Morgan Stanley Files Q2 2024 10-Q

Ticker: MS-PL · Form: 10-Q · Filed: Aug 5, 2024 · CIK: 895421

Morgan Stanley 10-Q Filing Summary
FieldDetail
CompanyMorgan Stanley (MS-PL)
Form Type10-Q
Filed DateAug 5, 2024
Risk Levellow
Pages15
Reading Time18 min
Key Dollar Amounts$0.01, $15.0 b, $1.5 billion, $7.0 billion, $6.8 billion
Sentimentneutral

Sentiment: neutral

Topics: 10-Q, financials, quarterly-report

TL;DR

MS Q2 10-Q filed. Financials look solid.

AI Summary

Morgan Stanley filed its 10-Q for the period ending June 30, 2024. The filing details the company's financial performance and position, including its various classes of preferred stock and common stock. The report covers the fiscal year-to-date period from January 1, 2024, to June 30, 2024.

Why It Matters

This filing provides investors and analysts with a detailed look into Morgan Stanley's financial health and operational performance during the second quarter of 2024.

Risk Assessment

Risk Level: low — This is a routine quarterly financial filing and does not contain immediate, significant negative news.

Key Numbers

Key Players & Entities

FAQ

What is the primary purpose of this 10-Q filing?

The primary purpose of this 10-Q filing is to provide a comprehensive update on Morgan Stanley's financial performance and position for the fiscal quarter ending June 30, 2024.

What is the filing date for this 10-Q?

This 10-Q filing was filed as of August 5, 2024.

What is Morgan Stanley's Standard Industrial Classification (SIC) code?

Morgan Stanley's SIC code is 6211, which corresponds to SECURITY BROKERS, DEALERS & FLOTATION COMPANIES.

What is the fiscal year end for Morgan Stanley?

Morgan Stanley's fiscal year ends on December 31.

What types of preferred stock are mentioned in the filing for the period January 1, 2024, to June 30, 2024?

The filing mentions Series A, Series E, Series F, Series I, Series K, Series L, Series O, Series P, and Series Q Preferred Stock for the period.

Filing Stats: 4,379 words · 18 min read · ~15 pages · Grade level 13.2 · Accepted 2024-08-05 16:05:42

Key Financial Figures

Filing Documents

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations I 2 4 Introduction 4 Executive Summary 5 Business Segments 10 Institutional Securities 11 Wealth Management 14 Investment Management 17 Supplemental Financial Information 19 Accounting Development Updates 19 Critical Accounting Estimates 19 Liquidity and Capital Resources 20 Balance Sheet 20 Regulatory Requirements 24

Quantitative and Qualitative Disclosures about Risk

Quantitative and Qualitative Disclosures about Risk I 3 29 Market Risk 29 Credit Risk 31 Country and Other Risks 37 Report of Independent Registered Public Accounting Firm 39 Consolidated Financial Statements and Notes I 1 40 Consolidated Income Statement (Unaudited) 40 Consolidated Comprehensive Income Statement (Unaudited) 40 Consolidated Balance Sheet (Unaudited at June 30, 2024) 41 Consolidated Statement of Changes in Total Equity (Unaudited) 41 Consolidated Cash Flow Statement (Unaudited) 43

Notes to Consolidated Financial Statements (Unaudited)

Notes to Consolidated Financial Statements (Unaudited) 44 1. Introduction and Basis of Presentation 44 2. Significant Accounting Policies 45 3. Cash and Cash Equivalents 45 4. Fair Values 45 5. Fair Value Option 51 6. Derivative Instruments and Hedging Activities 52 7. Investment Securities 56 8. Collateralized Transactions 58 9. Loans, Lending Commitments and Related Allowance for Credit Losses 59 10. Other Assets 63 11. Deposits 63 12. Borrowings and Other Secured Financings 64 13. Commitments, Guarantees and Contingencies 64 14. Variable Interest Entities and Securitization Activities 68 15. Regulatory Requirements 70 16. Total Equity 72 17. Interest Income and Interest Expense 75 18. Income Taxes 75 19. Segment, Geographic and Revenue Information 75 Financial Data Supplement (Unaudited) 78 Glossary of Common Terms and Acronyms 79

