10-QPeriod: Q2 FY2023

MORGAN STANLEY Quarterly Report for Q2 Ended Jun 30, 2023

Filed August 3, 2023For Securities:MSMS-PKMS-POMS-PQMS-PAMS-PFMS-PIMS-PLMS-PPMS-PEMSTLW

Summary

Morgan Stanley reported net revenues of $13.5 billion and net income of $2.2 billion for the second quarter of 2023, representing a slight increase in revenue but a decrease in net income compared to the prior year quarter. The firm's ROTCE was 12.1%. The Wealth Management segment showed strong revenue growth, driven by higher net interest income and positive impacts from deferred compensation plan investments. However, the Institutional Securities segment experienced declines in net revenues, primarily due to lower client activity in Investment Banking and in Equity and Fixed Income businesses amidst a challenging market environment. The firm maintained a robust capital position, with a Common Equity Tier 1 capital ratio of 15.5%. Management highlighted efforts to manage expenses, including severance costs and integration expenses, and noted the continued focus on strategic initiatives across all business segments.

Financial Highlights

34 data points
Beta

Net Income

$2.18B

EPS (Diluted)

$1.24

Total Assets

$1.16T

Cash & Equivalents

$104.99B

Free Cash Flow

-$9.67B

Financial Statements
Beta
Interest Expense$10.04B
Net Income$2.18B
EPS (Basic)$1.25
EPS (Diluted)$1.24
Shares Outstanding (Basic)1.64B
Shares Outstanding (Diluted)1.65B

Key Highlights

  • 1Net revenues increased slightly to $13.5 billion from $13.1 billion in the prior year quarter.
  • 2Net income decreased to $2.2 billion from $2.5 billion in the prior year quarter.
  • 3Wealth Management revenue grew 16% year-over-year to $6.7 billion, aided by higher net interest income and positive deferred compensation plan investment impacts.
  • 4Institutional Securities net revenues declined 8% year-over-year to $5.7 billion due to lower client activity in a less favorable market.
  • 5Investment Management net revenues decreased 9% year-over-year to $1.3 billion, mainly due to lower performance-based income.
  • 6The firm maintained a strong Common Equity Tier 1 capital ratio of 15.5%.
  • 7Expenses included $308 million in severance costs and $99 million in integration-related expenses.

Frequently Asked Questions

The Wealth Management segment performed strongly, with revenues up 16% year-over-year to $6.7 billion, benefiting from higher net interest income and positive deferred compensation plan investment impacts. Conversely, the Institutional Securities segment saw a year-over-year revenue decline of 8% to $5.7 billion, attributed to reduced client activity and a less favorable market environment in Investment Banking and Equity & Fixed Income. The Investment Management segment's revenues decreased by 9% to $1.3 billion due to lower performance-based income.

Total expenses increased compared to the prior year quarter. Compensation and benefits expenses rose significantly, primarily due to higher expenses related to certain deferred cash-based compensation plans and severance costs associated with an employee action in May, totaling $308 million. Non-compensation expenses also increased slightly, mainly due to higher spending on technology and professional services. Integration-related expenses amounted to $99 million.

Morgan Stanley maintained a strong capital position. The Common Equity Tier 1 (CET1) capital ratio was 15.5% at June 30, 2023, an increase from 15.3% at December 31, 2022. The Tier 1 leverage ratio remained stable at 6.7%. The firm's regulatory capital ratios remain well above the required minimums, indicating a solid financial foundation.

The firm noted that the global economic and geopolitical environment continues to be characterized by inflationary pressures, high interest rates, and uncertainty regarding the possibility of a recession, which has led to muted client activity. Management expects this environment to continue impacting business activities and client confidence. However, the strong performance in Wealth Management, particularly the growth in net new client assets, and the firm's robust capital position provide a degree of resilience.