201915

 

1Q 2018

Capital

Common Equity Tier 1 capital16

16.5% 15.5%

Tier 1 capital16

18.8% 17.7%

Tier 1 leverage17

8.4% 8.2%

Supplementary leverage ratio18

6.5% 6.3%
Common Stock Repurchases
Repurchases ($ millions) $1,180 $1,250
Number of Shares (millions) 28 22
Average Price $42.19 $55.98

Common Shares Outstanding –
period end (millions)

1,686 1,774

Tax Rate

16.5%

20.9%
             
 

Morgan Stanley is a leading global financial services firm providing a
wide range of investment banking, securities, wealth management and
investment management services. With offices in more than 41 countries,
the Firm’s employees serve clients worldwide including corporations,
governments, institutions and individuals. For further information about
Morgan Stanley, please visit www.morganstanley.com.

A financial summary follows. Financial, statistical and business-related
information, as well as information regarding business and segment
trends, is included in the Financial Supplement. Both the earnings
release and the Financial Supplement are available online in the
Investor Relations section at www.morganstanley.com.

NOTICE:

The information provided herein and in the financial supplement may
include certain non-GAAP financial measures. The definition of such
measures or reconciliation of such metrics to the comparable U.S. GAAP
figures are included in this earnings release and the Financial
Supplement, both of which are available on www.morganstanley.com.

This earnings release may contain forward-looking statements, including
the attainment of certain financial and other targets, objectives and
goals. Readers are cautioned not to place undue reliance on
forward-looking statements, which speak only as of the date on which
they are made, which reflect management’s current estimates,
projections, expectations, assumptions, interpretations or beliefs and
which are subject to risks and uncertainties that may cause actual
results to differ materially. For a discussion of risks and
uncertainties that may affect the future results of the Firm, please see
“Forward-Looking Statements” immediately preceding Part I, Item 1,
“Competition” and “Supervision and Regulation” in Part I, Item 1, “Risk
Factors” in Part I, Item 1A, “Legal Proceedings” in Part I, Item 3,
Management’s Discussion and Analysis of Financial Condition and Results
of Operations” in Part II, Item 7 and “Quantitative and Qualitative
Disclosures about Risk” in Part II, Item 7A in the Firm’s Annual Report
on Form 10-K for the year ended December 31, 2018 and other items
throughout the Form 10-K and the Firm’s Current Reports on Form 8-K,
including any amendments thereto.

 
1 Includes preferred dividends related to the calculation
of earnings per share of $93 million for the first quarter of 2019
and 2018.
 
2 The Firm prepares its Consolidated Financial Statements
using accounting principles generally accepted in the United States
(U.S. GAAP). From time to time, Morgan Stanley may disclose certain
“non-GAAP financial measures” in the course of its earnings
releases, earnings conference calls, financial presentations and
otherwise. The Securities and Exchange Commission defines a
“non-GAAP financial measure” as a numerical measure of historical or
future financial performance, financial positions, or cash flows
that is subject to adjustments that effectively exclude, or include
amounts from the most directly comparable measure calculated and
presented in accordance with U.S. GAAP. Non-GAAP financial measures
disclosed by Morgan Stanley are provided as additional information
to analysts, investors and other stakeholders in order to provide
them with greater transparency about, or an alternative method for
assessing our financial condition, operating results, or prospective
regulatory capital requirements. These measures are not in
accordance with, or a substitute for U.S. GAAP, and may be different
from or inconsistent with non-GAAP financial measures used by other
companies. Whenever we refer to a non-GAAP financial measure, we
will also generally define it or present the most directly
comparable financial measure calculated and presented in accordance
with U.S. GAAP, along with a reconciliation of the differences
between the non-GAAP financial measure we reference and such
comparable U.S. GAAP financial measure.
 
3 Pre-tax income is a non-GAAP financial measure that the
Firm considers useful for analysts, investors and other stakeholders
to assess operating performance. Pre-tax income represents income
(loss) before taxes.
 
4 Pre-tax margin is a non-GAAP financial measure that the
Firm considers useful for analysts, investors and other stakeholders
to assess operating performance. Pre-tax margin represents income
(loss) before taxes divided by net revenues.
 