Controls and Procedures

Controls and Procedures I 4 80 Other Information II

Legal Proceedings

Legal Proceedings II 1 80

Risk Factors

Risk Factors II 1A 80 Unregistered Sales of Equity Securities and Use of Proceeds II 2 80 Other Information II 5 80 Exhibits II 6 80

Signatures

Signatures 80 2 Table of Contents Available Information We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission ("SEC"). The SEC maintains a website, www.sec.gov , that contains annual, quarterly and current reports, proxy and information statements, and other information that issuers file electronically with the SEC. Our electronic SEC filings are available to the public at the SEC's website. Our website is www.morganstanley.com . You can access our Investor Relations webpage at www.morganstanley.com/about-us-ir . We make available free of charge, on or through our Investor Relations webpage, our proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended ("Exchange Act"), as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. We also make available, through our Investor Relations webpage, via a link to the SEC's website, statements of beneficial ownership of our equity securities filed by our directors, officers, 10% or greater shareholders and others under Section 16 of the Exchange Act. You can access information about our corporate governance at www.morganstanley.com/about-us-governance , our sustainability initiatives at www.morganstanley.com/about-us/sustainability-at-morgan-stanley , and our commitment to diversity and inclusion at www.morganstanley.com/about-us/diversity . Our webpages include: Amended and Restated Certificate of Incorporation; Amended and Restated Bylaws; Charters for our Audit Committee, Compensation, Management Development and Succession Committee, Governance and Sustainability Committee, Operations and Technology Committee, and Risk Committee; Corporate Governance Policies; Policy Regarding Corporate Political Activities; Policy Rega

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction Morgan Stanley is a global financial services firm that maintains significant market positions in each of its business segments—Institutional Securities, Wealth Management and Investment Management. Morgan Stanley, through its subsidiaries and affiliates, provides a wide variety of products and services to a large and diversified group of clients and customers, including corporations, governments, financial institutions and individuals. Unless the context otherwise requires, the terms "Morgan Stanley," "Firm," "us," "we" or "our" mean Morgan Stanley (the "Parent Company") together with its consolidated subsidiaries. See the "Glossary of Common Terms and Acronyms" for the definition of certain terms and acronyms used throughout this Form 10-Q. A description of the clients and principal products and services of each of our business segments is as follows: Institutional Securities provides a variety of products and services to corporations, governments, financial institutions and ultra-high net worth clients. Investment Banking services consist of capital raising and financial advisory services, including the underwriting of debt, equity securities and other products, as well as advice on mergers and acquisitions, restructurings and project finance. Our Equity and Fixed Income businesses include sales, financing, prime brokerage, market-making, Asia wealth management services and certain business-related investments. Lending activities include originating corporate loans and commercial real estate loans, providing secured lending facilities, and extending securities-based and other financing to clients. Other activities include research. Wealth Management provides a comprehensive array of financial services and solutions to individual investors and small to medium-sized businesses and institutions. Wealth Management covers: financial advisor-led brokerage, custody,

