Thursday, 28 March 2024

Morgan Stanley releases Q2 2017 results

• Net Revenues of $9.5 Billion and Earnings per Diluted Share of $0.87
• Strong Performance in Investment Banking and Solid Results in Sales and Trading
• Wealth Management Pre-Tax Margin of 25%
• Quarterly Dividend Increased to $0.25 per Share; Announced Share Repurchase of up to $5 Billion through 2Q18

James P. Gorman, Chairman and Chief Executive Officer, said,

“Our second quarter results demonstrated the resilience of our franchise in a subdued trading environment. Our wealth management business produced a 25% margin and our strong investment banking results attest to the diversity of our global business. We continue to deliver on our strategic goals and grow shareholder returns.”

Financial Overview

Morgan Stanley reported net revenues of $9.5 billion for the second quarter ended June 30, 2017 compared with $8.9 billion a year ago. For the current quarter, net income applicable to Morgan Stanley was $1.8 billion, or $0.87 per diluted share, compared with net income of $1.6 billion, or $0.75 per diluted share, for the same period a year ago.

Compensation expense of $4.3 billion increased from $4.0 billion a year ago driven by higher revenues. Noncompensation expenses of $2.6 billion increased from $2.4 billion a year ago, reflecting a provision related to a U.K. indirect tax matter and higher volume driven expenses.

The Firm’s expense efficiency ratio for the current quarter was 72%. The effective tax rate for the current quarter was 32.0%. The annualized return on average common equity was 9.1 percent in the current quarter.

Business Highlights

• Institutional Securities net revenues were $4.8 billion reflecting strength in equity sales and trading
and M&A advisory, and improved results in underwriting.
• Wealth Management net revenues were $4.2 billion and pre-tax margin was 25%. Fee-based asset flows for the quarter were $19.9 billion.
• Investment Management net revenues were $665 million with assets under management of $435 billion.

Institutional Securities

Institutional Securities reported pre-tax income from continuing operations of $1.4 billion compared with pretax income of $1.5 billion a year ago. Net revenues for the current quarter were $4.8 billion compared with $4.6 billion a year ago.

• Investment Banking revenues of $1.4 billion increased from $1.1 billion a year ago:

• Advisory revenues of $504 million were relatively unchanged from the prior year quarter.
• Equity underwriting revenues of $405 million increased from $266 million in the prior year quarter on higher market volumes in follow-on offerings and IPOs.
• Fixed income underwriting revenues of $504 million increased from $345 million in the prior year quarter reflecting higher non-investment grade loan and investment grade bond fees.

• Sales and Trading net revenues of $3.2 billion decreased from $3.3 billion a year ago:

• Equity sales and trading net revenues of $2.2 billion increased from $2.1 billion a year ago reflecting strong contributions across products and regions.
• Fixed Income sales and trading net revenues of $1.2 billion decreased from $1.3 billion a year ago driven by lower volatility and sporadic activity during the quarter.
• Other sales and trading net losses of $208 million compared with net losses of $186 million in the period a year ago.

• Compensation expense of $1.7 billion increased from $1.6 billion a year ago driven by higher revenues. Non-compensation expenses of $1.7 billion for the current quarter increased from $1.4 billion a year ago, reflecting a provision related to a U.K. indirect (value-added) tax matter and higher volume driven expenses.

Morgan Stanley’s average trading Value-at-Risk (VaR) measured at the 95% confidence level was $51 million compared with $44 million from the first quarter of 2017 and $46 million in the second quarter of the prior year.

Wealth Management

Wealth Management reported pre-tax income from continuing operations of $1.1 billion compared with $859 million in the second quarter of last year. The quarter’s pre-tax margin was 25%.2 Net revenues for the current quarter were $4.2 billion compared with $3.8 billion a year ago.

• Asset management fee revenues of $2.3 billion increased from $2.1 billion a year ago reflecting the impact of higher market levels and positive flows.

• Transactional revenues of $766 million decreased from $798 million a year ago primarily driven by lower revenues associated with the Wealth Management Fixed Income Integration. The decrease was partly offset by gains related to investments associated with certain employee deferred compensation plans in the current period.

• Net interest income of $1.0 billion increased from $829 million a year ago on loan growth and higher interest rates. Wealth Management client liabilities were $77 billion at quarter end compared with $69 billion in the prior year quarter.

• Compensation expense for the current quarter of $2.3 billion increased from $2.2 billion a year ago
primarily driven by higher revenues. Non-compensation expenses of $797 million were essentially
unchanged from a year ago.

Total client assets were $2.2 trillion and client assets in fee-based accounts were $962 billion at the end of the quarter. Fee-based asset flows for the quarter were $19.9 billion.

Wealth Management representatives of 15,777 produced average annualized revenue per representative of $1.1 million in the current quarter.

Investment Management

Investment Management reported pre-tax income from continuing operations of $142 million compared with $118 million in the second quarter of last year. Net revenues of $665 million increased from $583 million in the prior year.

• Asset management fee revenues of $539 million increased from $517 million in the prior year quarter on higher levels of assets under management.

• Investment revenues of $125 million increased from $50 million in the prior year quarter reflecting higher investment gains and carried interest in Infrastructure and Private Equity investments.

• Compensation expense for the current quarter of $288 million increased from $238 million a year ago principally due to an increase in deferred compensation associated with carried interest. Noncompensation expenses of $235 million were relatively unchanged from a year ago.

• Assets under management or supervision at June 30, 2017 were $435 billion.

Capital

As of June 30, 2017, the Firm’s Common Equity Tier 1 and Tier 1 risk-based capital ratios under Advanced Approach transitional provisions were approximately 16.6% and 18.9%, respectively.

As of June 30, 2017, the Firm estimates its pro forma fully phased-in Common Equity Tier 1 risk-based capital ratio under the Advanced Approach and pro forma fully phased-in Supplementary Leverage Ratio to be approximately 15.9% and 6.4%, respectively.

At June 30, 2017, book value and tangible book value per common share were $38.22 and $33.24,
respectively, based on approximately 1.8 billion shares outstanding.

Other Matters

During the quarter ended June 30, 2017, the Firm repurchased approximately $500 million of its common stock or approximately 12 million shares. The Firm announced a share repurchase of up to $5 billion of common stock beginning in the third quarter of 2017 through the end of the second quarter of 2018.

The Board of Directors declared a $0.25 quarterly dividend per share, payable on August 15, 2017 to common shareholders of record on July 31, 2017.

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