Morgan Stanley Second Quarter 2023 Earnings Results

July 18, 2023

NEW YORK–(BUSINESS WIRE)–Morgan Stanley (NYSE: MS) today reported net revenues of $13.5 billion for the second quarter ended June 30, 2023 compared with $13.1 billion a year ago. Net income applicable to Morgan Stanley was $2.2 billion, or $1.24 per diluted share,1 compared with net income of $2.5 billion, or $1.39 per diluted share,1 for the same period a year ago. The second quarter of 2023 was impacted by severance costs of $308 million2 associated with an employee action.

James P. Gorman, Chairman and Chief Executive Officer, said, “The Firm delivered solid results in a challenging market environment. The quarter started with macroeconomic uncertainties and subdued client activity, but ended with a more constructive tone. Consistent with our strategy, we continued to attract client assets – Wealth and Investment Management added $100 billion in net new assets, bringing in over $200 billion year-to-date. Our Institutional businesses navigated the markets well through macro uncertainties. We finished the quarter in a strong capital position and raised our quarterly common dividend by 7.5 cents for the second year in a row. We remain confident in our ability to grow in various market environments while maintaining a strong capital position.”

Financial Summary3,4

Highlights

Firm ($ millions, except per share data)

2Q 2023

2Q 2022

  • The Firm reported net revenues of $13.5 billion and net income of $2.2 billion as our businesses navigated an environment that remains challenging.
  • The Firm delivered ROTCE of 12.1%.5
  • The Firm expense efficiency ratio for the first half of the year was 75%.6 Expenses for the quarter include severance costs of $308 million2 and integration-related expenses of $99 million.
  • Standardized Common Equity Tier 1 capital ratio was 15.5%.16
  • Institutional Securities net revenues of $5.7 billion reflect continued muted activity in Investment Banking and declines in Equity and Fixed Income driven by lower client activity in a less favorable market environment compared to a year ago.
  • Wealth Management delivered strong net new client assets of $90 billion7 and record net revenues of $6.7 billion, which reflect higher net interest income and the positive impact of DCP. Pre-tax margin was 25.2%,8 reflecting higher compensation expenses driven by severance costs 2 associated with an employee action, integration-related expenses and higher provisions for credit losses.
  • Investment Management results reflect net revenues of $1.3 billion on AUM of $1.4 trillion and positive net flows.

 

Net revenues

$13,457

$13,132

Provision for credit losses

$161

$101

Compensation expense

$6,262

$5,550

Non-compensation expenses

$4,222

$4,162

Pre-tax income9

$2,812

$3,319

Net income app. to MS

$2,182

$2,495

Expense efficiency ratio6

78%

74%

Earnings per diluted share1

$1.24

$1.39

Book value per share

$55.24

$54.46

Tangible book value per share

$40.79

$40.07

Return on equity

8.9%

10.1%

Return on tangible equity5

12.1%

13.8%

Institutional Securities

Net revenues

$5,654

$6,119

Investment Banking

$1,075

$1,072

Equity

$2,548

$2,960

Fixed Income

$1,716

$2,500

Wealth Management

Net revenues

$6,660

$5,736

Fee-based client assets ($ billions)10

$1,856

$1,717

Fee-based asset flows ($ billions)11

$22.7

$28.5

Net new assets ($ billions)7

$89.5

$52.9

Loans ($ billions)

$144.7

$143.6

Investment Management

Net revenues

$1,281

$1,411

AUM ($ billions)12

$1,412

$1,351

Long-term net flows ($ billions)13

$1.1

$(3.5)

Institutional Securities

Institutional Securities reported net revenues for the current quarter of $5.7 billion compared with $6.1 billion a year ago. Pre-tax income was $1.0 billion compared with $1.6 billion a year ago.9

Investment Banking revenues were overall unchanged from a year ago:

($ millions)

2Q 2023

2Q 2022
  • Advisory revenues decreased from a year ago driven by fewer completed M&A transactions.

Net Revenues

$5,654

$6,119

  • Equity underwriting revenues increased from a year ago primarily driven by higher follow-on and convertible offerings.

  • Fixed income underwriting revenues increased from a year ago primarily driven by higher investment grade bond issuances.

Investment Banking

$1,075

$1,072

Advisory

$455

$598

Equity net revenues down 14% from a year ago:

Equity underwriting

$225

$148

  • Equity net revenues decreased from a year ago, primarily driven by declines in cash and derivative products on lower client activity and lower volatility in the markets.

Fixed income underwriting

$395

$326

Fixed Income net revenues down 31% from a year ago:

Equity

$2,548

$2,960

  • Fixed Income net revenues decreased from a year ago driven by declines across most products, with the exception of rates, as a result of lower client activity and lower market volatility compared with elevated levels a year ago.

Fixed Income

$1,716

$2,500

Other

$315

$(413)

Other:

  • Other revenues increased primarily driven by lower mark-to-market losses, net of loan hedges, and higher net interest income and fees on corporate loans, and mark-to-market gains on investments associated with certain employee deferred compensation plans (DCP) compared to losses in the prior year.