Management's Discussion and Analysis

Management's Discussion and Analysis Executive Summary Overview of Financial Results Consolidated Results—Three Months Ended June 30, 2024 The Firm reported net revenues of $15.0 billion, balanced across Wealth Management and Institutional Securities. The Firm delivered ROE of 13.0% and ROTCE of 17.5% (see "Selected Non-GAAP Financial Information" herein). The Firm's expense efficiency ratio was 72% for both the second quarter and first half of the year, benefiting from our scale and intentional expense management. The Firm accreted $1.5 billion of Common Equity Tier 1 capital while supporting our clients and executing capital actions. At June 30, 2024, the Firm's Standardized Common Equity Tier 1 capital ratio was 15.2%. Institutional Securities net revenues of $7.0 billion reflect strong performance across the franchise, with notable strength in Equity, driven by higher client activity, and in Investment Banking, on robust debt underwriting results. Wealth Management delivered a pre-tax margin of 26.8%. Net revenues were $6.8 billion on higher asset management revenues driven by cumulative fee-based asset flows and a positive market environment. Fee-based asset flows were $26 billion for the second quarter and $52 billion for the first half of the year. The business added net new assets of $36 billion in the quarter and $131 billion in the first half of the year. Investment Management results reflect net revenues of $1.4 billion, primarily driven by increased asset management revenues on higher long-term average AUM. Net Revenues ($ in millions) Net Income Applicable to Morgan Stanley ($ in millions) Earnings per Diluted Common Share We reported net revenues of $15.0 billion in the quarter ended June 30, 2024 ("current quarter," or "2Q 2024"), which increased by 12% compared with $13.5 billion in the quarter ended June 30, 2023 ("prior year quarter," or "2Q 2023"). Net income applicable to Morgan Stanley was $3.1 billion in the current quarter,

Management's Discussion and Analysis

Management's Discussion and Analysis Non-interest Expenses ($ in millions) Compensation and benefits expenses of $6,460 million in the current quarter and $13,156 million in the current year period increased 3% and 4%, respectively, compared with the prior year periods, primarily due to higher formulaic payout to Wealth Management representatives driven by higher compensable revenues and higher discretionary compensation on higher revenues. This was partially offset by lower severance costs and lower expenses related to certain employee deferred cash-based compensation plans linked to investment performance ("DCP"). Non-compensation expenses of $4,409 million in the current quarter and $8,460 million in the current year period increased 4% and 1%, respectively, compared with the prior year periods, primarily due to higher execution-related expenses and increased technology spend, partially offset by lower legal expenses and professional services expenses. Provision for Credit Losses The Provision for credit losses on loans and lending commitments of $76 million in the current quarter was primarily related to provisions for certain specific commercial real estate loans, mainly in the office sector and modest growth in the corporate loan portfolio. The Provision for credit losses on loans and lending commitments in the prior year quarter was $161 million, primarily related to credit deterioration in commercial real estate lending, mainly in the office sector, and modest growth in certain other loan portfolios. The Provision for credit losses on loans and lending commitments of $70 million in the current year period was primarily related to provisions for certain specific commercial real estate loans, mainly in the office sector, modest growth in certain corporate and other loan portfolios and provisions for certain specific securities-based loans. The impact was partially offset by improvements in the macroeconomic outlook. The Provision for credit losses on

Management's Discussion and Analysis

Management's Discussion and Analysis Net Income Applicable to Morgan Stanley by Segment 1 ($ in millions) 1. The amounts in the charts represent the contribution of each business segment to the total of the applicable financial category and may not sum to the total presented on top of the bars due to intersegment eliminations. See Note 19 to the financial statements for details of intersegment eliminations. Institutional Securities net revenues of $6,982 million in the current quarter and $13,998 million in the current year period increased 23% and 12%, respectively, compared with the prior year periods, primarily reflecting higher Equity, Fixed Income and underwriting results within Investment Banking. Wealth Management net revenues of $6,792 million in the current quarter and $13,672 million in the current year period increased 2% and 3%, respectively, compared with the prior year periods, primarily reflecting higher Asset management revenues, partially offset by lower Net interest income. Investment Management net revenues of $1,386 million in the current quarter and $2,763 million in the current year period increased 8% in both periods, compared with the prior year periods, reflecting higher Asset management and related fees and Performance based income and other revenues. Net Revenues by Region 1 ($ in millions) 1. For a discussion of how the geographic breakdown of net revenues is determined, see Note 22 to the financial statements in the 2023 Form 10-K. Americas net revenues increased 8% in both the current quarter and the current year period, primarily driven by higher results across businesses within the Institutional Securities business segment and higher Asset management revenues within the Wealth Management business segment. EMEA net revenues in the current quarter increased 25% from the prior year quarter, primarily driven by higher results across business segments. EMEA net revenues in the current year period increased 14% from the prior

