NEW YORK--(BUSINESS WIRE)--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 |
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Firm |
1Q 2019 |
1Q 2018 |
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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 $2.1 billion a year ago.3
Investment Banking revenues down 24% from a year ago:
Investments and Other:
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($ millions) |
1Q 2019 |
1Q 2018 |
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Net Revenues |
$5,196 | $6,100 | ||||||
Investment Banking | $1,151 | $1,513 | ||||||
Advisory | $406 | $574 | ||||||
Equity underwriting | $339 | $421 | ||||||
Fixed income underwriting | $406 | $518 | ||||||
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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.
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Wealth Management
Wealth Management reported net revenues for the current quarter of $4.4 billion and pre-tax income of $1.2 billion,3 both were essentially unchanged from a year ago. The current quarter’s pre-tax margin was 27.1%.4
Net revenues were essentially unchanged from a year ago:
Total Expenses:
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($ millions) |
1Q 2019 |
1Q 2018 |
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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 $148 million a year ago.3
Net revenues up 12% from a year ago:
Total Expenses:
|
($ 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 | $266 | |||||||
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Other Matters
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1Q 201915 |
1Q 2018 |
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Capital | |||||||||
Common Equity Tier 1 capital16 |
16.5% | 15.5% | |||||||
Tier 1 capital16 |
18.8% | 17.7% | |||||||
Tier 1 leverage17 |
8.4% | 8.2% | |||||||
Supplementary leverage ratio18 |
6.5% | 6.3% | |||||||
Common Stock Repurchases | |||||||||
Repurchases ($ millions) | $1,180 | $1,250 | |||||||
Number of Shares (millions) | 28 | 22 | |||||||
Average Price | $42.19 | $55.98 | |||||||
Common Shares Outstanding - |
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 |
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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 | %) | |||||||||
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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 |
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Consolidated Financial Metrics and Ratios and Statistical Data |
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(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 | ||||||||||
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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. |