10-QPeriod: Q2 FY2010

MORGAN STANLEY Quarterly Report for Q2 Ended Jun 30, 2010

Filed August 9, 2010For Securities:MSMS-PKMS-POMS-PQMS-PAMS-PFMS-PIMS-PLMS-PPMS-PEMSTLW

Summary

Morgan Stanley's second quarter of 2010 demonstrated a significant rebound from the prior year, with net income applicable to Morgan Stanley reaching $1.96 billion, a substantial increase from $149 million in Q2 2009. This improvement was driven by a strong recovery in net revenues, which grew to $7.95 billion from $5.20 billion year-over-year, bolstered by gains from favorable credit spread movements on certain debt instruments and a notable recovery in trading activities across both equity and fixed income markets. The Institutional Securities segment was a primary driver of this growth, showing a return to profitability. The Global Wealth Management Group also saw significant revenue growth, largely due to the inclusion of Morgan Stanley Smith Barney (MSSB), acquired in May 2009. The company also recorded a substantial after-tax gain of $514 million from the sale of its Retail Asset Management business to Invesco, which contributed positively to the overall results. Despite increased non-interest expenses, partly due to the MSSB consolidation and higher operational costs, Morgan Stanley's robust revenue growth led to a significant improvement in profitability and earnings per share.

Financial Highlights

43 data points
Beta

Revenue

$7.92B

Net Income

$1.96B

24.7% Net Margin

EPS (Diluted)

$1.09

Total Assets

$809.46B

Cash & Equivalents

$36.35B

Free Cash Flow

$8.29B

Financial Statements
Beta
Revenue$7.92B
Operating Income$3.28B
Interest Expense$1.61B
Net Income$1.96B
EPS (Basic)$1.20
EPS (Diluted)$1.09
Shares Outstanding (Basic)1.32B
Shares Outstanding (Diluted)1.75B

Key Highlights

  • 1Net income applicable to Morgan Stanley increased to $1.96 billion in Q2 2010 from $149 million in Q2 2009.
  • 2Net revenues grew to $7.95 billion in Q2 2010 from $5.20 billion in Q2 2009, driven by trading and favorable credit spread movements.
  • 3The Institutional Securities segment returned to profitability with income from continuing operations of $1.57 billion, a significant turnaround from a loss of $298 million in Q2 2009.
  • 4The Global Wealth Management Group saw a 60% increase in net revenues to $3.07 billion, benefiting from the consolidation of MSSB.
  • 5A gain of $514 million after-tax was realized from the sale of the Retail Asset Management business.
  • 6Diluted Earnings Per Share (EPS) improved to $1.09 in Q2 2010 from $(1.10) in Q2 2009.
  • 7Total assets increased to $809.5 billion from $771.5 billion at year-end 2009, primarily due to higher securities financing activities.

Frequently Asked Questions

The primary driver of improved profitability was a significant increase in net revenues, which rose to $7.95 billion from $5.20 billion year-over-year. This increase was largely due to favorable movements in the company's credit spreads on certain debt instruments, which resulted in substantial gains, and a strong recovery in trading revenues across both equity and fixed income markets, particularly within the Institutional Securities segment.

The acquisition of MSSB, completed in May 2009, had a significant impact. The Global Wealth Management Group reported a 60% increase in net revenues to $3.07 billion in Q2 2010, largely due to the consolidation of MSSB's operating revenues. However, this consolidation also led to higher non-interest expenses, including increased compensation costs and amortization of intangible assets related to MSSB.

Morgan Stanley completed the sale of its Retail Asset Management business to Invesco on June 1, 2010, resulting in an after-tax gain of $514 million, which was recognized in the second quarter of 2010. This sale contributed positively to the company's overall net income for the period.

Morgan Stanley's total assets increased to $809.5 billion by the end of Q2 2010, up from $771.5 billion at the end of 2009, mainly due to increased securities financing activities. The company maintained strong capital ratios, with a Tier 1 capital ratio of 16.5% and a total capital ratio of 17.0%, well above regulatory requirements. The company's Global Liquidity Reserve remained robust at $153 billion, demonstrating ample liquidity to meet its obligations.