Investment bank Morgan Stanley had a nice beat for its first quarter earnings results.
The bank reported adjusted EPS of 68 cents versus analysts estimates of 60 cents.
Revenue came in at $US8.80 versus analyst estimates of $US8.572 billion.
The stock is up about 3.7% in the pre-market.
“This quarter we generated higher year-over-year revenues in all three of our business segments, demonstrating the momentum we have built across the Firm. We continue to execute on our multi-year strategy to deliver consistent returns for our shareholders through revenue growth and strong expense discipline. We are pleased that this year we will commence a further share repurchase of up to $US1 billion and double our dividend,” Morgan Stanley CEO James Gorman said in a statement.
In its earnings release, the bank noted that it’s now ranked No. 1 in global M&A. The bank also pointed out that its Fixed Income business improved.
Here’s an excerpt from the release:
Morgan Stanley Reports First Quarter 2014:
- Net Revenues of $US8.9 Billion and Earnings per Diluted Share from Continuing Operations of $US0.72
Excluding DVA, Net Revenues were $US8.8 Billion and Earnings per Diluted Share from Continuing Operations of $US0.68
- Strong Performance Across All Business Segments; Investment Banking Ranked #1 in Global Announced M&A and #2 in Global Equity and Global IPOs; Record Global Fee Based Asset Flows of $US19.0 Billion in Wealth Management
- Quarterly Dividend Increased to $US0.10 per Share
Morgan Stanley (MS) today reported net revenues of $US8.9 billion for the first quarter ended March 31, 2014 compared with $US8.2 billion a year ago. For the current quarter, income from continuing operations applicable to Morgan Stanley was $US1.5 billion, or $US0.72 per diluted share,5 compared with income of $US981 million, or $US0.49 per diluted share,5 for the same period a year ago.
Results for the current quarter included positive revenue related to changes in Morgan Stanley’s debt-related credit spreads and other credit factors (Debt Valuation Adjustment, DVA) of $US126 million, compared with negative revenue of $US317 million a year ago.
Excluding DVA, net revenues for the current quarter were $US8.8 billion compared with $US8.5 billion a year ago. Income from continuing operations applicable to Morgan Stanley was $US1.4 billion, or $US0.68 per diluted share, compared with income of $US1.2 billion, or $US0.60 per diluted share, a year ago.
Compensation expense was $US4.3 billion compared to $US4.2 billion a year ago. Non-compensation expenses were $US2.3 billion compared to $US2.4 billion a year ago.
For the current quarter, net income applicable to Morgan Stanley, including discontinued operations, was $US0.74 per diluted share, compared with net income of $US0.48 per diluted share in the first quarter of 2013.
- Institutional Securities net revenues excluding DVA were $US4.5 billion reflecting continued strength in Equity sales and trading and Investment Banking, and improved performance in Fixed Income & Commodities sales and trading.
- Wealth Management net revenues were $US3.6 billion and pre-tax margin was 19%. Fee based asset flows for the quarter were a record $US19.0 billion, with total client assets exceeding $US1.9 trillion at quarter end.
- Investment Management reported net revenues of $US740 million with assets under management or supervision of $US382 billion.
James P. Gorman, Chairman and Chief Executive Officer, said, “This quarter we generated higher year-over-year revenues in all three of our business segments, demonstrating the momentum we have built across the Firm. We continue to execute on our multi-year strategy to deliver consistent returns for our shareholders through revenue growth and strong expense discipline. We are pleased that this year we will commence a further share repurchase of up to $US1 billion and double our dividend.”
Institutional Securities reported pre-tax income from continuing operations of $US1.4 billion compared with $US799 million in the first quarter of last year. The quarter’s pre-tax margin was 29% (excluding DVA, 27%).8,9 Income after the noncontrolling interest allocation and before taxes was $US1.3 billion.10 Net revenues for the current quarter were $US4.6 billion compared with $US4.1 billion a year ago. DVA resulted in positive revenue of $US126 million in the current quarter compared with negative revenue of $US317 million a year ago. Excluding DVA, net revenues for the current quarter were $US4.5 billion compared with $US4.4 billion a year ago.8 The following discussion for sales and trading excludes DVA.
- Advisory revenues of $US336 million increased from $US251 million a year ago reflecting higher levels of M&A activity. Equity underwriting revenues of $US315 million increased from $US283 million a year ago reflecting higher IPO volumes. Fixed income underwriting revenues of $US485 million increased from $US411 million a year ago reflecting an increase in loan fees.