Provision for credit losses

$97

$82

Provision for credit losses:

Total Expenses

$4,580

$4,483

  • Increases in provisions for credit losses were primarily driven by credit deteriorations in the commercial real estate sector as well as modest growth across the portfolio.

Compensation

$2,215

$2,050

Non-compensation

$2,365

$2,433

Total Expenses:

  • Compensation expenses increased on severance costs2 associated with an employee action and expenses related to certain deferred compensation plans linked to investment performance, partially offset by a decline in discretionary compensation on lower revenues.

  • Non-compensation expenses decreased from a year ago primarily driven by lower litigation costs, partially offset by higher investments in technology and higher execution-related expenses.

Wealth Management

Wealth Management reported record net revenues for the current quarter of $6.7 billion compared with $5.7 billion from a year ago. Pre-tax income of $1.7 billion9 in the current quarter resulted in a reported pre-tax margin of 25.2%.8

Net revenues increased 16% from a year ago:

($ millions)

2Q 2023

2Q 2022
  • Asset management revenues decreased 2% from a year ago reflecting lower asset levels primarily due to declines in the markets.

Net Revenues

$6,660

$5,736

  • Transactional revenues14 decreased 2% excluding the impact of mark-to-market gains on investments associated with certain employee deferred compensation plans compared to losses in the prior year quarter. The decrease was due to lower client activity compared to a year ago.

Asset management

$3,452

$3,510

  • Net interest income increased from a year ago on higher interest rates, partially offset by the impact of lower brokerage sweep deposits as clients continue to redeploy balances.

Transactional14

$869

$291

Net interest income

$2,156

$1,747

Provision for credit losses:

Other

$183

$188

  • Increases in provisions for credit losses were largely driven by credit deteriorations in the commercial real estate sector.

Provision for credit losses

$64

$19

Total Expenses

$4,915

$4,196

Total Expenses:

Compensation

$3,503

$2,895

  • Compensation expenses increased from a year ago driven by severance costs2 associated with an employee action and expenses related to certain deferred compensation plans linked to investment performance.

Non-compensation

$1,412

$1,301

  • Non-compensation expenses increased from a year ago primarily driven by higher investments in technology, litigation, occupancy costs, and professional services.

Investment Management

Investment Management reported net revenues of $1.3 billion, down 9% from a year ago. Pre-tax income was $170 million compared with $249 million a year ago.9

Net revenues decreased 9% from a year ago:

($ millions)

2Q 2023

2Q 2022
  • Asset management and related fees decreased from a year ago driven primarily by lower average AUM due to the decline in asset values from the prior year quarter and the cumulative effect of outflows.

Net Revenues

$1,281

$1,411

  • Performance-based income and other revenues decreased from a year ago due to lower accrued carried interest across private funds, partially offset by mark-to-market gains on investments associated with certain employee deferred compensation compared to losses in the prior year quarter.

Asset management and related fees

$1,268

$1,304

Performance-based income and other

$13

$107

Total Expenses:

Total Expenses

$1,111

$1,162

  • Compensation expenses decreased from a year ago primarily driven by lower compensation associated with carried interest, partially offset by expenses related to certain deferred compensation plans linked to investment performance and severance costs2 associated with an employee action.

Compensation

$544

$605

Non-compensation

$567

$557

Other Matters

2Q 2023

2Q 2022

  • The Firm repurchased $1 billion of its outstanding common stock during the quarter as part of its Share Repurchase Program.

Capital15

Standardized Approach

CET1 capital16

15.5%

15.2%

  • The Firm reauthorized a multi-year repurchase program of up to $20 billion of outstanding common stock without a set expiration date.

Tier 1 capital16

17.4%

16.9%

Advanced Approach

CET1 capital16

15.9%

15.5%

  • The Board of Directors declared a $0.85 quarterly dividend per share, representing an increase of 7.5 cents per share, payable on August 15, 2023 to common shareholders of record on July 31, 2023.

Tier 1 capital16

17.8%

17.1%

Leverage-based capital

Tier 1 leverage17

6.7%

6.6%

  • Standardized Common Equity Tier 1 capital ratio was 15.5%, 220 basis points above the aggregate standardized approach CET1 requirement inclusive of buffers as of June 30 and 260 basis points above the estimated aggregate standardized approach CET1 requirement that will take effect as of October 1, 2023.

SLR18

5.5%

5.4%

Common Stock Repurchases

Repurchases ($ millions)

$1,000

$2,738

Number of Shares (millions)

12

33

Average Price

$83.86

$82.05

Period End Shares (millions)

1,659

1,723

Effective Tax Rate

21.0%

23.6%

Morgan Stanley is a leading global financial services firm providing a wide range of investment banking, securities, wealth management and investment management services. With offices in 42 countries, the Firm’s employees serve clients worldwide including corporations, governments, institutions and individuals. For further information about Morgan Stanley, please visit www.morganstanley.com.