01—Abstract
Summary
Summary of the 10-K filed February 26, 2010. Cited figures are marked; the original filing is the authoritative source.
Morgan Stanley's 2010 10-K filing reflects a year of recovery and restructuring following the 2008 financial crisis.
The company reported a net income of $1.35 billiona, a decrease from the previous year, impacted by significant losses related to credit spread tightening on its borrowings, though this was partially offset by improved investment banking and fixed income trading revenues. A major strategic move was the consolidation of its Global Wealth Management Group through the formation of the Morgan Stanley Smith Barney (MSSB) joint venture with Citi, which significantly increased client assets and global representatives but also led to higher operating and integration costs. The company also initiated a restructuring of its Asset Management segment, agreeing to sell its retail asset management business to Invesco to focus on institutional clients.
Regulatory reform was a significant theme, with ongoing discussions and potential changes to capital, leverage, and business activities that could materially impact future operations. Liquidity remained a focus, with strong liquidity reserves maintained despite market volatility. The filing highlights Morgan Stanley's resilience and strategic adjustments in a challenging economic environment.
Key areas for investors to note include the performance of its three main segments – Institutional Securities, Global Wealth Management Group, and Asset Management – the impact of the MSSB joint venture, the ongoing efforts to manage risk, and the company's preparation for a evolving regulatory landscape. Despite a challenging year for earnings, the company demonstrated its ability to adapt its business model and maintain capital adequacy.
02—Key points
Key Highlights
- Net income applicable to Morgan Stanley was $1.35 billion, a decrease from $1.71 billion in fiscal 2008, impacted by significant losses from credit spread tightening.
- Net revenues increased by 6% to $23.36 billion, driven by a recovery in investment banking and fixed income trading, alongside the consolidation of MSSB results.
- The formation of the Morgan Stanley Smith Barney (MSSB) joint venture with Citi on May 31, 2009, significantly increased client assets to $1.56 trillion and the number of global representatives to over 18,000.
- Morgan Stanley entered into a definitive agreement to sell its retail asset management business (Van Kampen) to Invesco, signaling a strategic shift to focus on institutional asset management.
- The company repurchased its Series D Preferred Stock and Warrant from the U.S. Treasury for $10.95 billion, reducing total equity but strengthening its capital structure.
- Total assets grew to $771.5 billion as of December 31, 2009, up from $676.8 billion at the end of 2008, supported by capital raises and increased business activity.
- The company emphasized its strong capital ratios, with Tier 1 capital ratio at 15.3% and Tier 1 leverage ratio at 5.8% as of December 31, 2009, exceeding regulatory requirements.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 26, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $23.28B$22.14B | +5.1% |
| Operating Income | $1.38B$1.21B | +14.8% |
| Interest Expense | $6.69B$36.26B | −81.6% |
| Net Income | $1.35B$1.71B | −21.1% |
| EPS (Basic) | $-0.77$1.45 | −153.1% |
| EPS (Diluted) | $-0.77$1.39 | −155.4% |
| Shares Outstanding (Basic) | 1.19B1.03B | +15.3% |
| Shares Outstanding (Diluted) | 1.19B1.07B | +10.4% |
05—Questions
Frequently Asked Questions
What was Morgan Stanley's net income for 2009?
Morgan Stanley reported a net income applicable to Morgan Stanley of $1.35 billion for 2009, a decrease from $1.71 billion in fiscal 2008. This decrease was primarily due to significant losses related to the tightening of the company's credit spreads on certain long-term and short-term borrowings.
What were the key impacts of the formation of the Morgan Stanley Smith Barney (MSSB) joint venture?
The formation of the MSSB joint venture with Citi on May 31, 2009, significantly increased Morgan Stanley's Global Wealth Management Group segment. Client assets under management rose to $1.56 trillion, and the number of global representatives increased to over 18,000. However, this also led to higher compensation and integration costs.
How is Morgan Stanley managing its exposure to credit risk, particularly from derivative contracts?
Morgan Stanley manages credit risk from derivative contracts by entering into master netting agreements and collateral arrangements with counterparties. These agreements allow for the offsetting of rights and obligations and the request for additional collateral or liquidation of collateral in case of counterparty default. They also assess counterparty credit ratings and apply credit valuation adjustments to reflect potential credit risk in valuations.
What is the company's strategy for its Asset Management segment?
Morgan Stanley is restructuring its Asset Management segment to focus on its institutional client base. This strategy includes the definitive agreement to sell substantially all of its retail asset management business (Van Kampen) to Invesco.
What is Morgan Stanley's outlook regarding regulatory changes?
The company anticipates material changes in financial institution regulation in 2010 and beyond, both in the U.S. and globally. These potential reforms include stricter prudential requirements, changes to OTC derivatives markets, and possible structural reforms for systemically important firms. Morgan Stanley is actively monitoring these developments and their potential impact on its business, financial condition, and results of operations.
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