5 The Firm expense efficiency ratio represents total
non-interest expenses as a percentage of net revenues.
 
6 Book value per common share represents common equity
divided by period end common shares outstanding.
 
7 Tangible book value per common share is a non-GAAP
financial measure that the Firm considers to be a useful measure of
capital adequacy for analysts, investors and other stakeholders.
Tangible book value per common share represents tangible common
equity divided by period end common shares outstanding. Tangible
common equity, also a non-GAAP financial measure, represents common
equity less goodwill and intangible assets net of allowable mortgage
servicing rights deduction.
 
8 Annualized return on average common equity and
annualized return on average tangible common equity are non-GAAP
financial measures that the Firm considers useful for analysts,
investors and other stakeholders to allow better comparability of
period-to-period operating performance and capital adequacy. The
calculation of return on average common equity and return on average
tangible common equity represents annualized net income applicable
to Morgan Stanley less preferred dividends as a percentage of
average common equity and average tangible common equity,
respectively.
 
9 Wealth Management fee-based client assets represent the
amount of assets in client accounts where the basis of payment for
services is a fee calculated on those assets.
 
10 Wealth Management fee-based asset flows include net
new fee-based assets, net account transfers, dividends, interest,
and client fees and exclude institutional cash management related
activity.
 
11 AUM is defined as assets under management.
 
12 Long-term net flows include the Equity, Fixed Income
and Alternative/Other asset classes and exclude the Liquidity asset
class.
 
13 Transactional revenues include investment banking,
trading, and commissions and fee revenues.
 
14 Wealth Management client liabilities reflect U.S. Bank
Subsidiaries’ lending and broker-dealer margin activity. U.S. Bank
refers to the Firm’s U.S. Bank operating subsidiaries Morgan Stanley
Bank, N.A. and Morgan Stanley Private Bank, National Association.
 
15 Capital ratios are estimates as of the press release
date, April 17, 2019.
 
16 The Firm’s risk-based capital ratios for purposes of
determining regulatory compliance are the lower of the capital
ratios computed under the (i) standardized approaches for
calculating credit risk and market risk risk-weighted assets
(“RWAs”) (the “Standardized Approach”); and (ii) applicable advanced
approaches for calculating credit risk, market risk and operational
risk RWAs (the “Advanced Approach”). At March 31, 2019 and March 31,
2018, the Firm’s ratios are based on the Standardized Approach. For
information on the calculation of regulatory capital and ratios for
prior periods, please refer to Part II, Item 7 “Liquidity and
Capital Resources – Regulatory Requirements” in the Firm’s 2018 Form
10-K.
 
17 The Tier 1 leverage ratio is a non-risk based capital
requirement that measures the Firm’s leverage. Tier 1 leverage ratio
utilizes Tier 1 capital as the numerator and average adjusted assets
as the denominator.
 
18 The Firm must maintain a Tier 1 supplementary leverage
capital buffer of at least 2% in addition to the 3% minimum
supplementary leverage ratio (for a total of at least 5%), in order
to avoid limitations on capital distributions, including dividends
and stock repurchases, and discretionary bonus payments to executive
officers. The Firm’s Supplementary Leverage Ratio utilizes a Tier 1
capital numerator of approximately $71.8 billion and $69.2 billion,
and supplementary leverage exposure denominator of approximately
$1.10 trillion and $1.09 trillion, for the first quarter of 2019 and
2018, respectively.
 
19 The income tax consequences related to employee
share-based payments are recognized in Provision for income taxes in
the consolidated income statement, and may be either a benefit or a
provision. Conversion of employee share-based awards to Firm shares
will primarily occur in the first quarter of each year. The impact
of recognizing excess tax benefits upon conversion of awards in the
first quarter of 2019 was a benefit of $107 million to Provision for
income taxes. We consider these employee share-based award related
provisions or benefits to be recurring-type (“Recurring”) discrete
tax items, as we anticipate conversion activity each year.
Accordingly, these Recurring discrete tax provisions or benefits are
excluded from the intermittent net discrete tax provisions or
benefits disclosures.
 
