Morgan Stanley CEO Discusses Q3 2010 Results - Earnings Call Transcript

Morgan Stanley CEO Discusses Q3 2010 Results - Earnings Call Transcript
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Morgan Stanley (

MS

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Q3 2010 Earnings Call Transcript

October 20, 2010 11:00 am ET

Executives

James Gorman – President and CEO

Ruth Porat – CFO and EVP

Analysts

Glenn Schorr – Nomura

Guy Moszkowski – Bank of America

Roger Freeman – Barclays Capital

Mike Mayo – CLSA

Howard Chen – Credit Suisse

Michael Carrier – Deutsche Bank

Mark Lane – William Blair

Presentation

Operator

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Previous Statements by MS
» Morgan Stanley Q2 2010 Earnings Call Transcript
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» Morgan Stanley Q3 2009 Earnings Call Transcript

Welcome to the Morgan Stanley conference call. The following is a live broadcast by Morgan Stanley and is provided as a courtesy. Please note that this call is being broadcast on the Internet through the company's website at www.morganstanley.com. A replay of the call and webcast will be available through the company's website and by phone for a period of seven days.

This presentation may contain forward-looking statements. You 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 or beliefs and which are subject to risks and uncertainties that may cause actual results to differ materially.

For a discussion of additional risks and uncertainties that may affect the future results of Morgan Stanley, please see Morgan Stanley's Annual Report on Form 10-K for the year ended December 31st, 2009 Annual Report on Form 10-K, Morgan Stanley's quarterly reports on Form 10-Q, and Morgan Stanley’s current reports on Form 8-K.

The presentation may also include certain non-GAAP financial measures. The reconciliation of such measures to the comparable GAAP figures are included in Morgan Stanley's Annual Report on Form 10-K, Morgan Stanley’s quarterly reports on Form 10-Q, and Morgan Stanley's current reports on Form 8-K, which are available on Morgan Stanley's website, www.morganstanley.com. Any recording, rebroadcast or other use of this presentation in whole or in part without the prior written consent of Morgan Stanley is strictly prohibited. This presentation is copyrighted and proprietary to Morgan Stanley.

At this time, I would like to turn the program over to the President and Chief Executive Officer, James Gorman for today’s call.

James Gorman

Good morning, everyone and thank you for joining us. Before handing over the call here to Ruth, I wanted to give some brief remarks about our results and update you on our strategic initiatives.

Our quarterly financial results were clearly affected by the significant slowing of capital markets again last quarter and continued through the summer and into September. Volumes and client activity across our businesses, particularly in the first half of the quarter, were weak as institutional and retail investors continued to avoid risk assets.

That said, this quarter we achieved some key milestones in shaping our future and the firm delivered improved performance across investment banking, wealth management, and asset management. While these businesses performed well, our aggregate results for the quarter were disappointing and do not reflect the full potential of this franchise.

Morgan Stanley remains a work in progress. We are rebalancing the firm to more effectively leverage our capital base and balance sheet. We are adopting a model consistent with the legislative changes emanating from the Dodd-Frank bill and the regulatory changes being crystallized through Basel III.

We are reallocating our capital and our balance sheet away from proprietary businesses and reinvesting it in our client businesses. An initiative this quarter consistent with this rebalancing was the restructuring of our ownership in the hedge fund, FrontPoint Partners whereby we will significantly reduce our total ownership.

Within our business segments, we saw progress in many areas, although some businesses clearly remain subdued, most notably fixed income, as Ruth will detail in a moment. In institutional securities, we are broadening our client footprint and expanding our strengths and capabilities. This was evidenced by increased market share in all capital markets' underwriting products, as well as the improvement in our institutional investor rankings.

In global wealth management, while progress will never be a straight line, we saw improvement on our key metrics including pretax margin and net new money flows, while delivering steady revenue in a very challenging environment.

Encouragingly, retail investor activity appeared to bottom earlier in the quarter. The build of our technology platform is expected to be completed by the third quarter of next year, followed by a series of rollouts extending into 2012. Key decisions on the integration are being made and being executed. While this is a complex integration task, we have no major concerns about the plans or progress, although as we previously said, financial performance of the business is obviously somewhat market-dependent.

In asset management, we continue to restructure the business, as evidenced by our reduced ownership in FrontPoint Partners and the hiring of several talented executives into the long-only institutional business. We will be rolling out more detailed plans in coming months.

Let me finish briefly by commenting on the regulation environment. The regulatory changes are real, permanent and will fundamentally reshape the industry. With respect to capital, Ruth will outline the potential impact on our risk-weighted assets under the proposed framework. Morgan Stanley is embracing the changes, rapidly evolving our business model to position our firm to thrive in the future.

Now, please I'll turn it over to Ruth for more details on the specific third quarter results.

Ruth Porat

Thank you, James. For the quarter ended September 30, income from continuing operations applicable to Morgan Stanley was $313 million with diluted earnings per share of $0.05 after preferred dividend.

Our results this quarter reflected muted performance within our fixed income business. At the same time, corporate clients reengaged in investment banking and our wealth and asset management businesses delivered modestly higher profits with positive fund flows. Our revenues included the negative impact from the tightening of credit spreads on firm issued structured notes, commonly referred to as DVA, of approximately $731 million or $0.30 per share.

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