10-QPeriod: Q1 FY2016

MORGAN STANLEY Quarterly Report for Q1 Ended Mar 31, 2016

Filed May 4, 2016For Securities:MSMS-PKMS-POMS-PQMS-PAMS-PFMS-PIMS-PLMS-PPMS-PEMSTLW

Summary

Morgan Stanley's first quarter 2016 results showed a significant year-over-year decline in net revenues and net income, primarily driven by weaker performance in its Institutional Securities segment. Net revenues decreased to $7.79 billion from $9.91 billion in the prior year quarter, while net income applicable to Morgan Stanley fell to $1.13 billion, or $0.55 per diluted share, compared to $2.39 billion, or $1.18 per diluted share, in Q1 2015. The decline in Institutional Securities was largely attributed to challenging market conditions in fixed income and commodities trading and underwriting, though equity trading and M&A advisory showed resilience. Wealth Management experienced a modest revenue decrease, impacted by lower transactional revenues, partially offset by growth in net interest income. Investment Management revenues also declined due to losses in private equity and real estate funds. Despite the revenue challenges, Morgan Stanley demonstrated expense control, with total non-interest expenses decreasing by 6% year-over-year, largely due to lower litigation costs and a reduction in compensation and benefits expenses reflecting lower revenues and headcount. The firm maintained strong regulatory capital ratios, with its Common Equity Tier 1 capital ratio at 15.6%, well above regulatory requirements.

Financial Highlights

35 data points
Beta

Net Income

$1.13B

EPS (Diluted)

$0.55

Total Assets

$807.50B

Cash & Equivalents

$53.64B

Free Cash Flow

$4.18B

Financial Statements
Beta
Interest Expense$848.00M
Net Income$1.13B
EPS (Basic)$0.56
EPS (Diluted)$0.55
Shares Outstanding (Basic)1.88B
Shares Outstanding (Diluted)1.92B

Key Highlights

  • 1Net revenues decreased by 21.4% to $7.79 billion compared to $9.91 billion in the prior year quarter.
  • 2Net income applicable to Morgan Stanley decreased by 52.6% to $1.13 billion, or $0.55 per diluted share, from $2.39 billion, or $1.18 per diluted share, in Q1 2015.
  • 3Institutional Securities segment net revenues declined 32% to $3.71 billion, impacted by weaker trading and underwriting performance, partially offset by strength in equity trading and M&A advisory.
  • 4Wealth Management net revenues decreased 4% to $3.67 billion, reflecting lower transactional revenues but supported by growth in net interest income.
  • 5Investment Management net revenues fell 29% to $477 million due to losses in private equity and real estate funds.
  • 6Total non-interest expenses decreased by 6% to $6.05 billion, driven by lower compensation and benefits and reduced litigation costs.
  • 7The firm's Common Equity Tier 1 capital ratio remained strong at 15.6%, exceeding regulatory requirements.

Frequently Asked Questions

The primary driver of the decline in net revenues was the significantly weaker performance in the Institutional Securities segment, particularly in fixed income and commodities trading and underwriting, which faced challenging market conditions. Equity trading and M&A advisory showed some resilience but could not fully offset the declines in other areas.

Morgan Stanley effectively managed expenses, with total non-interest expenses decreasing by 6% year-over-year. This reduction was driven by a 32% decrease in compensation and benefits expenses (reflecting lower revenues and headcount) and a 12% decrease in non-compensation expenses, primarily due to lower litigation costs.

Morgan Stanley maintained a strong capital position, with its Common Equity Tier 1 capital ratio at 15.6% as of March 31, 2016, significantly exceeding regulatory minimums. This robust capital position indicates the company's ability to withstand financial stress and support its operations.

Effective January 1, 2016, Morgan Stanley adopted new accounting guidance that requires unrealized gains and losses from debt valuation adjustments (DVA) related to the company's credit spreads to be presented in Other Comprehensive Income (OCI) rather than net revenues. This change means that prior year results are not restated for DVA, impacting comparability. For the current quarter, DVA impacts are not reflected in net income. For the prior year quarter, excluding DVA and a significant discrete tax benefit, net income applicable to Morgan Stanley was $1.75 billion, or $0.85 per diluted share.