Morgan Stanley Second Quarter 2019 Earnings Results
Morgan Stanley Reports Net Revenues of $10.2 Billion and EPS of $1.23
NEW YORK, July 18, 2019 – 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) | ||||||||
Firm | 2Q 2019 | 2Q 2018 | ||||||
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 |
Highlights | |
• | 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 $1.2 billion6 with a pre-tax margin of 28.2%7 reflecting record quarterly net revenues and tightly managed non-compensation costs. |
• | Investment Management net revenues increased 21% on strong principal investment gains. The quarter reflects higher AUM and positive long-term net flows across all asset classes. |
Media Relations: Wesley McDade 212-761-2430 | Investor Relations: Sharon Yeshaya 212-761-1632 |
Investment Banking revenues down 13% from a year ago: | |
• | Advisory revenues decreased driven by lower market volumes compared with a year ago. |
• | Equity underwriting revenues were essentially unchanged from a year ago. The current quarter’s results reflect strength in IPOs and follow-on offerings. |
• | Fixed income underwriting revenues decreased from a year ago driven by declines in loan issuances on lower market volumes. |
Sales and Trading net revenues down 12% from a year ago: | |
• | Equity sales and trading net revenues decreased 14% from a year ago principally driven by lower revenues in the financing business reflecting lower client balances and realized spreads. |
• | Fixed Income sales and trading net revenues decreased 18% from a year ago reflecting the effects of a decline in interest rates and lower volatility, as well as a subdued level of structured transactions. The net revenues decline was partially offset by increases in credit products on strong client activity. |
• | Other sales and trading net revenues increased from a year ago reflecting lower costs due to a shift in funding mix and balance sheet composition. |
Investments and Other: | |
• | Investment revenues increased from a year ago driven by realized gains associated with an investment’s initial public offering and subsequent mark-to-market gains on remaining holdings subject to sales restrictions. |
• | Other revenues decreased from a year ago primarily reflecting lower mark-to-market gains on corporate lending activity. |
($ 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 |
• | Compensation expense decreased on lower revenues. |
• | Non-compensation expenses decreased from a year ago on lower professional services and litigation costs. |
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 $82 billion a year ago. |
• | Other revenues increased from a year ago driven by higher realized gains on available for sale securities. |
Total Expenses: | |
• | Compensation expenses increased from a year ago primarily driven by an increase in the fair value of deferred compensation plan referenced investments. |
• | Non-compensation expenses decreased from a year ago reflecting continued focus on management of controllable costs. |
($ 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 |
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 | % | ||||
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.
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. |
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 of Performance Metrics and Terms, Supplemental Quantitative Details and Calculations and Legal Notice for additional information. |