Thursday, April 21, 2011

Morgan Stanley Reports Mixed Q1 Earnings (Financial Charts, Review) *EPS $0.50* MS

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Morgan Stanley reported Q1 2011 financial results on April 21, 2011
Charts and commentary haven been updated for Morgan Stanley Q1 March 2011 financial results *

Morgan Stanley Reports Mixed Q1 Earnings

Morgan Stanley Summary Q1 2011 Morgan Stanley Q4 2010 financial results mixed, even though earnings per share increased to a 3-quarter high of $0.50. Operations were not as profitable and would have been worse than reported if not for a huge increase in trading revenues and income tax benefit.

Morgan Stanley Income Statement Q1 2011 Morgan Stanley reported net revenues of $7.6B, net income of $968M, and earnings per share of $0.50. From the prior quarter Q4 2010, net revenues were down -2.20%, net income up +15.79%, and earnings per share up +21.95%. From the prior year Q1 2010, net revenues were down -15.90%, net income down -45.50%, and earnings per share down -49.49%, respectively. The operating margin of 11.42% decreased while the net margin of 12.68% increased QoQ.

Morgan Stanley Balance Sheet Q1 2011 Tier 1 capital increased to 16.7% which is adequate. More commentary will be posted about the Morgan Stanley financial position, including asset mix, at a later date.

Morgan Stanley Financial Performance by the Quarters (Charts)

Morgan Stanley Earnings per Share (Chart) Below is a chart of quarterly earnings per diluted share. Current earnings per share of $0.50 is a 3-quarter high.

Morgan Stanley Net Revenues, Operating Income, Net Income (Chart) Below is a chart of quarterly net revenues, operating income, and net income. Consolidated revenues are reported net of interest expense. Current Net Revenues of $7.6B dipped from Q4 December 2010 of $7.8B. Current Operating Income of $872M also dipped from Q4 December 2010 of $1.2B. Current Net Income of $968M is a 3-quarter high, but is attributable to some extent to an income tax benefit of $256M.

Morgan Stanley Operating Margin and Net Margin (Chart) Below is a chart of quarterly operating margin and net margin. Current operating margin of 11.42% is a drop from Q4 December 2010 of 15.15%.  Current net margin of 12.68% is an increase from Q4 December 2010 of 10.71%, but is mostly attributable to an income tax benefit.

Morgan Stanley Capital to Assets Ratio and Tier 1 Capital Ratio (Chart) Below is a chart of the capital to assets ratio and Tier 1 capital ratio. The capital to assets ratio is the stockholders' equity to total assets ratio. The Tier 1 capital ratio is a financial regulatory ratio and measurement. The capital to assets ratio will be posted later. The Tier 1 capital ratio of 16.70% is adequate and a multi-quarter high.

Morgan Stanley Income Statement Components (Chart) Below is a chart of the major income statement components: NonInterest Revenue, Net Interest Income, and NonInterest Expense. NonInterest Revenue is the primary driver of Net Revenues and ultimately Net Income. The current NonInterest Revenue of $7.6B is a 3-quarter high and is attributable to an increase trading revenues. Current Net Interest Income of $1M, which is immaterial, decreased from $252M QoQ. Current NonInterest Expense, operating expenses, of $6.8B increased to a 6-quarter high.

Morgan Stanley Growth Rates (Chart) Below is a chart of the quarterly (QoQ, Q/Q, quarterly change) growth rates for net revenues and earnings per share. Net revenues and earnings per share have been volatile and erratic. Net revenues QoQ has ranged from -123% to +79% and earnings per share has ranged from -135% to +686%. Current growth rates QoQ for net revenues and earnings per share are -2.20% and +21.95%, respectively.

Morgan Stanley Operating Expense Ratio (Chart) Below is a chart of the operating expense ratio (NonInterest Expense divided by Total Revenues which are NonInterest Income and Interest Income). Current operating expenses are a very high 71.28%, which is a 5-quarter high. This is a negative development. Current NonInterest Expense increased more than Total Revenues in Q1 resulting in a higher operating expense ratio. An unreasonable share of each dollar of revenues is being spent on operating expenses. Ultimately a continuation of this uptrend will decrease profitability and already has.

Morgan Stanley Reports First Quarter 2011

NEW YORK, April 21, 2011 - Morgan Stanley (NYSE: MS) today reported income of $966 million, or $0.50 per diluted share,1 from continuing operations applicable to Morgan Stanley for the first quarter ended March 31, 2011 compared with income of $1.8 billion, or $1.03 per diluted share, for the same period a year ago. Net revenues were $7.6 billion for the current quarter compared with $9.1 billion a year ago. Results for the current quarter included a pre-tax loss of $655 million (after-tax loss of $425 million or $0.26 per diluted share) arising from the Firm’s 40% stake in a Japanese securities joint venture (Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. or MUMSS) controlled and managed by our partner, Mitsubishi UFJ Financial Group, Inc. (MUFG). The current quarter also included a net tax benefit of $447 million, or $0.30 per diluted share, from the remeasurement of a deferred tax asset and the reversal of a related valuation allowance that are both associated with the sale of Revel Entertainment Group, LLC (Revel).2
Compensation expenses of $4.3 billion decreased from $4.4 billion a year ago. The Firm’s current quarter compensation to net revenue ratio was adversely affected by the aforementioned MUMSS loss, which reduced net revenues by $655 million. This ratio for the current quarter was 57% (or 52% excluding the MUMSS loss) compared with 49% a year ago.3 Non-compensation expenses were $2.4 billion compared with $2.1 billion a year ago reflecting higher levels of business activity and increased legal and technology-related expenses.

For the current quarter, net income applicable to Morgan Stanley, including discontinued operations, was $0.50 per diluted share, compared with net income of $0.99 per diluted share in the first quarter of 2010.

About Morgan Stanley

Morgan Stanley is a leading global financial services firm providing a wide range of investment banking, securities, investment management and wealth management services. The Firm's employees serve clients worldwide including corporations, governments, institutions and individuals from more than 1,300 offices in 42 countries. For further information about Morgan Stanley, please visit

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