Morgan Stanley Reports Net Revenues of $13.1 Billion, EPS of
$1.39 and ROTCE of 13.8%
Morgan Stanley (NYSE: MS) today reported net revenues of
$13.1 billion for the second quarter ended June 30, 2022 compared
with $14.8 billion a year ago. Net income applicable to Morgan
Stanley was $2.5 billion, or $1.39 per diluted share,1 compared
with net income of $3.5 billion, or $1.85 per diluted share,1 for
the same period a year ago.
James P. Gorman, Chairman and Chief Executive Officer,
said, “Overall the Firm delivered a solid quarter in what was a
more volatile market environment than we have seen for some time.
Strong results in Equity and Fixed Income helped partially counter
weaker investment banking activity. We continue to attract positive
flows across our Wealth Management business, and Investment
Management continues to benefit from its diversification. Finally,
we finished the quarter in a strong capital position to ensure we
move forward with confidence.”
Financial Summary 2,3
Highlights
Firm ($ millions, except per share
data)
2Q
2022
2Q
2021
- The Firm reported solid results with net revenues of $13.1
billion demonstrating the strength of our diversified franchise as
the businesses navigated a challenging market environment.
- The Firm delivered ROTCE of 13.8%, or 14.3% excluding the
impact of integration-related expenses.4,5
- The Firm’s expense efficiency ratio was 74%, impacted by $200
million related to a specific regulatory matter concerning the use
of unapproved personal devices and the Firm’s record-keeping
requirements. In the first half of the year, the expense efficiency
ratio was 71%, or 70% excluding the impact of integration-related
expenses.5,6
- The Firm remains in a strong capital position with a
Standardized Common Equity Tier 1 capital ratio of 15.2%.
- Institutional Securities net revenues of $6.1 billion reflect
strong performance in Fixed Income and Equity as clients remained
engaged in volatile markets, while limited activity in Investment
Banking was impacted by the uncertain macroeconomic
environment.
- Wealth Management delivered a pre-tax
margin of 26.5% or 28.2% excluding integration-related expenses.5,7
Net revenues were $5.7 billion, negatively impacted by
mark-to-market losses on investments associated with certain
employee deferred compensation plans. The business added net new
assets of $53 billion in the quarter and $195 billion in the first
half of 2022. The quarter also saw continued growth in bank lending
and $29 billion of fee-based flows.
- Investment Management net revenues were $1.4 billion. The
diversified business delivered solid results despite lower equity
markets.
Net revenues
$13,132
$14,759
Provision for credit losses
$101
$73
Compensation expense
$5,550
$6,423
Non-compensation expenses
$4,162
$3,697
Pre-tax income8
$3,319
$4,566
Net income app. to MS
$2,495
$3,511
Expense efficiency ratio6
74%
69%
Earnings per diluted share
$1.39
$1.85
Book value per share
$54.46
$54.04
Tangible book value per share
$40.07
$40.12
Return on equity
10.1%
13.8%
Return on tangible equity4
13.8%
18.6%
Institutional Securities
Net revenues
$6,119
$7,092
Investment Banking
$1,072
$2,376
Equity
$2,960
$2,827
Fixed Income
$2,500
$1,682
Wealth Management
Net revenues
$5,736
$6,095
Fee-based client assets ($ billions)9
$1,717
$1,680
Fee-based asset flows ($ billions)10
$28.5
$33.7
Net new assets ($ billions)
$52.9
$71.2
Loans ($ billions)
$143.6
$114.7
Investment Management
Net revenues
$1,411
$1,702
AUM ($ billions)11
$1,351
$1,524
Long-term net flows ($ billions)12
$(3.5)
$13.5
Institutional Securities
Institutional Securities reported net revenues for the current
quarter of $6.1 billion compared with $7.1 billion a year ago.
Pre-tax income was $1.6 billion compared with $2.5 billion a year
ago.8
Investment Banking revenues down 55%
from a year ago:
- Advisory revenues decreased from a year ago driven by lower
levels of completed M&A transactions.
- Equity underwriting revenues significantly decreased from a
year ago on lower issuances given uncertainty in the markets.
