Morgan Stanley (MS)

Q4 2010 Earnings Call

January 20, 2011 11:00 am ET


James Gorman - Chief Executive Officer, President and Director

Ruth Porat - Chief Financial Officer, Executive Vice President and Member of Management Committee


Jeffrey Harte - Sandler O'Neill & Partners L.P.

Glenn Schorr - UBS

Michael Carrier - Deutsche Bank AG

Guy Moszkowski - BofA Merrill Lynch

Howard Chen - Crédit Suisse AG

Michael Mayo - Credit Agricole Securities (USA) Inc.

Roger Freeman - Barclays Capital


Question-and-Answer Session

Ruth Porat

Sure. We were pleased to see continued retail investor engagement in the fourth quarter, and that is reflected in higher transactional revenues. The integration process is moving very much on track. As you look at what does that mean and how do we look at the overall PBT targets, we're still very much focused on PBT of 20%. That's market dependent. And so, just a couple of pieces as you look through 2011 and beyond. First of all, retail activity was important. It helped drive the transaction revenues. I would caution you, there are fewer trading days in the first quarter of '11, that's relevant. But as we look forward, the market remains constructive, the building blocks to get to that 20% PBT margin are, to your point, completion of the integration and the drag that comes from the spend. But it's also a function of building up our Lending business, as we talked about before. Because with the Lending business, we have the benefit of driving a non-compensable revenue, which are an important part to reducing our overall compensation ratio in the business. The third element, the PBT margin expansion, is market dependent. We've said that. But just to give you a couple of data points that might be helpful. Every 100-point change in the S&P, we estimate impacts margin around 1%, all else being equal. And that's not looking at kind of investor psyche and reaction, but it's really more on the Asset Management fee side. Similarly, every 50 basis-point change in fed funds can impact margin around 1% as well. So it's really those elements completing the integration, building up the Lending business and market dependent that drives us to the 20% margin over time.

Howard Chen - Crédit Suisse AG

I guess maybe asked another way. I don't know if you look at it this way. But if there's no change in revenues from, let's say, where we are to end the year in the fourth quarter, what would you anticipate your margins to be as we exit 2011?

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