 

Morgan Stanley

Consolidated Income Statement Information
(unaudited, dollars in millions)
           
Quarter Ended Percentage Change From:
Mar 31, 2019 Dec 31, 2018 Mar 31, 2018 Dec 31, 2018 Mar 31, 2018
Revenues:
Investment banking $ 1,242 $ 1,488 $ 1,634 (17 %) (24 %)
Trading 3,441 1,736 3,770 98 % (9 %)
Investments 273 28 126 * 117 %
Commissions and fees 966 1,046 1,173 (8 %) (18 %)
Asset management 3,049 3,266 3,192 (7 %) (4 %)
Other   301   (5 )   207   * 45 %
Total non-interest revenues 9,272 7,559 10,102 23 % (8 %)
 
Interest income 4,290 4,111 2,860 4 % 50 %
Interest expense   3,276   3,122     1,885   5 % 74 %
Net interest   1,014   989     975   3 % 4 %
Net revenues   10,286   8,548     11,077   20 % (7 %)
 
Non-interest expenses:
Compensation and benefits 4,651 3,787 4,914 23 % (5 %)
 
Non-compensation expenses:
Occupancy and equipment 347 358 336 (3 %) 3 %
Brokerage, clearing and exchange fees 593 598 627 (1 %) (5 %)
Information processing and communications 532 529 478 1 % 11 %
Marketing and business development 141 220 140 (36 %) 1 %
Professional services 514 605 510 (15 %) 1 %
Other   553   594     652   (7 %) (15 %)
Total non-compensation expenses 2,680 2,904 2,743 (8 %) (2 %)
     
Total non-interest expenses   7,331   6,691     7,657   10 % (4 %)
 
Income (loss) from continuing operations before taxes 2,955 1,857 3,420 59 % (14 %)
Income tax provision / (benefit) from continuing operations   487   300     714   62 % (32 %)
Income (loss) from continuing operations   2,468   1,557     2,706   59 % (9 %)
Gain (loss) from discontinued operations after tax   0   1     (2 ) * *
Net income (loss) $ 2,468 $ 1,558 $ 2,704 58 % (9 %)
Net income applicable to nonredeemable noncontrolling interests   39   27     36   44 % 8 %
Net income (loss) applicable to Morgan Stanley   2,429   1,531     2,668   59 % (9 %)
Preferred stock dividend / Other   93   170     93   (45 %)
Earnings (loss) applicable to Morgan Stanley common shareholders $ 2,336 $ 1,361   $ 2,575   72 % (9 %)
 

 

The End Notes are an integral part of this presentation. Refer to
the Financial Supplement on pages 12-17 for Definition of U.S.
GAAP to Non-GAAP Measures,

Definition of Performance Metrics and Terms, Supplemental
Quantitative Details and Calculations, and Legal Notice for
additional information.

 
     

Morgan Stanley

Consolidated Financial Metrics and Ratios and Statistical Data

(unaudited)
  Quarter Ended
Mar 31, 2019 Dec 31, 2018 Mar 31, 2018
 
Financial Metrics:
 
Earnings per basic share $ 1.41 $ 0.81 $ 1.48
Earnings per diluted share $ 1.39 $ 0.80 $ 1.45
 
Return on average common equity 13.1 % 7.7 % 14.9 %
Return on average tangible common equity 14.9 % 8.8 % 17.2 %
 
Book value per common share $ 42.83 $ 42.20 $ 39.19
Tangible book value per common share $ 37.62 $ 36.99 $ 34.04
 
Excluding intermittent net discrete tax provision / benefit
Adjusted earnings per diluted share $ 1.33 $ 0.73 $ 1.45
Adjusted return on average common equity 12.5 % 7.1 % 14.9 %
Adjusted return on average tangible common equity 14.2 % 8.1 % 17.2 %
 
 
Financial Ratios:
 
Pre-tax profit margin 29 % 22 % 31 %
Compensation and benefits as a % of net revenues 45 % 44 % 44 %
Non-compensation expenses as a % of net revenues 26 % 34 % 25 %
Firm expense efficiency ratio 71 % 78 % 69 %
Effective tax rate from continuing operations 16.5 % 16.2 % 20.9 %
 
 
Statistical Data:
 
Period end common shares outstanding (millions) 1,686 1,700 1,774
Average common shares outstanding (millions)
Basic 1,658 1,674 1,740
Diluted 1,677 1,705 1,771
 
Worldwide employees 60,469 60,348 57,810
 
   

 

The End Notes are an integral part of this presentation. Refer to
the Financial Supplement on pages 12-17 for Definition of U.S.
GAAP to Non-GAAP Measures, Definition of Performance Metrics and
Terms, Supplemental Quantitative Details and Calculations, and
Legal Notice for additional information.

 

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