Morgan Stanley (NYSE: MS) today reported net revenues of $7.0 billion for the fourth quarter ended December 31, 2012 compared with $5.7 billion a year ago. For the current quarter, income from continuing operations applicable to Morgan Stanley was $573 million, or $0.28 per diluted share, 5 which included a net tax benefit of approximately $155 million, 6 or $0.08 per diluted share, compared with a loss of $222 million, or a loss of $0.13 per diluted share, 5 for the same period a year ago. The prior year fourth quarter included a pre-tax loss of approximately $1.7 billion, or a loss of $0.58 per diluted share, related to the comprehensive settlement with MBIA Insurance Corporation (MBIA).
Results for the current quarter included negative revenue of $511 million compared with positive revenue of $216 million 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 $7.5 billion compared with $5.5 billion a year ago and income from continuing operations applicable to Morgan Stanley was $894 million, or $0.45 per diluted share, compared with a loss of $349 million, or $0.20 loss per diluted share a year ago. 3, 5, 7
Compensation expense of $3.6 billion in the current quarter declined from $3.8 billion a year ago. Non-compensation expenses of $2.5 billion increased from $2.3 billion a year ago.For the current quarter, net income applicable to Morgan Stanley, including discontinued operations, was $0.25 per diluted share, compared with a net loss of $0.15 per diluted share in the fourth quarter of 2011. Discontinued operations in the current quarter includes a provision of approximately $115 million related to a settlement with the Federal Reserve Board concerning the independent foreclosure review related to Saxon. 8
|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 $3.5 billion and pre-tax margin was 17%. 9 Average annualized revenue per global representative was $824,000, highest since the inception of the Joint Venture.
- Institutional Securities net revenues excluding DVA were $3.5 billion reflecting strong performance in Investment Banking, solid results in Equity sales and trading and a decline in Fixed Income & Commodities sales and trading.
- Asset Management reported net revenues of $599 million with assets under management or supervision of $338 billion.
|Summary of Institutional Securities Results (dollars in millions)|
|As Reported||Excluding DVA (1)|
- Advisory revenues were $454 million compared with $406 million a year ago reflecting higher levels of market activity. Equity underwriting revenues were $237 million compared with $189 million a year ago reflecting higher market volume. Fixed income underwriting revenues were $534 million, our highest reported quarter, compared with $288 million a year ago.
- Fixed Income & Commodities sales and trading net revenues were $811 million compared with losses of $493 million a year ago. Fixed Income, after considering the impact of MBIA, reflected a decline in rates, partly offset by relative improvement in credit products. Commodities results declined meaningfully in a challenging market. 10
- Equity sales and trading net revenues of $1.3 billion were essentially unchanged from the prior year quarter, although stronger performances were noted in the derivatives and prime brokerage businesses. 10
- Compensation expense for the current quarter was $1.5 billion compared with $1.6 billion in the prior year quarter. Non-compensation expenses of $1.4 billion increased from $1.3 billion a year ago.
- Morgan Stanley’s average trading Value-at-Risk (VaR) measured at the 95% confidence level was $78 million compared with $63 million in the third quarter of 2012 and $105 million in the fourth quarter of the prior year. 11
|Summary of Global Wealth Management Group Results (dollars in millions)|
- Asset management fee revenues of $1.9 billion increased 16% from last year’s fourth quarter primarily reflecting an increase in fee based assets and positive flows.
- Transactional revenues 13 of $1.1 billion decreased 3% from a year ago reflecting reduced commissions and fees and a decrease in principal trading revenues driven by lower gains from investments associated with the Firm’s deferred compensation and co-investment plans, offset by higher investment banking revenues.
- Compensation expense for the current quarter was $2.0 billion compared with $2.1 billion a year ago. Non-compensation expenses were $901 million compared with $922 million a year ago.
- Total client assets were $1.8 trillion at quarter end. Client assets in fee based accounts were $573 billion, or 32% of total client assets. Global fee based asset flows for the quarter were $3.7 billion.
- Global representatives of 16,780 were relatively unchanged from the prior quarter. Average annualized revenue per global representative of $824,000 and total client assets per global representative of $106 million increased 13% and 14%, respectively, compared with the prior year quarter.
|Summary of Asset Management Results (dollars in millions)|
- Net revenues of $599 million increased from $424 million in last year’s fourth quarter primarily reflecting higher results in the Traditional Asset Management business and gains on principal investments in the Merchant Banking and Real Estate Investing businesses. 15
- Compensation expense for the current quarter was $168 million compared with $183 million a year ago. Non-compensation expenses of $210 million increased from $163 million a year ago on higher brokerage and clearing expenses.
- Assets under management or supervision at December 31, 2012 of $338 billion increased 18% from the prior year. The increase primarily reflected positive net customer flows in Morgan Stanley’s liquidity funds and market appreciation.
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