Morgan Stanley (NYSE: MS) today reported net revenues of $8.5 billion for the second quarter ended June 30, 2013 compared with $6.9 billion a year ago. For the current quarter, income from continuing operations applicable to Morgan Stanley was $1.0 billion, or $0.43 per diluted share, 9 compared with income of $562 million, or $0.28 per diluted share, 9 for the same period a year ago. The earnings per share calculation for the current quarter included a negative adjustment of approximately $152 million, or $0.08 per diluted share, related to the previously announced purchase of the remaining interest in the Morgan Stanley Smith Barney Joint Venture. 4
Results for the current quarter included positive revenue related to changes in Morgan Stanley’s debt-related credit spreads and other credit factors (Debt Valuation Adjustment, DVA) 1 of $175 million, compared with $350 million a year ago.
Excluding DVA, net revenues for the current quarter were $8.3 billion compared with $6.6 billion a year ago and income from continuing operations applicable to Morgan Stanley was $898 million, or $0.37 per diluted share, compared with income of $337 million, or $0.16 per diluted share, a year ago. 3, 10 Earnings per diluted share in the current quarter included the negative adjustment related to the Morgan Stanley Smith Barney Joint Venture acquisition. 9
Compensation expense of $4.1 billion increased from $3.6 billion a year ago on higher revenues. Non-compensation expenses of $2.6 billion increased from $2.4 billion in the prior year reflecting increased litigation costs and higher volume driven expenses.For the current quarter, net income applicable to Morgan Stanley, including discontinued operations, was $0.41 per diluted share, compared with income of $0.29 per diluted share in the second quarter of 2012. 9
| Summary of Firm Results
(dollars in millions)
Excluding DVA 10
|Net||MS Income||Net||MS Income|
|Revenues||Cont. Ops.||Revenues||Cont. Ops.|
- Institutional Securities net revenues excluding DVA 11 were $4.2 billion reflecting strength in Equity sales and trading and Investment Banking, and improved results in Fixed Income & Commodities sales and trading.
- Wealth Management net revenues were $3.5 billion and pre-tax margin was 18.5%. 7 Fee based asset flows for the quarter were $10.0 billion and total client assets were $1.8 trillion at quarter end.
- Investment Management 6 reported net revenues of $673 million with assets under management or supervision of $347 billion.
Summary of Institutional Securities Results
(dollars in millions)
Excluding DVA 11
- Advisory revenues were $333 million compared with $263 million a year ago reflecting higher levels of completed activity. Equity underwriting revenues of $327 million increased from $283 million a year ago reflecting higher market volume. Fixed income underwriting revenues were $418 million compared with $338 million a year ago reflecting a more favorable debt underwriting environment.
- Fixed Income & Commodities sales and trading net revenues were $1.2 billion compared with $771 million a year ago reflecting higher revenues in foreign exchange and commodities. 13 The prior year quarter was also negatively impacted by period specific charges representing credit valuation allowances and other related adjustments.
- Equity sales and trading net revenues of $1.8 billion increased from $1.3 billion in the prior year quarter reflecting strong performance across all products and regions. 13
- Other revenues were $140 million compared with $41 million in the second quarter of last year, principally driven by strength in our Japanese securities joint venture, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.
- Compensation expense for the current quarter of $1.8 billion compared with $1.5 billion in the prior year quarter driven by higher revenues. Non-compensation expenses of $1.6 billion increased from $1.3 billion a year ago reflecting increased litigation costs and higher volume driven expenses.
- Morgan Stanley’s average trading Value-at-Risk (VaR) measured at the 95% confidence level was $61 million compared with $72 million in the first quarter of 2013 and $76 million in the second quarter of the prior year. 14
Summary of Wealth Management Results
(dollars in millions)
- Asset management fee revenues of $1.9 billion increased 4% from last year’s second quarter primarily reflecting an increase in fee based assets.
- Transactional revenues 15 of $1.0 billion increased from $908 million a year ago reflecting increased commissions and fees and higher trading and investment banking revenues.
- Compensation expense for the current quarter was $2.0 billion compared with $1.9 billion a year ago on higher revenues. Non-compensation expenses of $834 million decreased from $875 million a year ago driven by the absence of platform integration costs.
- Total client assets were $1.8 trillion at quarter end. Client assets in fee based accounts were $629 billion, or 35% of total client assets. Fee based asset flows for the quarter were $10.0 billion.
- Wealth Management representatives of 16,321 declined from 16,478 as of June 30, 2012. Average annualized revenue per representative of $866,000 and total client assets per representative of $109 million increased 12% and 10%, respectively, compared with the prior year quarter.
Summary of Investment Management Results
(dollars in millions)
- Net revenues of $673 million increased from $456 million in the prior year primarily reflecting gains on investments in the Merchant Banking business compared with prior year losses, and higher results in the Traditional Asset Management business. 17
- Compensation expense for the current quarter of $297 million increased from $214 million a year ago on higher revenues. Non-compensation expenses of $216 million increased from $199 million a year ago primarily on higher revenue related expenses.
- Assets under management or supervision at June 30, 2013 of $347 billion increased from $311 billion a year ago primarily reflecting positive flows and market appreciation. The business recorded positive net flows of $9.8 billion in the current quarter.
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