Morgan Stanley has beat estimates handily in the quarter, but it benefited massively from accounting gains, notably the now-infamous DVA adjustments — basically gains from the weakness of its own debt.Specifically, the company said EPS was $1.14, of which $1.12 was from this DVA.
The full report is here.
Morgan Stanley Reports Third Quarter 2011:
- Net Revenues of $9.9 Billion; Income from Continuing Operations of $1.14 per Diluted Share
- Results Included Revenues of $3.4 Billion, or $1.12 per Diluted Share, from the Widening of Morgan Stanley’s Debt-Related Credit Spreads
- Strong Performance in Equity Sales & Trading, Interest Rates and Commodities; Ranked #1 in Global Completed M&A; Net New Assets of $15.5 Billion in Global Wealth Management
NEW YORK–(BUSINESS WIRE)–Morgan Stanley (NYSE: MS) today reported income of $2.2 billion, or $1.14 per diluted share,1 from continuing operations applicable to Morgan Stanley for the third quarter ended September 30, 2011 compared with income of $314 million, or $0.05 per diluted share, for the same period a year ago. Net revenues were $9.9 billion for the current quarter compared with $6.8 billion a year ago. Results for the current quarter included positive revenue of $3.4 billion, or $1.12 per diluted share, compared with negative revenue of $731 million a year ago related to changes in Morgan Stanley’s debt-related credit spreads and other credit factors (Debt Valuation Adjustment, DVA).2, 3
“Quantitative and Qualitative Disclosures about Market Risk”
The Firm’s compensation expense for the current quarter was $3.7 billion with a compensation to net revenue ratio of 37%. This ratio was affected by DVA which increased net revenues in the current period. Non-compensation expenses of $2.5 billion reflected higher levels of business activity and costs associated with the U.K. bank levy.
For the current quarter, net income applicable to Morgan Stanley, including discontinued operations, was $1.15 per diluted share, compared with a net loss of $0.07 per diluted share in the third quarter of 2010.4
- Investment Banking revenues were $864 million. The Firm ranked #1 in global completed M&A and #2 in global announced M&A, global IPOs and global Equity.5
- Sales and trading net revenues were $5.4 billion and included positive revenue of $3.4 billion related to DVA.3 Equity sales and trading net revenues reflected strength in derivatives. Fixed Income and Commodities sales and trading net revenues included strong results in interest rate products and commodities.
- Global Wealth Management Group delivered net revenues of $3.3 billion, with net new assets for the quarter of $15.5 billion, a record since the inception of the Morgan Stanley Smith Barney joint venture (MSSB), and net flows in fee-based accounts of $10.1 billion. The quarter’s pre-tax margin improved to 11% from 9% a year ago.6
- Asset Management reported net revenues of $215 million and assets under management or supervision of $268 billion. Asset Management also has continued to deliver solid investment performance with over 76% of its long-term strategies outperforming their respective benchmark on a 3, 5 and 10-year basis (as of August 2011).
- Morgan Stanley successfully completed its inaugural offering of JPY 46.5 billion (approximately $600 million) Uridashi bonds leveraging the strength of our partnership with Mitsubishi UFJ Financial Group, Inc. (MUFG).
James P. Gorman, President and Chief Executive Officer, said, “Morgan Stanley effectively navigated turbulent markets while consolidating our market share gains with Institutional clients and demonstrating resilience across the Global Wealth Management business as evidenced by record net new assets flows since the formation of MSSB. The Firm delivered progress across many of our key initiatives, increasing client penetration in equity derivatives and interest rate products as well as achieving a significant milestone in the integration of MSSB with the initial roll out of our new technology platform. With our robust liquidity, diverse funding, strong capital and unique strategic partnership with MUFG, Morgan Stanley is well positioned to deliver for clients in the long term.”