Morgan Stanley (NYSE: MS) today reported net revenues of $5.3 billion for the third quarter ended September 30, 2012 compared with $9.8 billion a year ago. For the current quarter, the loss from continuing operations applicable to Morgan Stanley was $1.0 billion, or a loss of $0.55 per diluted share, 7 compared with income of $2.2 billion, or $1.14 per diluted share, 7 for the same period a year ago.
Results for the quarter included negative revenue of $2.3 billion compared with positive revenue of $3.4 billion a year ago related to changes in Morgan Stanley’s debt-related credit spreads and other credit factors (Debt Valuation Adjustment, DVA). 1
Excluding DVA, net revenues for the current quarter were $7.6 billion compared with $6.4 billion a year ago and income from continuing operations applicable to Morgan Stanley was $561 million, or $0.28 per diluted share, compared with income of $64 million, or $0.02 a year ago. 3, 7, 8
Compensation expense of $3.9 billion increased from $3.6 billion a year ago. Non-compensation expenses of $2.8 billion increased from $2.5 billion a year ago primarily due to litigation costs reported in Institutional Securities and non-recurring expenses associated with the Morgan Stanley Wealth Management (MSWM) 9 integration.For the current quarter, the net loss applicable to Morgan Stanley, including discontinued operations, was $0.55 per diluted share, compared with net income of $1.15 per diluted share in the third quarter of 2011.
| Summary of Firm Results
(dollars in millions)
|As Reported||Excluding DVA (2), (3)|
|Net||MS Earnings||Net||MS Earnings|
|Revenues||Cont. Ops. (1)||Revenues||Cont. Ops. (1)|
- Global Wealth Management Group net revenues were $3.3 billion and global fee based asset flows were $7.5 billion.
- Institutional Securities net revenues excluding DVA were $3.6 billion compared with $3.0 billion a year ago with higher revenues in Fixed Income & Commodities sales and trading and Investment Banking. The Firm ranked #1 in global IPOs, #2 in global announced M&A and #3 in global Equity. 10
- Asset Management reported net revenues of $631 million with assets under management or supervision of $331 billion.
| Summary of Institutional Securities Results
(dollars in millions)
|As Reported||Excluding DVA (1)|
- Advisory revenues were $339 million compared with $413 million a year ago reflecting lower completed market volumes. Equity underwriting revenues were $199 million compared with $239 million a year ago. Fixed income underwriting revenues were $431 million compared with $212 million a year ago reflecting increased bond issuance volumes and higher market share in investment grade debt.
- Fixed Income & Commodities sales and trading net revenues were $1.5 billion compared with $1.1 billion a year ago. The increase in net revenues from last year’s third quarter reflected higher results in interest rate products and gains in credit products compared to losses in the prior year quarter. 11
- Equity sales and trading net revenues were $1.2 billion compared with $1.3 billion in the prior year quarter primarily reflecting lower market volumes. 11
- Other sales and trading net losses were $164 million compared with losses of $444 million in last year’s third quarter primarily driven by gains associated with corporate lending activity.
- Investment gains were $74 million compared with losses of $119 million in the prior year quarter.
- Compensation expense was $1.6 billion compared with $1.5 billion a year ago. Non-compensation expenses of $1.7 billion increased from $1.4 billion a year ago primarily due to increased litigation costs of approximately $280 million.
- Morgan Stanley’s average trading Value-at-Risk (VaR) measured at the 95% confidence level was $63 million compared with $76 million in second quarter of 2012 and $99 million in the third quarter of the prior year. The Firm modified its VaR model this quarter to make it more responsive to recent market conditions. The model has been approved by the Firm’s regulators for use in the Firm’s regulatory capital calculations. VaR has been recast for all periods to reflect this enhancement. 12
| Summary of Global Wealth Management Group Results
(dollars in millions)
- Asset management fee revenues of $1.8 billion increased 3% from the prior year quarter primarily reflecting an increase in fee based assets and positive flows.
- Transactional revenues 14 of $1.0 billion were essentially unchanged from a year ago primarily reflecting reduced commissions and fees on lower levels of client activity, offset by higher principal trading revenues driven by higher fixed income secondary trading and net gains from investments associated with the Firm’s deferred compensation and co-investment plans.
- Compensation expense was $2.1 billion compared with $2.0 billion a year ago. Non-compensation expenses of $1.0 billion increased from $884 million a year ago reflecting non-recurring costs of approximately $176 million primarily associated with the MSWM integration. 5
- Total client assets were $1.8 trillion at quarter end. Client assets in fee based accounts were $556 billion, or 31% of total client assets. Global fee based asset flows for the quarter were $7.5 billion.
- Global representatives of 16,829 were essentially unchanged from the prior quarter. Average annualized revenue per global representative was $790,000 and total client assets per global representative were $105 million in the current quarter.
| Summary of Asset Management Results
(dollars in millions)
- Net revenues of $631 million increased from $205 million a year ago reflecting solid results in the Traditional Asset Management business and gains on principal investments in the Merchant Banking and Real Estate Investing businesses compared with losses in the prior year quarter. 16
- Compensation expense was $241 million compared with $132 million a year ago. Non-compensation expenses of $192 million were essentially unchanged from a year ago.
- Assets under management or supervision at September 30, 2012 of $331 billion increased from $268 billion a year ago. The increase primarily reflected net customer inflows in Morgan Stanley’s liquidity funds and market appreciation. The business recorded positive net flows of $10.8 billion in the current quarter, which included approximately $4.5 billion related to the conversion of MSWM client balances into liquidity funds, compared with net outflows of $5.8 billion in the third quarter of last year.