- Fixed income underwriting revenues decreased from a year ago as
macroeconomic conditions contributed to lower issuances.
Equity net revenues up 5% from a year
ago:
- Equity net revenues increased from a year ago on continued
strong client engagement and elevated market volatility, with
particular strength in derivatives products and prime
brokerage.
Fixed Income net revenues up 49% from a
year ago:
- Fixed Income net revenues increased substantially from a year
ago reflecting strength in our macro businesses and in commodities
on increased client activity and volatility in the markets.
Other:
- Other revenues decreased from a year ago driven by
mark-to-market losses on corporate loans held for sale, net of
hedges, reflecting the widening of credit spreads in the quarter.
Mark-to-market losses on investments associated with certain
employee deferred compensation plans also contributed to the
decline.
($ millions)
2Q
2022
2Q
2021
Net Revenues
$6,119
$7,092
Investment Banking
$1,072
$2,376
Advisory
$598
$664
Equity underwriting
$148
$1,072
Fixed income underwriting
$326
$640
Equity
$2,960
$2,827
Fixed Income
$2,500
$1,682
Other
$(413)
$207
Provision for credit
losses
$82
$70
Total Expenses
$4,483
$4,524
Compensation
$2,050
$2,433
Non-compensation
$2,433
$2,091
Total Expenses:
- Compensation expense decreased from a year ago primarily driven
by a decline related to certain deferred compensation plans linked
to investment performance and the impact of lower revenues.
- Non-compensation expenses increased from a year ago primarily
driven by higher litigation costs, including $200 million related
to a specific regulatory matter concerning the use of unapproved
personal devices and the Firm’s record-keeping requirements, and
higher volume-related expenses.
Wealth Management
Wealth Management reported net revenues of $5.7 billion compared
with $6.1 billion a year ago. Pre-tax income was $1.5 billion
compared with $1.6 billion a year ago.8 Pre-tax margin was 26.5% in
the current quarter, or 28.2% excluding the impact of
integration-related expenses.5,7
Net revenues decreased 6% from a year
ago:
- Asset management revenues increased 2% reflecting higher asset
levels driven by continued positive fee-based flows, partially
offset by lower market levels compared to a year ago.
- Transactional revenues13 decreased 17% excluding the impact of
mark-to-market losses on investments associated with certain
employee deferred compensation plans. The decrease was driven by
lower client activity from a strong prior year period.
- Net interest income increased from a year ago on higher
interest rates and continued bank lending growth.
Total Expenses:
- Compensation expense decreased driven by a decline primarily
related to certain deferred compensation plans linked to investment
performance.
- Non-compensation expenses increased from a year ago primarily
driven by investments in technology, as well as higher marketing
and business development costs and integration-related
expenses.
($ millions)
2Q
2022
2Q
2021
Net Revenues
$5,736
$6,095
Asset management
$3,510
$3,447
Transactional13
$291
$1,172
Net interest income
$1,747
$1,255
Other
$188
$221
Provision for credit
losses
$19
$3
Total Expenses
$4,196
$4,456
Compensation
$2,895
$3,275
Non-compensation
$1,301
$1,181
Investment Management
Investment Management reported net revenues of $1.4 billion
compared with $1.7 billion a year ago. Pre-tax income was $249
million compared with $430 million a year ago.8
Net revenues down 17% from a year ago:
- Asset management and related fees decreased from a year ago
driven by lower AUM, primarily due to the decline in equity
markets.
- Performance-based income and other revenues decreased from a
year ago primarily reflecting mark-to-market losses on investments
associated with certain employee deferred compensation plans and
lower marks on public investments reflecting the decline in the
equity markets.
Total Expenses:
- Compensation expense decreased from a year ago primarily driven
by a decline related to certain deferred compensation plans linked
to investment performance.
($ millions)
2Q
2022
2Q
2021
Net Revenues
$1,411
$1,702
Asset management and related
fees
$1,304
$1,418
Performance-based income and
other
$107
$284
Total Expenses
$1,162
$1,272
Compensation
$605
$715
Non-compensation
$557
$557
Other Matters
- The Firm repurchased $2.7 billion of its outstanding common
stock during the quarter, completing our $12 billion buyback plan
that we announced last year.
