MORGAN STANLEY Quarterly Report for Q2 Ended Jun 30, 2013

Summary

Morgan Stanley reported a strong second quarter of 2013, with net income applicable to Morgan Stanley of $980 million, a significant increase from $591 million in the prior year period. This improvement was driven by higher net revenues of $8.5 billion, up from $6.9 billion in Q2 2012, across all business segments. The Institutional Securities segment saw robust performance in both investment banking and sales & trading, with equity sales and trading, excluding DVA, increasing by 44%. Wealth Management also demonstrated growth, with higher transactional revenues and improved asset management fees, benefiting from increased client assets and fee-based account flows. The completion of the full acquisition of the Wealth Management JV for $4.725 billion in June 2013 marked a significant strategic milestone, consolidating the entire wealth management business under Morgan Stanley. Despite increased non-interest expenses, primarily due to higher compensation and litigation accruals, the company's return on average common equity improved to 5.4% from 3.5% in the prior year quarter. The firm's capital position remained strong, exceeding regulatory requirements. The company is also preparing for the implementation of new Basel III capital standards, expected to affect regulatory capital ratios from 2014 onwards. The filing also details various legal proceedings, primarily related to residential mortgage and credit crisis matters, with management believing that the ultimate outcome of these matters will not have a material adverse effect on the consolidated financial condition of the company.

Key Highlights

• 1Morgan Stanley reported a significant increase in net income applicable to Morgan Stanley to $980 million in Q2 2013, up from $591 million in Q2 2012, driven by higher net revenues.
• 2Net revenues rose to $8.5 billion in Q2 2013 from $6.9 billion in Q2 2012, with strong performance across all business segments, particularly Institutional Securities and Wealth Management.
• 3The company completed the acquisition of the remaining 35% stake in the Wealth Management JV for $4.725 billion in June 2013, consolidating its wealth management operations.
• 4Sales and trading net revenues increased to $3.08 billion in Q2 2013 from $2.36 billion in Q2 2012, with notable growth in equity and fixed income/commodities trading.
• 5Return on average common equity improved to 5.4% in Q2 2013 from 3.5% in Q2 2012, reflecting improved profitability.
• 6Total assets increased to $802.7 billion as of June 30, 2013, from $781.0 billion as of December 31, 2012, driven by increases in securities financing activities.
• 7The company's capital ratios remained strong and well above regulatory requirements, and it is actively managing its capital in preparation for new Basel III regulations.

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