Net Revenues of $9.7 Billion and Earnings per Diluted Share of $1.00
• Strong Performance in Sales & Trading and Investment Banking
• Wealth Management Revenues of $4.1 Billion and Pre-Tax Margin of 24%1, 2
• Maintained Expense Discipline with Firm Efficiency Ratio of 71%3
James P. Gorman, Chairman and Chief Executive Officer, said,
“We reported one of our strongest quarters in recent years. All our businesses performed well in improved market conditions. We are confident in our business model and the opportunities ahead, while recognizing that the environment remains uncertain.”
Financial Overview
Morgan Stanley reported net revenues of $9.7 billion for the first quarter ended March 31, 2017 compared with $7.8 billion a year ago. For the current quarter, net income applicable to Morgan Stanley was $1.9 billion, or $1.00 per diluted share, compared with net income of $1.1 billion, or $0.55 per diluted share, for the same period a year ago.
Compensation expense of $4.5 billion increased from $3.7 billion a year ago driven by higher revenues. Noncompensation
expenses of $2.5 billion compared with $2.4 billion a year ago.
The effective tax rate for the current quarter was 29.0%, which reflected a recurring-type of discrete tax benefit of $112 million associated with new accounting guidance related to employee share-based payments.
The annualized return on average common equity was 10.7 percent in the current quarter.
Business Highlights
Institutional Securities net revenues were $5.2 billion reflecting strength in our sales and trading franchise and improved underwriting results.
• Wealth Management net revenues were $4.1 billion and pre-tax margin was 24%. Fee-based asset flows for the quarter were $18.8 billion.
• Investment Management net revenues were $609 million with assets under management of $421 billion
Institutional Securities
Institutional Securities reported pre-tax income from continuing operations of $1.7 billion compared with pretax income of $908 million a year ago. Net revenues for the current quarter were $5.2 billion compared with $3.7 billion a year ago.
• Investment Banking revenues of $1.4 billion increased from $990 million a year ago:
• Sales and Trading net revenues of $3.5 billion increased from $2.7 billion a year ago:
• Other revenues of $173 million increased from $4 million a year ago reflecting mark-to-market gains on held for sale loans and commitments and a smaller increase in the allowance for credit losses.
• Compensation expense of $1.9 billion increased from $1.4 billion a year ago driven by higher revenues. Non-compensation expenses of $1.6 billion for the current quarter increased by $128 million from the prior year, primarily reflecting higher litigation costs and volume driven expenses.
Morgan Stanley’s average trading Value-at-Risk (VaR) measured at the 95% confidence level was $44 million compared with $39 million from the fourth quarter of 2016 and $46 million in the first quarter of the prior year.
Wealth Management
Wealth Management reported pre-tax income from continuing operations of $973 million compared with $786 million in the first quarter of last year. The quarter’s pre-tax margin was 24%.2 Net revenues for the current quarter were $4.1 billion compared with $3.7 billion a year ago.
• Asset management fee revenues of $2.2 billion increased from $2.1 billion a year ago reflecting market appreciation and positive flows.
• Transactional revenues9 of $823 million increased from $727 million a year ago primarily reflecting gains on investments associated with certain employee deferred compensation plans.
• Net interest income of $994 million increased from $831 million a year ago on loan growth and higher interest rates. Wealth Management client liabilities were $74 billion at quarter end, an increase of $8 billion compared with the prior year quarter.10
• Compensation expense for the current quarter of $2.3 billion increased from $2.1 billion a year ago driven by higher revenues and an increase in the fair value of deferred compensation plan referenced investments. Non-compensation expenses of $768 million decreased from $794 million a year ago on lower professional services costs.
Total client assets for the quarter were $2.2 trillion and client assets in fee-based accounts were $927 billion at quarter end. Fee-based asset flows for the quarter were $18.8 billion.
Wealth Management representatives of 15,777 produced average annualized revenue per representative of $1.0 million in the current quarter.
Investment Management
Investment Management reported pre-tax income from continuing operations of $103 million compared with $44 million in the first quarter of last year.
• Net revenues of $609 million increased from $477 million in the prior year primarily driven by investment gains in certain private equity and real estate funds compared with losses in the prior year period. Asset management fees were essentially unchanged from a year ago.
• Compensation expense for the current quarter of $279 million increased from $213 million a year ago principally due to an increase in deferred compensation associated with carried interest. Noncompensation expenses of $227 million were relatively unchanged from a year ago.
• Assets under management or supervision at March 31, 2017 were $421 billion.
Capital
As of March 31, 2017, the Firm’s Common Equity Tier 1 and Tier 1 risk-based capital ratios under Advanced Approach transitional provisions were approximately 17.4% and 19.9%, respectively.
As of March 31, 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 16.6% and 6.4%, respectively.
At March 31, 2017, book value and tangible book value per common share were $37.48 and $32.49,14 respectively, based on approximately 1.9 billion shares outstanding.
Other Matters
During the quarter ended March 31, 2017, the Firm repurchased approximately $750 million of its common stock or approximately 17 million shares.
The Board of Directors declared a $0.20 quarterly dividend per share, payable on May 15, 2017 to common shareholders of record on May 1, 2017.
Re-disseminated by The Asian Banker