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Morgan Stanley Reports First Quarter 2016

The following excerpt is from the company's SEC filing.

Net Revenues of $7.8 Billion and Earnings per Diluted Share of

Ranked #1 in

Global Completed M&A and Global IPOs

Leadership in Equity Sales and Trading

Wealth Management Pre-Tax Margin of 21%

Pro forma Fully Phased-In Ratios: Common Equity Tier 1 of 14.5% and SLR of 6.0%

NEW YORK, April 18, 2016 – Morgan Stanley (NYSE: MS) today reported net revenues of $7.8 billion for the first quarter ended March 31, 2016 compared with $9.9 billion a year ago.

For the current quarter, net income applicable to Morgan Stanley was $1.1 billion, or $0.55 per diluted share,

compared with income of $2.4 billion, or $1.18 per diluted share,

for the same period a year ago.

The prior year quarter included a net discrete tax benefit of $564 million or $0.29 per diluted share primarily associated with the repatriation of non-U.S. earnings at a lower cost than originally estimated and a Debt Valuation Adjustment (DVA) of $125 million or $0.04 per diluted share.

Excluding the tax benefit and DVA, net income applicable to Morgan Stanley was $1.8 billion, or $0.85 per diluted share in the prior year period

Compensation expense of $3.7 billion decreased from $4.5 billion a year ago driven by lower revenues. Non-compensation expenses of $2.4 billion compared with $2.5 billion a year ago.

The annualized return on average common equity was 6.2 percent in the current quarter.

Business Overview

Institutional Securities net revenues were $3.7 billion reflecting challenging market conditions in Fixed Income & Commodities sales and trading and underwriting, with strength in Equity sales and trading and M&A advisory.

Wealth Management net revenues were $3.7 billion and pre-tax margin was 21%.

Results reflect strong growth in net interest income offset by weakness in transactional revenues. Fee based asset flows for the quarter were $5.9 billion.

Investment Management reported net revenues of $477 million reflecting

losses in private equity and real estate and stable asset management fees

. Assets under management or supervision were $405 billion at the end of the quarter.

James P. Gorman, Chairman and Chief Executive Officer, said, “

The first quarter was characterized by challenging market conditions and muted client activity. Against that backdrop, our businesses delivered stable results. While we see some signs of market recovery, global uncertainties continue to weigh on investor activity. We remain focused on executing against our priorities, helping clients navigate difficult markets while controlling our expenses and managing risk prudently.

Summary of Institutional Securities Results

(dollars in millions)

As Reported

Excluding DVA

1Q 2016

$3,714

4Q 2015

$3,419

$3,543

1Q 2015

$5,458

$1,813

$5,333

$1,688

Effective January 1, 2016, the Firm early adopted the provision of new accounting guidance that requires changes in DVA to be presented in Other comprehensive income as opposed to net revenues. Results for 2015 were not restated pursuant to this guidance. Given this change, amounts for 1Q 2016 are the same ‘As Reported’ and ‘Excluding DVA’ in the above table.

INSTITUTIONAL SECURITIES

Institutional Securities reported pre-tax income from continuing operations of $908 million compared with pre-tax income

of $1.8 billion in the first quarter of last year, which included DVA.

Net revenues for the current quarter were $3.7 billion compared with $5.5 billion a year ago including DVA, or $5.3 billion excluding DVA.

The following discussion for sales and trading excludes DVA from the prior year period.

Advisory revenues of $591 million increased from $471 million a year ago on higher completed M&A activity. Equity underwriting revenues of $160 million decreased from $307 million from the prior year quarter reflecting significantly lower market volumes. Fixed income underwriting revenues of $239 million decreased from $395 million in the prior year quarter primarily reflecting lower bond fees.

Equity sales and trading net revenues of $2.1 billion decreased from $2.3 billion from a year ago primarily reflecting declines in cash equities in volatile global equity markets, partly offset by continued strength in prime brokerage

Fixed Income & Commodities sales and trading net revenues of $873 million decreased from $1.9 billion a year ago.

Results reflect lower commodities revenues given the depressed energy price environment and the disposition of the Oil Merchanting business in the fourth quarter of 2015. Results for the current quarter also reflect lower levels of client activity in rates and foreign exchange and a challenging credit environment.

Investment revenues of $32 million decreased from $112 million a year ago primarily reflecting losses on investments associated with the Firm’s compensation plans and lower gains on principal investments in real estate.

Other revenues of $4 million decreased from $90 million a year ago reflecting an increase in the allowance for credit losses, mark-to-market losses on held for sale loans and commitments and lower results in our Japanese joint venture Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.

Compensation expenses of $1.4 billion decreased from $2.0 billion a year ago on lower revenues. Non-compensation expenses of $1.4 billion for the current quarter decreased from $1.6 billion a year ago primarily reflecting lower litigation costs.

Morgan Stanley’s average trading Value-at-Risk (VaR) measured at the 95% confidence level was $46 million for the current quarter, unchanged from the fourth quarter of 2015 and compared with $47 million in the first quarter of the prior year.

Summary of Wealth Management Results

$3,668

$3,751

$3,834

WEALTH MANAGEMENT

Wealth Management reported pre-tax income from continuing operations of $786 million compared with $855 million in the first quarter of last year. The quarter’s pre-tax margin was 21%.

Net revenues for the current quarter were $3.7 billion compared with $3.8 billion a year ago.

Asset management fee revenues of $2.1 billion were down slightly from a year ago reflecting the impact of lower market levels, partially offset by positive flows.

Transactional revenues

of $727 million decreased from $950 million a year ago primarily driven by lower commissions and fees and investment banking revenues on reduced levels of underwriting activity.

Net interest income of $831 million increased from $689 million a year ago on higher deposit and loan balances. Wealth Management client liabilities were $66 billion at quarter end, an increase of $12 billion compared with the prior year quarter.

Compensation expense for the current quarter of $2.1 billion decreased from $2.2 billion a year ago on lower revenues and a decrease in the fair value of deferred compensation plan referenced investments. Non-compensation expenses of $794 million increased from $754 million a year ago on higher litigation costs and professional services fees.

Total client assets were $2.0 trillion and client assets in fee based accounts were $798 billion at quarter end. Fee based asset flows for the quarter were $5.9 billion.

Wealth Management representatives of 15,888 produced average annualized revenue per representative of $923,000 in the current quarter

Summary of Investment Management Results

INVESTMENT MANAGEMENT

Investment Management...


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