10-QPeriod: Q3 FY2008

MORGAN STANLEY Quarterly Report for Q3 Ended Aug 31, 2008

Filed October 9, 2008For Securities:MSMS-PKMS-POMS-PQMS-PAMS-PFMS-PIMS-PLMS-PPMS-PEMSTLW

Summary

Morgan Stanley's 10-Q filing for the period ending August 31, 2008, reveals a company navigating a highly turbulent financial market. Total assets decreased to $987.4 billion from $1.05 trillion at the end of the previous fiscal year, reflecting deleveraging and market value adjustments. Net revenues saw a slight increase to $8.05 billion for the quarter, driven by strong equity sales and trading, but overall net income declined by 8% to $1.425 billion compared to the prior year's quarter. The firm reported diluted earnings per share of $1.32, down from $1.44 in the same period last year. The filing highlights the significant impact of the credit market crisis, with substantial losses noted in fixed income sales and trading, corporate lending, and investments. The Institutional Securities segment saw increased revenues due to strong equity trading and gains from MSCI share offerings, but this was offset by a decline in investment banking and fixed income revenues. The Global Wealth Management Group reported a loss before taxes due to a significant charge for auction rate securities buybacks and lower fee-based revenues. Asset Management also experienced a loss before taxes due to decreased performance fees and losses in real estate and private equity investments. Importantly, the filing details the subsequent events of becoming a bank holding company and entering into a strategic investment agreement with Mitsubishi UFJ Financial Group (MUFG), underscoring significant shifts in the company's structure and capital base in response to market conditions.

Financial Highlights

27 data points
Beta

Revenue

$18.01B

Net Income

$8.15B

45.3% Net Margin

EPS (Diluted)

$7.38

Cash & Equivalents

$53.57B

Free Cash Flow

$27.77B

Financial Statements
Beta
Revenue$18.01B
Operating Income$9.78B
Interest Expense$8.85B
Net Income$8.15B
EPS (Basic)$7.38
EPS (Diluted)$7.38
Shares Outstanding (Basic)1.04B
Shares Outstanding (Diluted)1.04B

Key Highlights

  • 1Total assets decreased to $987.4 billion as of August 31, 2008, down from $1.05 trillion at November 30, 2007, reflecting deleveraging and market value adjustments.
  • 2Net revenues for the quarter ended August 31, 2008, increased slightly to $8.05 billion, while net income decreased by 8% to $1.425 billion compared to the prior year's quarter.
  • 3Diluted earnings per share for the quarter were $1.32, down from $1.44 in the same period last year.
  • 4The Institutional Securities segment showed resilience with a revenue increase driven by equity sales and trading and gains from MSCI share offerings, but investment banking and fixed income revenues declined.
  • 5Global Wealth Management Group reported a pre-tax loss of $34 million due to a $277 million charge for auction rate securities buybacks and lower fee-based revenues.
  • 6Asset Management incurred a pre-tax loss of $204 million, impacted by reduced performance fees and losses in real estate and private equity investments.
  • 7Significant subsequent events include obtaining approval to become a bank holding company and entering into a $9 billion equity investment agreement with Mitsubishi UFJ Financial Group (MUFG), representing a 21% stake.

Frequently Asked Questions

For the quarter ended August 31, 2008, Morgan Stanley reported net income of $1.425 billion, an 8% decrease compared to the same period in the prior year. Diluted earnings per share were $1.32, down from $1.44 in the prior year. Net revenues saw a slight increase of 1% to $8.05 billion, but this was influenced by significant gains from equity sales and trading activities and the sale of MSCI shares, masking underlying pressures in other segments.

The credit market crisis had a notable impact across segments. The Institutional Securities segment faced declines in investment banking and fixed income revenues, although strong equity trading and gains from MSCI stock sales provided some offset. Global Wealth Management Group incurred a pre-tax loss, largely due to a charge related to auction rate securities and lower fee revenues. Asset Management also reported a pre-tax loss, driven by reduced performance fees and investment losses in real estate and private equity.

Two major events occurred shortly after the reporting period. First, Morgan Stanley obtained approval to become a bank holding company, which subjects it to consolidated supervision by the Federal Reserve and offers greater flexibility in financial activities. Second, the company announced a strategic investment agreement with Mitsubishi UFJ Financial Group (MUFG), through which MUFG would invest $9 billion for a 21% stake in Morgan Stanley, aiming to bolster capital and liquidity and forge a strategic alliance.

Morgan Stanley's total assets decreased to $987.4 billion by August 31, 2008, down from $1.05 trillion at the end of the previous fiscal year. This reduction was primarily due to deleveraging, market value adjustments, and sales of assets. The company reported substantial liquidity reserves, both at the parent company and subsidiary levels, which it stated remained well in excess of those observed in the prior year, despite some decline due to market disruptions. The company also highlighted its efforts to reduce total assets and leverage ratios.