Equity sales and trading net revenues of $US1.7 billion increased from $US1.6 billion a year ago reflecting higher levels of client activity across products and particularly strong performance in prime brokerage.
- Fixed Income & Commodities sales and trading net revenues of $US1.7 billion increased from $US1.5 billion a year ago.11 Results reflect strong performance in commodities and solid results in credit and securitized products, despite lower volumes across most fixed income businesses.
- Other sales and trading net losses of $US244 million compared with net revenues of $US72 million a year ago, primarily reflecting costs related to the Firm’s long-term funding.
Compensation expense of $US1.9 billion and non-compensation expenses of $US1.4 billion for the current quarter were relatively unchanged from a year ago.
- Morgan Stanley’s average trading Value-at-Risk (VaR) measured at the 95% confidence level was $US50 million compared with $US51 million in the fourth quarter of 2013.
Wealth Management reported pre-tax income from continuing operations of $US691 million compared with $US597 million in the first quarter of last year. The quarter’s pre-tax margin was 19%.9 Net revenues for the current quarter were $US3.6 billion compared with $US3.5 billion a year ago.
- Asset management fee revenues of $US2.0 billion increased from $US1.9 billion a year ago primarily reflecting an increase in fee based assets and positive flows.
- Transactional revenues13 of $US1.0 billion decreased from $US1.1 billion a year ago primarily reflecting lower closed-end fund and other new issue activity.
- Net interest income of $US539 million increased from $US413 million a year ago on higher deposit and loan balances.
- Compensation expense for the current quarter of $US2.2 billion increased from $US2.1 billion a year ago on higher revenues. Non-compensation expenses of $US762 million decreased from $US808 million a year ago reflecting continued expense discipline.
- Total client assets exceeded $US1.9 trillion at quarter end. Client assets in fee based accounts of $US724 billion increased 17% compared with the prior year quarter. Fee based asset flows for the quarter were $US19.0 billion.
- Wealth Management representatives of 16,426 increased from 16,284 as of March 31, 2013. Average annualized revenue per representative of $US881,000 and total client assets per representative of $US118 million increased 4% and 7%, respectively, compared with the prior year quarter.
Since the second quarter of 2013, net income no longer includes a noncontrolling interest allocation to Citigroup Inc. (Citi) following the completed acquisition of the Wealth Management Joint Venture. The prior year quarter included a noncontrolling interest allocation to Citi of $US121 million.
Investment Management reported pre-tax income from continuing operations of $US263 million compared with pre-tax income of $US187 million in the first quarter of last year.15 The quarter’s pre-tax margin was 36%.9 Income after the noncontrolling interest allocation and before taxes was $US209 million.
- Net revenues of $US740 million increased from $US645 million in the prior year. Results primarily reflect higher gains on investments in Merchant Banking and higher results in Traditional Asset Management, partly offset by lower gains on investments in Real Estate Investing.16
- Compensation expense for the current quarter of $US285 million increased from $US259 million a year ago.7 Non-compensation expenses of $US192 million decreased from $US199 million a year ago.
- Assets under management or supervision at March 31, 2014 of $US382 billion increased from $US341 billion a year ago primarily reflecting market appreciation and positive flows. The business recorded net flows of $US6.0 billion in the current quarter.
Morgan Stanley’s Common Equity Tier 1 capital ratio was approximately 14.1% and its Tier 1 capital ratio was approximately 15.6% at March 31, 2014. Effective January 1, 2014, the Firm became subject to the U.S. Basel III final rule. Certain requirements in this rule are fully in effect while others are subject to transitional provisions that, without regard to any impact on capital from future earnings and any issuances of securities qualifying as regulatory capital, are expected to reduce the Firm’s regulatory capital over the next several years.17At March 31, 2014, book value and tangible book value per common share were $US32.38 and $US27.41,18 respectively, based on approximately 2.0 billion shares outstanding.
The effective tax rate from continuing operations for the current quarter was 33.0%, reflecting the geographic mix of earnings.
During the quarter ended March 31, 2014, the Firm repurchased approximately $US150 million of its common stock or approximately 4.9 million shares. The Firm announced a share repurchase of up to $US1.0 billion of common stock beginning in the second quarter of 2014 through the end of the first quarter of 2015.
The Firm increased its quarterly dividend to $US0.10 per share from $US0.05 per share, payable on May 15, 2014 to common shareholders of record on April 30, 2014.
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