- The Firm also announced a multi-year repurchase authorization
of up to $20 billion of outstanding common stock without a set
expiration date.
- The Board of Directors declared a $0.775 quarterly dividend per
share, an 11% increase from the current $0.70 per share dividend,
payable on August 15, 2022 to common shareholders of record on July
29, 2022.
- The Standardized Common Equity Tier 1 capital ratio was 15.2%,
190 basis points above the new aggregate standardized approach CET1
requirement beginning October 1, 2022.
2Q
2022
2Q
2021
Capital14
Standardized Approach
CET1 capital15
15.2%
16.6%
Tier 1 capital15
16.9%
18.3%
Advanced Approach
CET1 capital15
15.4%
17.7%
Tier 1 capital15
17.1%
19.5%
Leverage-based capital
Tier 1 leverage16
6.6%
7.5%
SLR17
5.4%
5.9%
Common Stock
Repurchases
Repurchases ($ millions)
$2,738
$2,939
Number of Shares (millions)
33
34
Average Price
$82.05
$86.21
Period End Shares
(millions)
1,723
1,834
Tax Rate
23.6%
23.1%
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 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,
including information provided on the Firm’s earnings conference
calls, may include certain non-GAAP financial measures. The
definition of such measures or reconciliation of such measures 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. For a discussion of
risks and uncertainties that may affect the future results of the
Firm, please see “Forward-Looking Statements” 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, 2021 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 of $104 million and $103 million for the second
quarter of 2022 and 2021, respectively.
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 position, 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 capital
adequacy. 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.
3 Our earnings releases, earnings conference calls, financial
presentations and other communications may also include certain
metrics which we believe to be useful to us, analysts, investors,
and other stakeholders by providing further transparency about, or
an additional means of assessing, our financial condition and
operating results.
4 Return on average tangible common equity and return on average
tangible common equity excluding integration-related expenses are
non-GAAP financial measures that the Firm considers useful for
analysts, investors and other stakeholders to allow comparability
of period-to-period operating performance and capital adequacy. The
calculation of return on average tangible common equity represents
full year or annualized net income applicable to Morgan Stanley
less preferred dividends as a percentage of average tangible common
equity. Tangible common equity, also a non-GAAP financial measure,
represents common equity less goodwill and intangible assets net of
allowable mortgage servicing rights deduction. The calculation of
return on average tangible common equity excluding
integration-related expenses is adjusted in both the numerator and
the denominator to exclude the integration-related expenses
associated with the acquisitions of E*TRADE and Eaton Vance.
5 The Firm’s and business segment’s second quarter results for
2022 and 2021 include integration-related expenses as a result of
the E*TRADE and Eaton Vance acquisitions reported in the Wealth
Management segment and Investment Management segment, respectively.
The amounts are presented as follows (in millions):
2Q
2022
2Q
2021
Firm
Compensation
$ 11
$ 25
Non-compensation
109
65
Total non-interest expenses
$ 120
$ 90
Total non-interest expenses
(after-tax)
$ 92
$ 69
Wealth
Management
Compensation
$ 4
$ 9
Non-compensation
92
51
Total non-interest expenses
$ 96
$ 60
Total non-interest expenses
(after-tax)
$ 74
$ 46
Investment
Management
Compensation
$ 7
$ 16
Non-compensation
17
14
Total non-interest expenses
$ 24
$ 30
Total non-interest expenses
(after-tax)
$ 18
$ 23
6 The Firm expense efficiency ratio represents total
non-interest expenses as a percentage of net revenues. The Firm
expense efficiency ratio excluding integration-related expenses is
a non-GAAP financial measure that the Firm considers useful for
analysts, investors and other stakeholders to allow comparability
of period-to-period operating performance.
7 Pre-tax margin represents income before taxes divided by net
revenues. Wealth Management pre-tax margin excluding the
integration-related expenses represents income before taxes less
those expenses divided by net revenues. Wealth Management pre-tax
margin excluding integration-related expenses is a non-GAAP
financial measure that the Firm considers useful for analysts,
investors and other stakeholders to allow comparability of
period-to-period operating performance.
