Morgan Stanley
's (
MS
) fourth-quarter 2011 loss from continuing operations came in at 14
cents per share. This includes 59 cents loss related to
MBIA Inc.
(
MBI
) settlement charges.
Excluding these charges, Morgan Stanley reported a profit of 45
cents per share, way ahead of the Zacks Consensus Estimate loss of
58 cents. The company had earned 44 cents from continuing
operations in the year-ago quarter.
For the full year 2011, Morgan Stanley recorded income from
continuing operations of $1.26 per share compared with $2.45
reported in the prior year. However, this is significantly better
than the Zacks Consensus Estimate of 72 cents.
A substantial benefit from the widening of debt-related credit
spreads and Debt Valuation Adjustment (
DVA
) primarily made it possible for the company to report such
impressive yearly results. The earnings per share calculation
accounted for positive revenue of $3.7 billion or $1.34 per share
related to these nonrecurring items. Without this positive impact,
Morgan Stanley would have reported a loss of 8 cents per share from
its continuing operations.
Moreover during 2011, Morgan Stanley completed several strategic
initiatives that impacted the company's yearly earnings. These
included the conversion of the company's Series B Preferred Stock
held by
Mitsubishi UFJ Financial Group Inc.
(
MTU
) into common stock, the above mentioned MBIA settlement and the
restructuring of the sale of Revel Entertainment Group, LLC.
Considering discontinued operations, for the quarter Morgan
Stanley reported a net loss of $275 million or 15 cents per share
compared with net income of $600 million or 41 cents per share in
the prior-year quarter. For the full year, the company reported net
income of $2.1 billion or $1.23 per share compared with $3.6
billion or $2.63 per share in the prior-year.
Morgan Stanley's core results benefited from completion/closure
of various strategic actions, higher net interest income and
decline non-interest expenses. However, substantial fall in net
revenues across all the segments marred the company's results.
With robust M&A activity, Morgan Stanley maintained rank #1
in global completed M&A and rank #2 in global announced M&A
during 2011. The company also ranked #2 in global IPOs and global
Equity.
Quarter in Detail
Net revenue for the quarter fell 42% sequentially and 26% year
over year to $5.71 billion. However, net revenue is in line with
the Zacks Consensus Estimate. The total top-line figure included
positive revenue of $216 million pertaining to changes in the
company's debt-related credit spreads and DVA, compared with
negative revenue of $945 million a year ago quarter.
For the fiscal 2011, net revenue was $32.4 billion, up 3% from
$31.4 billion in the prior year. However, the full year net revenue
came below than the Zacks Consensus Estimate of $32.6 billion.
Morgan Stanley recorded a net interest income of $270 million,
compared with $140 million in the prior quarter and $259 million in
the prior-year quarter. The sequential improvement was primarily a
result of lower interest expense.
Total non-interest revenues declined 44% sequentially and 27%
year over year to $5.4 billion. Substantially lower trading
revenue, commissionsand fees and asset management, distribution and
administration fees were the primarily dampeners.
Total non-interest expenses remained flat sequentially but
decreased 6% year over year to $6.2 billion. Total compensation
expenses increased 4% sequentially but declined 6% year over year
at $3.81 billion, while total non-compensation expenses decreased
6% sequentially and 7% year over year to $2.4 billion.
Morgan Stanley's compensation to net revenue ratio for the
reported quarter was 67% compared with 37% in the prior quarter and
52% in the year-ago quarter. The ratio was adversely affected by
MBIA settlement charges.
Segment Results
Institutional Securities
reported pre-tax loss from continuing operations of $779 million
compared with pre-tax income of $448 million in the prior-year
quarter. Net revenue in this segment was $2.1 billion, down 42%
from $3.6 billion in the year-ago quarter.
Global Wealth Management
pre-tax income from continuing operations was $244 million, down
37% from $390 million in the year-ago quarter. Net revenue was $3.3
billion, down 3% from $3.4 billion in the year-ago quarter. The
decrease was attributable to lower commissions and investment
banking revenues, partly mitigated by higher net interest
revenues.
Asset Management
pre-tax income from continuing operations was $78 million, down 77%
from $353 million in the year-ago quarter. Net revenue for the
reported quarter was $424 million, down 50% from $846 million in
the year-ago quarter.
As of December 31, 2011, total assets under management were $287
billion, up from $272 billion as of December 31, 2010.
Capital Ratios
At December 31, 2011, book value per share was $31.42, up from
$31.29 at September 30, 2011. Tangible book value per share was
$27.95, up from $27.79 at September 30, 2011.
Morgan Stanley's Tier 1 capital ratio, under Basel I, was
approximately 15.6% and Tier 1 common ratio was approximately
13.0%.
Dividend Update
Concurrent with the earnings release, Morgan Stanley declared a
quarterly dividend of 5 cents per share. The dividend will be paid
on February 15 to shareholders of record on January 31.
Position of Peers
Among Morgan Stanley's close peers, both
JPMorgan Chase & Co.
(
JPM
) and
Citigroup Inc.
(
C
) reported disappointing results. Both buckled under the weakness
in the wider economy and fundamental stress on the banking sector
in particular. The top-line headwind continued for both, which was
partially offset by improvement in credit quality and drop in
provisions for credit losses.
However, the results of
The
Goldman Sachs Group Inc.
(
GS
) were better-than-expected. Goldman reported a significant
fourth-quarter profit, driven by increase in investment banking
revenues. However, higher operating expenses were on the
downside.
Our Viewpoint
We expect the company's restructuring initiatives to reduce
balance sheet risk. Moreover, its organic and inorganic growth
initiatives continue to be significant growth drivers.
Nevertheless, there are concerns related to the company's
financials being marred by new regulatory requirements, the
fundamental pressures on the banking sector and intense pricing
competition. We are also concerned aboutits inability to enhance
shareholder value in the near term.
Morgan Stanley currently retains a Zacks #3 Rank, which
translates into a short-term 'Hold' rating.
CITIGROUP INC (
C
): Free Stock Analysis Report
GOLDMAN SACHS (
GS
): Free Stock Analysis Report
JPMORGAN CHASE (
JPM
): Free Stock Analysis Report
MBIA INC (
MBI
): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
MITSUBISHI-UFJ (MTU): Free Stock Analysis
Report
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