Net Revenues of $7.8 Billion and Earnings per Diluted Share of $0.48
Excluding DVA,1 Net Revenues of $7.3 Billion and Earnings per Diluted Share of $0.342,3,4
Continued Strength in Equity Sales and Trading; Investment Banking Ranked #1
in Global IPOs, #2 in Global Announced M&A5
Wealth Management Pre-Tax Margin of 23%6
NEW YORK, October 19, 2015 – Morgan Stanley (NYSE: MS) today reported net revenues of $7.8 billion for the third quarter ended September 30, 2015 compared with $8.9 billion a year ago. For the current quarter, net
income applicable to Morgan Stanley was $1.0 billion, or $0.48 per diluted share,7 compared with net income of $1.7 billion, or $0.83 per diluted share,7 for the same period a year ago. The earnings for the prior year third
quarter included a net discrete tax benefit of $237 million or $0.12 per diluted share.8
Excluding DVA, net revenues for the current quarter were $7.3 billion compared with $8.7 billion a year ago.1,4
Excluding DVA and the net discrete tax benefit in the prior year quarter, net income applicable to Morgan Stanley was $740 million, or $0.34 per diluted share, compared with net income of $1.3 billion, or $0.64 per diluted share in the prior year.3,4
Compensation expense of $3.4 billion decreased from $4.2 billion a year ago primarily driven by lower revenues.
Non-compensation expenses of $2.9 billion increased from $2.5 billion a year ago primarily reflecting a year over year increase in litigation reserves of approximately $250 million, which included an increase in the reserve related to the settlement of a credit default swap antitrust litigation matter.
The annualized return on average common equity was 5.6 percent in the current quarter, or 3.9 percent excluding DVA.9
Summary of Firm Results
(dollars in millions)
As Reported Excluding DVA 4
Net Net Income Net Net Income
Revenues App. to MS (a) Revenues App. to MS (a)
3Q 2015 $7,767 $1,018 $7,332 $740
2Q 2015 $9,743 $1,807 $9,561 $1,688
3Q 2014 $8,907 $1,693 $8,692 $1,556
a) Net income applicable to Morgan Stanley included net discrete tax benefits of $237 million in 3Q 2014.
Business Overview
Institutional Securities net revenues excluding DVA were $3.5 billion reflecting continued strength in Equity sales and trading, leadership in Investment Banking with notable strength in M&A and underperformance in Fixed Income & Commodities sales and trading.10
Wealth Management reported a pre-tax margin of 23% for the quarter on lower revenues of $3.6 billion.6
Fee based asset flows for the quarter were $7.7 billion.
Investment Management net revenues were $274 million reflecting losses in the Merchant Banking business, specifically in Asia private equity. Assets under management or supervision were $404 billion at the end of the quarter.
James P. Gorman, Chairman and Chief Executive Officer, said, “The volatility in global markets in the third quarter led to a difficult environment, impacting in particular our Fixed Income business and our Asia Merchant Banking business. The Firm benefited from the stability of the Wealth Management business, our ongoing leadership in Equities and the continued strength of our Investment Banking franchise. Our business model provides a steady foundation for the Firm as we navigate these challenging markets and focus intensely on addressing areas of underperformance.”
Summary of Institutional Securities Results
(dollars in millions)
As Reported Excluding DVA 10
Net Pre-Tax Net Pre-Tax
Revenues Income Revenues Income
3Q 2015 $3,904 $688 $3,469 $253
2Q 2015 $5,172 $1,622 $4,990 $1,440
3Q 2014 $4,516 $1,227 $4,301 $1,012
INSTITUTIONAL SECURITIES
Institutional Securities reported pre-tax income from continuing operations of $688 million compared with pretax income of $1.2 billion in the third quarter of last year. Net revenues for the current quarter were $3.9 billion compared with $4.5 billion a year ago. Excluding DVA, net revenues for the current quarter were $3.5 billion compared with $4.3 billion a year ago.1,10 The following discussion for sales and trading excludes DVA.
Advisory revenues of $557 million increased from $392 million a year ago on higher levels of M&A activity.
Equity underwriting revenues of $250 million decreased from $464 million a year ago reflecting significantly lower IPO volumes. Fixed income underwriting revenues of $374 million decreased from $484 million in the prior year quarter reflecting lower debt issuance volumes.
Equity sales and trading net revenues of $1.8 billion were unchanged from a year ago reflecting strength in prime brokerage and derivatives, partly offset by lower revenues in cash equities.11
Fixed Income & Commodities sales and trading net revenues of $583 million decreased from $997 million a year ago primarily reflecting difficult market conditions for our credit and securitized products businesses.11
Investment revenues of $113 million increased from $39 million a year ago driven by gains on business related investments.
Other revenues were negative $112 million for the current quarter reflecting mark-to-market losses on loans and commitments, compared with positive revenues of $224 million a year ago which included gains of approximately $185 million related to the sale of TransMontaigne and a retail property space.12
Compensation expense of $1.3 billion decreased from $1.8 billion a year ago on lower revenues. Noncompensation expenses of $1.9 billion for the current quarter increased from $1.5 billion a year ago primarily driven by the previously mentioned higher litigation costs.
Morgan Stanley’s average trading Value-at-Risk (VaR) measured at the 95% confidence level was $53 million compared with $54 million from the second quarter of 2015 and $42 million in the third quarter of the prior year.13
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