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Jan. 16, 2020, 7:15 a.m. EST

Morgan Stanley Fourth Quarter and Full Year 2019 Earnings Results

Morgan Stanley Reports Fourth Quarter Net Revenues of $10.9 Billion and EPS of $1.30; Full Year Net Revenues of $41.4 Billion and EPS of $5.19

Morgan Stanley /zigman2/quotes/209104354/composite MS +1.42% today reported net revenues of $10.9 billion for the fourth quarter ended December 31, 2019 compared with $8.5 billion a year ago. Net income applicable to Morgan Stanley was $2.2 billion, or $1.30 per diluted share, [1] compared with net income of $1.5 billion, or $0.80 per diluted share, [1] for the same period a year ago. The current quarter included an intermittent net discrete tax benefit of $158 million or $0.10 per diluted share compared with an intermittent net discrete tax benefit of $111 million or $0.07 per diluted share a year ago. [2] The fourth quarter of 2019 was also impacted by severance costs of $172 million associated with a December employee action. [3]

Full year net revenues were a record $41.4 billion compared with $40.1 billion a year ago. Net income applicable to Morgan Stanley for the current year was $9.0 billion, or $5.19 per diluted share, [1] compared with net income of $8.7 billion, or $4.73 per diluted share, [1] a year ago. The current year included an intermittent net discrete tax benefit of $348 million, or $0.21 per diluted share compared with an intermittent net discrete tax benefit of $203 million or $0.12 per diluted share a year ago. [2]

James P. Gorman, Chairman and Chief Executive Officer, said, “We delivered strong quarterly earnings across all of our businesses. Firmwide revenues were over $10 billion for the fourth consecutive quarter, resulting in record full year revenues and net income. This consistent performance met all of our stated performance targets.”

            Highlights
Firm ($MM, except per share data) 4Q 2019 4Q 2018   FY 2019 FY 2018  
             
Net revenues $10,857 $8,548   $41,419 $40,107
Compensation expense $5,228 $3,787   $18,837 $17,632
Non-compensation expenses $2,896 $2,904   $11,281 $11,238
Pre-tax income [7] $2,733 $1,857   $11,301 $11,237
Net income app. to MS $2,239 $1,531   $9,042 $8,748
Expense efficiency ratio [8] 75% 78%   73% 72%
Earnings per diluted share $1.30 $0.80   $5.19 $4.73
Book value per share $45.82 $42.20   $45.82 $42.20
Tangible book value per share $40.01 $36.99   $40.01 $36.99
Return on equity [5] 11.3% 7.7%   11.7% 11.8%
Return on tangible equity [5] 13.0% 8.8%   13.4% 13.5%
Institutional Securities          
Net revenues $5,054 $3,839   $20,386 $20,582
Investment Banking $1,576 $1,417   $5,734 $6,088
Sales & Trading $3,194 $2,487   $13,695 $13,777
Wealth Management          
Net revenues $4,582 $4,144   $17,737 $17,242
Fee-based client assets ($Bn) [9] $1,267 $1,046   $1,267 $1,046
Fee-based asset flows ($Bn) [10] $24.9 $16.2   $64.9 $65.9
Loans ($Bn) $80.1 $72.2   $80.1 $72.2
Investment Management          
Net revenues $1,356 $684   $3,763 $2,746
AUM ($Bn) [11] $552 $463   $552 $463
Long-term net flows ($Bn) [12] $6.7 $(3.2)   $15.4 $4.8

Fourth Quarter Results

Institutional Securities

Institutional Securities reported net revenues for the current quarter of $5.1 billion compared with $3.8 billion a year ago. Pre-tax income was $1.1 billion compared with $780 million a year ago. [7]
           
Investment Banking revenues up 11% from a year ago:     ($ millions) 4Q 2019 4Q 2018  
    Net Revenues $5,054 $3,839  
    Investment Banking $1,576 $1,417  
Advisory $654 $734
      Equity underwriting $422 $323  
Fixed income underwriting $500 $360
Sales and Trading net revenues up 28% from a year ago:  
    Sales and Trading $3,194 $2,487  
    Equity $1,920 $1,929  
    Fixed Income $1,273 $564  
    Other $1 $(6)  
           
    Investments and Other $284 $(65)  
Investments and Other:     Investments $68 $(52)  
    Other $216 $(13)  
           
    Total Expenses $3,929 $3,059  
    Compensation $2,057 $1,179  
Total Expenses:     Non-compensation $1,872 $1,880  
           
           
           

Wealth Management

Wealth Management reported net revenues for the current quarter of $4.6 billion compared with $4.1 billion a year ago. Pre-tax income of $1.2 billion [7] in the current quarter resulted in a pre-tax margin of 25.4%. [6]
Net revenues up 11% from a year ago:      
($ millions) 4Q 2019 4Q 2018
Net Revenues $4,582 $4,144
Asset management $2,655 $2,576
Transactional [13] $829 $422
Net interest $1,033 $1,095
Other $65 $51
     
Total Expenses: Total Expenses $3,419 $3,134
Compensation $2,590 $2,286
Non-compensation $829 $848
     
     