8 Pre-tax income represents income before taxes.
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 (including asset acquisitions), net account
transfers, dividends, interest, and client fees, and exclude
institutional cash management related activity.
11 AUM is defined as assets under management or supervision.
12 Long-term net flows include the Equity, Fixed Income and
Alternative and Solutions asset classes and excludes the Liquidity
and Overlay Services asset class.
13 Transactional revenues include investment banking, trading,
and commissions and fee revenues. Transactional revenues excluding
the impact of mark-to-market gains/losses on investments associated
with certain employee deferred compensation plans is a non-GAAP
financial measure that the Firm considers useful for analysts,
investors and other stakeholders to allow better comparability of
period-to-period operating performance and capital adequacy.
14 Capital ratios are estimates as of the press release date,
July 14, 2022.
15 CET1 capital is defined as Common Equity Tier 1 capital. The
Firm’s risk-based capital ratios are computed under each of 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”). For
information on the calculation of regulatory capital and ratios,
and associated regulatory requirements, please refer to
"Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Liquidity and Capital Resources –
Regulatory Requirements" in the Firm’s Annual Report on Form 10-K
for the year ended December 31, 2021 (2021 Form 10-K).
16 The Tier 1 leverage ratio is a leverage-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.
17 The Firm’s supplementary leverage ratio (SLR) utilizes a Tier
1 capital numerator of approximately $77.8 billion and $84.6
billion, and supplementary leverage exposure denominator of
approximately $1.45 trillion and $1.44 trillion, for the second
quarter of 2022 and 2021, respectively.
Consolidated Income Statement
Information
(unaudited, dollars in
millions)
Quarter Ended
Percentage Change
From:
Six Months Ended
Percentage
Jun 30, 2022
Mar 31, 2022
Jun 30, 2021
Mar 31, 2022
Jun 30, 2021
Jun 30, 2022
Jun 30, 2021
Change
Revenues: Investment banking
$
1,150
$
1,758
$
2,560
(35
%)
(55
%)
$
2,908
$
5,400
(46
%)
Trading
3,597
3,983
3,330
(10
%)
8
%
7,580
7,555
--
Investments
23
75
381
(69
%)
(94
%)
98
699
(86
%)
Commissions and fees
1,220
1,416
1,308
(14
%)
(7
%)
2,636
2,934
(10
%)
Asset management
4,912
5,119
4,973
(4
%)
(1
%)
10,031
9,371
7
%
Other
(52
)
234
342
*
*
182
626
(71
%)
Total non-interest revenues
10,850
12,585
12,894
(14
%)
(16
%)
23,435
26,585
(12
%)
Interest income
3,612
2,650
2,212
36
%
63
%
6,262
4,649
35
%
Interest expense
1,330
434
347
*
*
1,764
756
133
%
Net interest
2,282
2,216
1,865
3
%
22
%
4,498
3,893
16
%
Net revenues
13,132
14,801
14,759
(11
%)
(11
%)
27,933
30,478
(8
%)
Provision for credit losses
101
57
73
77
%
38
%
158
(25
)
*
Non-interest expenses: Compensation and benefits
5,550
6,274
6,423
(12
%)
(14
%)
11,824
13,221
(11
%)
Non-compensation expenses: Brokerage, clearing and exchange
fees
878
882
795
--
10
%
1,760
1,705
3
%
Information processing and communications
857
829
765
3
%
12
%
1,686
1,498
13
%
Professional services
757
705
746
7
%
1
%
1,462
1,370
7
%
Occupancy and equipment
430
427
414
1
%
4
%
857
819
5
%
Marketing and business development
220
175
146
26
%
51
%
395
292
35
%
Other
1,020
864
831
18
%
23
%
1,884
1,688
12
%
Total non-compensation expenses
4,162
3,882
3,697
7
%
13
%
8,044
7,372
9
%
Total non-interest expenses
9,712
10,156
10,120
(4
%)
(4
%)
19,868
20,593
(4
%)
Income before provision for income taxes
3,319
4,588
4,566
(28
%)
(27
%)
7,907
9,910
(20
%)
Provision for income taxes
783
873
1,054
(10
%)
(26
%)
1,656
2,230
(26
%)
Net income
$
2,536
$
3,715
$
3,512
(32
%)
(28
%)
$
6,251
$
7,680
(19
%)
Net income applicable to nonredeemable noncontrolling interests
41
49
1
(16
%)
*
90
49
84
%
Net income applicable to Morgan Stanley
2,495
3,666
3,511
(32
%)
(29
%)
6,161
7,631
(19
%)
Preferred stock dividend
104
124
103
(16
%)
1
%
228
241
(5
%)
Earnings applicable to Morgan Stanley common shareholders
$
2,391
$
3,542
$
3,408
(32
%)
(30
%)
$
5,933
$
7,390
(20
%)
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, Definitions of
Performance Metrics and Terms, Supplemental Quantitative Details
and Calculations, and Legal Notice for additional information.
