Morgan Stanley Misses

Morgan Stanley missed fourth quarter earnings estimates.

The bank reported earnings per share of 40 cents. Analysts were expecting the bank to report EPS of 49 cents, according to data compiled by Bloomberg.

Revenue for the fourth quarter came in at $US7.8 billion compared to analysts’ expectations of $US8.14 billion.

“We finished 2014 in substantially better shape than we entered the year. We delivered strong results across several of our businesses, although overall performance was affected by the choppy market conditions of the fourth quarter. We also addressed a number of items that, while affecting our results in the short term, position us well in the years ahead. Entering 2015, we remain confident about our business mix, market position and the opportunities ahead of us,” CEO James Gorman said.

Shares of Morgan Stanley were last down 3.2% in the pre-market.

Here’s an excerpt of the release:

  • Fourth Quarter Net Revenues of $US7.8 Billion and Earnings per Diluted Share from Continuing Operations of $US0.47
  • Results for the Quarter Included the following Significant Items:

    • Discrete Tax Benefit1 of $US1.4 Billion ($US0.70 per Diluted Share)
    • Elevated Compensation Expense Due to Deferral Adjustments3 of $US1.1 Billion ($US0.40 per Diluted Share)
    • Negative Revenues from FVA4 of $US468 Million ($US0.17 per Diluted Share)
    • Legal Expenses Include $US284 Million for Legacy Residential Mortgage Related Matters ($US0.12 per Diluted Share)
  • Excluding DVA,5 Net Revenues were $US7.5 Billion (Inclusive of the Negative $US468 Million from FVA) and Earnings per Diluted Share from Continuing Operations of $US0.40
  • Investment Banking Ranked #1 in Global IPOs and #2 in Global Announced M&A;9 Continued Strength in Equity Sales & Trading
  • Record Quarterly Wealth Management Revenues of $US3.8 Billion and Record Fee-Based Asset Flows of $US21 Billion
  • Full Year Net Revenues of $US34.3 Billion and Earnings per Diluted Share from Continuing Operations of $US2.96; Excluding DVA, Net Revenues were $US33.6 Billion and Earnings per Diluted Share from Continuing Operations of $US2.756,7,8

Morgan Stanley (MS) today reported net revenues of $US7.8 billion for the fourth quarter ended December 31, 2014 compared with $US7.8 billion a year ago. For the current quarter, income from continuing operations applicable to Morgan Stanley was $US1.0 billion, or $US0.47 per diluted share,10 compared with income of $US95 million, or $US0.02 per diluted share, for the same period a year ago.

Results for the current quarter included several significant items: a net discrete tax benefit of approximately $US1.4 billion or $US0.70 per diluted share principally related to the restructuring of a legal entity; compensation expense adjustments of approximately $US1.1 billion or a loss of $US0.40 per diluted share related to changes in discretionary incentive compensation deferrals;a charge of $US468 million or a loss of $US0.17 per diluted share related to the initial incorporation of funding valuation adjustments (FVA) into the fair value measurements for certain over-the-counter derivatives and legal expenses of $US284 million or a loss of $US0.12 per diluted share associated with several residential mortgage and credit crisis related matters. The prior year fourth quarter included legal expenses of $US1.4 billion or a loss of $US0.45 per diluted share and a discrete tax benefit of $US192 million or $US0.10 per diluted share.

Results for the current quarter included positive revenues related to the change in the fair value of certain of the Firm’s long-term and short-term borrowings resulting from the fluctuation in the Firm’s credit spreads and other credit factors (Debt Valuation Adjustment, DVA) of $US223 million, compared with negative revenues of $US368 million a year ago.

Excluding DVA, net revenues for the current quarter were $US7.5 billion, which were inclusive of negative revenues from FVA of $US468 million, compared with $US8.2 billion a year ago. Income from continuing operations applicable to Morgan Stanley was $US903 million, or $US0.40 per diluted share, compared with income of $US336 million, or $US0.15 per diluted share, a year ago.

Compensation expense of $US5.1 billion increased from $US4.0 billion a year ago primarily driven by compensation expense adjustments of approximately $US1.1 billion, representing approximately $US756 million related to the reduction in the average deferral of discretionary incentive compensation awards for the 2014 performance year and $US381 million for the acceleration of vesting for certain outstanding deferred cash-based incentive compensation awards.3 Non-compensation expenses of $US2.8 billion decreased from $US4.1 billion a year ago, primarily reflecting lower legal expenses.

For the current quarter, net income applicable to Morgan Stanley, including discontinued operations, was $US1.0 billion or $US0.47 per diluted share,10 compared with net income of $US84 million or $US0.02 per diluted share in the fourth quarter of 2013.

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