Investment Management

Investment Management reported net revenues of $1.4 billion compared with $684 million a year ago. Pre-tax income was $447 million compared with $74 million a year ago. [7]
         
Net revenues up 98% from a year ago:   ($ millions) 4Q 2019 4Q 2018  
  Net Revenues $1,356 $684  
  Asset management $736 $628  
  Investments $670 $82  
  Other $(50) $(26)  
         
  Total Expenses $909 $610  
Total Expenses:   Compensation $581 $322  
  Non-compensation $328 $288  
         
         

Full Year Results

Institutional Securities

     
($ millions) FY 2019 FY 2018
Net Revenues $20,386 $20,582
Investment Banking $5,734 $6,088
Sales and Trading $13,695 $13,777
Investments $325 $182
Other $632 $535
     
Total Expenses $14,896 $14,322
Compensation $7,433 $6,958
Non-compensation $7,463 $7,364
     
     

Wealth Management

         
  ($ millions) FY 2019 FY 2018  
  Net Revenues $17,737 $17,242  
  Asset management $10,199 $10,158  
  Transactional [13] $2,969 $2,558  
  Net interest $4,222 $4,277  
  Other $347 $249  
         
  Total Expenses $12,905 $12,721  
  Compensation $9,774 $9,507  
  Non-compensation $3,131 $3,214  
         
         
 

Investment Management

         
  ($ millions) FY 2019 FY 2018  
  Net Revenues $3,763 $2,746  
  Asset management $2,629 $2,468  
  Investments $1,213 $254  
  Other $(79) $24  
         
  Total Expenses $2,778 $2,282  
  Compensation $1,630 $1,167  
  Non-compensation $1,148 $1,115  
         
         
         
         

Other Matters

    4Q 2019 4Q 2018 FY 2019 FY 2018  
  Common Stock Repurchases  
  Repurchases ($MM) $1,500 $1,180 $5,360 $4,860  
  Number of Shares (MM) 31 27 121 97  
  Average Price $48.49 $43.77 $44.23 $50.08  
  Period End Shares (MM) 1,594 1,700 1,594 1,700  
  Tax Rate 15.7% 16.2% 18.3% 20.9%  
  Capital15          
  Common Equity Tier 1 capital [16] 16.4% 16.9%      
  Tier 1 capital [16] 18.6% 19.2%      
  Tier 1 leverage [17] 8.2% 8.4%      
  SLR [18] 6.3% 6.5%      

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. The Firm does not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date such forward-looking statements were made. 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, the Firm’s Quarterly Reports on Form 10-Q 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 for the fourth quarter of 2019 and 2018 of approximately $154 million and $170 million, respectively. Includes preferred dividends related to the calculation of earnings per share for the years ended 2019 and 2018 of approximately $530 million and $526 million, respectively.

[2] The intermittent net discrete tax benefits in the current and prior year periods were primarily associated with remeasurement of reserves as a result of new information pertaining to the resolution of multi-jurisdiction tax examinations and other tax matters.

[3] The Firm recorded severance costs of $172 million in the fourth quarter of 2019, associated with a business unit and infrastructure December employee action, which were reported in the business segments’ results as follows: Institutional Securities $124 million, Wealth Management $37 million and Investment Management $11 million.

[4] 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.

[5] Return on average common equity and 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 full year net income or annualized net income applicable for the quarter applicable to Morgan Stanley less preferred dividends as a percentage of average common equity and average tangible common equity, respectively. Tangible common equity, also a non-GAAP financial measure, represents common equity less goodwill and intangible assets net of allowable mortgage servicing rights deduction.

[6] 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.

[7] 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.

[8] The Firm expense efficiency ratio represents total non-interest expenses as a percentage of net revenues.

[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, January 16, 2020.

[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 December 31, 2019 and December 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 the Firm’s Annual Report on Form 10-K for the year ended December 31, 2018.

[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 ratio of 5% inclusive of a capital buffer of at least 2% 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 $73.3 billion and $70.6 billion, and supplementary leverage exposure denominator of approximately $1.16 trillion and $1.09 trillion, for the fourth quarter of 2019 and 2018, respectively.

 
Morgan Stanley
Consolidated Income Statement Information
(unaudited, dollars in millions)
 
Quarter Ended Percentage Change From: Twelve Months Ended Percentage
Dec 31, 2019 Sep 30, 2019 Dec 31, 2018 Sep 30, 2019 Dec 31, 2018 Dec 31, 2019 Dec 31, 2018 Change
Revenues:
Investment banking $ 1,696 $ 1,635 $ 1,488 4% 14% $ 6,163 $ 6,482 (5%)
Trading 2,314 2,608 1,736 (11%) 33% 11,095 11,551 (4%)
Investments 739 87 28 * * 1,540 437 *
Commissions and fees 984 990 1,046 (1%) (6%) 3,919 4,190 (6%)
Asset management 3,451 3,363 3,266 3% 6% 13,083 12,898 1%
Other [] 240 131 (5) 83% * 925 743 24%
Total non-interest revenues 9,424 8,814 7,559 7% 25% 36,725 36,301 1%
 