Consolidated Financial
Metrics, Ratios and Statistical Data
(unaudited)
Quarter Ended
Percentage Change
From:
Six Months Ended
Percentage
Jun 30, 2022
Mar 31, 2022
Jun 30, 2021
Mar 31, 2022
Jun 30, 2021
Jun 30, 2022
Jun 30, 2021
Change
Financial Metrics: Earnings per basic share
$
1.40
$
2.04
$
1.88
(31
%)
(26
%)
$
3.45
$
4.10
(16
%)
Earnings per diluted share
$
1.39
$
2.02
$
1.85
(31
%)
(25
%)
$
3.41
$
4.04
(16
%)
Return on average common equity
10.1
%
14.7
%
13.8
%
12.4
%
15.3
%
Return on average tangible common equity
13.8
%
19.8
%
18.6
%
16.8
%
19.8
%
Book value per common share
$
54.46
$
54.18
$
54.04
$
54.46
$
54.04
Tangible book value per common share
$
40.07
$
39.91
$
40.12
$
40.07
$
40.12
Excluding integration-related expenses Adjusted earnings per
diluted share
$
1.44
$
2.06
$
1.89
(30
%)
(24
%)
$
3.51
$
4.11
(15
%)
Adjusted return on average common equity
10.5
%
15.0
%
14.1
%
12.8
%
15.6
%
Adjusted return on average tangible common equity
14.3
%
20.3
%
19.0
%
17.3
%
20.1
%
Financial Ratios: Pre-tax profit margin
25
%
31
%
31
%
28
%
33
%
Compensation and benefits as a % of net revenues
42
%
42
%
44
%
42
%
43
%
Non-compensation expenses as a % of net revenues
32
%
26
%
25
%
29
%
24
%
Firm expense efficiency ratio
74
%
69
%
69
%
71
%
68
%
Firm expense efficiency ratio excluding integration-related
expenses
73
%
68
%
68
%
70
%
67
%
Effective tax rate
23.6
%
19.0
%
23.1
%
20.9
%
22.5
%
Statistical Data: Period end common
shares outstanding (millions)
1,723
1,756
1,834
(2
%)
(6
%)
Average common shares outstanding (millions) Basic
1,704
1,733
1,814
(2
%)
(6
%)
1,718
1,804
(5
%)
Diluted
1,723
1,755
1,841
(2
%)
(6
%)
1,739
1,829
(5
%)
Worldwide employees
78,386
76,541
71,826
2
%
9
%
Notes: ‐ For the quarters ended June 30, 2022,
March 31, 2022 and June 30, 2021, Firm results include pre-tax
integration-related expenses of $120 million, $107 million and $90
million ($92 million, $82 million and $69 million after-tax)
respectively, reported in the Wealth Management and Investment
Management business segments. The six months ended June 30, 2022
and 2021 results include pre-tax integration-related expenses of
$227 million and $165 million ($174 million and $127 million
after-tax), respectively. - 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, Definitions of
Performance Metrics and Terms, Supplemental Quantitative Details
and Calculations, and Legal Notice for additional information.
View source
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Media Relations: Wesley McDade 212-761-2430
Investor Relations: Leslie Bazos 212-761-5352
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