Management's Discussion and Analysis

Management's Discussion and Analysis Asia net revenues in the current quarter increased 20% from the prior year quarter, primarily driven by higher results from Equity and Investment Banking within the Institutional Securities business segment. Asia net revenues in the current year period increased 2% from the prior year period, primarily driven by higher results from Equity and Investment Banking, partially offset by lower results from Fixed Income within the Institutional Securities business segment. Selected Financial Information and Other Statistical Data Three Months Ended June 30, Six Months Ended June 30, $ in millions, except per share data 2024 2023 2024 2023 Consolidated results Net revenues $ 15,019 $ 13,457 $ 30,155 $ 27,974 Earnings applicable to Morgan Stanley common shareholders $ 2,942 $ 2,049 $ 6,208 $ 4,885 Earnings per diluted common share $ 1.82 $ 1.24 $ 3.85 $ 2.95 Consolidated financial measures Expense efficiency ratio 1 72 % 78 % 72 % 75 % ROE 2 13.0 % 8.9 % 13.8 % 10.7 % ROTCE 2, 3 17.5 % 12.1 % 18.6 % 14.5 % Pre-tax margin 4 27 % 21 % 28 % 23 % Effective tax rate 23.5 % 21.0 % 22.3 % 20.1 % Pre-tax margin by segment 4 Institutional Securities 29 % 17 % 31 % 23 % Wealth Management 27 % 25 % 27 % 26 % Investment Management 16 % 13 % 17 % 13 % $ in millions, except per share data, worldwide employees and client assets At June 30, 2024 At December 31, 2023 Average liquidity resources for three months ended 5 $ 319,580 $ 314,504 Loans 6 $ 237,696 $ 226,828 Total assets $ 1,212,447 $ 1,193,693 Deposits $ 348,890 $ 351,804 Borrowings $ 275,197 $ 263,732 Common equity $ 91,964 $ 90,288 Tangible common equity 3 $ 68,484 $ 66,527 Common shares outstanding 1,619 1,627 Book value per common share 7 $ 56.80 $ 55.50 Tangible book value per common share 3, 7 $ 42.30 $ 40.89 Worldwide employees (in thousands) 79 80 Client assets 8 (in billions) $ 7,208 $ 6,588 Capital Ratios 9 Common Equity Tier 1 capital—

Management's Discussion and Analysis

Management's Discussion and Analysis operating performance and revenue trends. By excluding the impact of these items, we are better able to describe the business drivers and resulting impact to net revenues and corresponding change to the associated compensation expenses. Compensation expense for DCP awards is calculated based on the notional value of the award granted, adjusted for changes in the fair value of the referenced investments that employees select. Compensation expense is recognized over the vesting period relevant to each separately vesting portion of deferred awards. We invest directly, as principal, in financial instruments and other investments to economically hedge certain of our obligations under these DCP awards. Changes in the fair value of such investments, net of financing costs, are recorded in net revenues, and included in Transactional revenues in the Wealth Management business segment. Although changes in compensation expense resulting from changes in the fair value of the referenced investments will generally be offset by changes in the fair value of investments recognized in net revenues, there is typically a timing difference between the immediate recognition of gains and losses on our investments and the deferred recognition of the related compensation expense over the vesting period. While this timing difference may not be material to our Income before provision for income taxes in any individual period, it may impact the Wealth Management business segment reported ratios and operating metrics in certain periods due to potentially significant impacts to net revenues and compensation expenses. For more information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Other Matters" in the 2023 Form 10-K. Tangible common equity is a non-GAAP financial measure that we believe analysts, investors and other stakeholders consider useful to allow for comparability to peers and of the period-to-peri

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