Interest income 3,952 4,350 4,111 (9%) (4%) 17,098 13,892 23%
Interest expense 2,519 3,132 3,122 (20%) (19%) 12,404 10,086 23%
Net interest 1,433 1,218 989 18% 45% 4,694 3,806 23%
Net revenues 10,857 10,032 8,548 8% 27% 41,419 40,107 3%
 
Non-interest expenses:
Compensation and benefits 5,228 4,427 3,787 18% 38% 18,837 17,632 7%
 
Non-compensation expenses:
Occupancy and equipment 375 353 358 6% 5% 1,428 1,391 3%
Brokerage, clearing and exchange fees 633 637 598 (1%) 6% 2,493 2,393 4%
Information processing and communications 567 557 529 2% 7% 2,194 2,016 9%
Marketing and business development 200 157 220 27% (9%) 660 691 (4%)
Professional services 555 531 605 5% (8%) 2,137 2,265 (6%)
Other 566 660 594 (14%) (5%) 2,369 2,482 (5%)
Total non-compensation expenses 2,896 2,895 2,904 -- -- 11,281 11,238 --
 
Total non-interest expenses 8,124 7,322 6,691 11% 21% 30,118 28,870 4%
 
Income (loss) from continuing operations before taxes 2,733 2,710 1,857 1% 47% 11,301 11,237 1%
Income tax provision / (benefit) from continuing operations 428 492 300 (13%) 43% 2,064 2,350 (12%)
Income (loss) from continuing operations 2,305 2,218 1,557 4% 48% 9,237 8,887 4%
Gain (loss) from discontinued operations after tax 0 0 1 -- * 0 (4) *
Net income (loss) $ 2,305 $ 2,218 $ 1,558 4% 48% $ 9,237 $ 8,883 4%
Net income applicable to nonredeemable noncontrolling interests 66 45 27 47% 144% 195 135 44%
Net income (loss) applicable to Morgan Stanley 2,239 2,173 1,531 3% 46% 9,042 8,748 3%
Preferred stock dividend / Other 154 113 170 36% (9%) 530 526 1%
Earnings (loss) applicable to Morgan Stanley common shareholders $ 2,085 $ 2,060 $ 1,361 1% 53% $ 8,512 $ 8,222 4%
____________________________
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.
10
Morgan Stanley
Consolidated Financial Metrics, Ratios and Statistical Data
(unaudited)
Quarter Ended Percentage Change From: Twelve Months Ended Percentage
Dec 31, 2019 Sep 30, 2019 Dec 31, 2018 Sep 30, 2019 Dec 31, 2018 Dec 31, 2019 Dec 31, 2018 Change
 
Financial Metrics:
 
Earnings per basic share $ 1.33 $ 1.28 $ 0.81 4% 64% $ 5.26 $ 4.81 9%
Earnings per diluted share $ 1.30 $ 1.27 $ 0.80 2% 63% $ 5.19 $ 4.73 10%
 
Return on average common equity 11.3% 11.2% 7.7% 11.7% 11.8%
Return on average tangible common equity 13.0% 12.9% 8.8% 13.4% 13.5%
 
Book value per common share $ 45.82 $ 45.49 $ 42.20 $ 45.82 $ 42.20
Tangible book value per common share $ 40.01 $ 39.73 $ 36.99 $ 40.01 $ 36.99
 
Excluding intermittent net discrete tax provision / benefit
Adjusted earnings per diluted share $ 1.20 $ 1.21 $ 0.73 (1%) 64% $ 4.98 $ 4.61 8%
Adjusted return on average common equity 10.5% 10.7% 7.1% 11.2% 11.5%
Adjusted return on average tangible common equity 12.0% 12.3% 8.1% 12.9% 13.2%
 
 
Financial Ratios:
 
Pre-tax profit margin 25% 27% 22% 27% 28%
Compensation and benefits as a % of net revenues 48% 44% 44% 45% 44%
Non-compensation expenses as a % of net revenues 27% 29% 34% 27% 28%
Firm expense efficiency ratio 75% 73% 78% 73% 72%
Effective tax rate from continuing operations 15.7% 18.2% 16.2% 18.3% 20.9%
 
 
Statistical Data:
 
Period end common shares outstanding (millions) 1,594 1,624 1,700 (2%) (6%)
Average common shares outstanding (millions)
Basic 1,573 1,604 1,674 (2%) (6%) 1,617 1,708 (5%)
Diluted 1,602 1,627 1,705 (2%) (6%) 1,640 1,738 (6%)
 
Worldwide employees 60,431 60,532 60,348 -- --
____________________________
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.
11

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20200116005395/en/

SOURCE: Morgan Stanley

Media Relations: Wesley McDade 212-761-2430 Investor Relations: Sharon Yeshaya 212-761-1632

Copyright Business Wire 2020

/zigman2/quotes/209104354/composite
US : U.S.: NYSE
$ 56.31
+0.79 +1.42%
Volume: 6.07M
Feb. 19, 2020 4:10p
P/E Ratio
10.86
Dividend Yield
2.49%
Market Cap
$89.86 billion
Rev. per Employee
$831,709
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