Morgan Stanley
's (
MS
) first-quarter 2012 adjusted earnings came in at 71 cents per
share, significantly topping the Zacks Consensus Estimate of 46
cents. This also compares favorably with the prior-year quarter
adjusted earnings of 59 cents.
Considering debt-related credit spreads and Debt Valuation
Adjustment (
DVA
), Morgan Stanley reported a net loss of $78 million or 5 cents per
share from the continuing operations. The company had earned $984
million or 51 cents per share from continuing operations in the
year-ago quarter.
Better-than-expected results for Morgan Stanley resulted from
higher top line (excluding DVA adjustments), partially offset by
slight increase in non-interest expenses. Moreover, a fall in net
revenues across all segments except Global Wealth Management
marginally marred the company's results. Additionally, the
company's capital ratios remained stable.
Considering discontinued operations, for the reported quarter
Morgan Stanley's net loss came in at $119 million or 6 cents per
share compared with net income of $736 million or 50 cents per
share in the prior-year quarter.
Further, Morgan Stanley ranked #1 in global IPOs while ranked #2
in global announced and completed M&A.
Quarter in Detail
Net revenue (excluding DVA) for the quarter was $8.91 billion
compared with $7.76 billion in the year-ago quarter. Net revenue
also surpassed the Zacks Consensus Estimate of $8.14 billion.
However, after taking into account, the negative revenue of $2.0
billion pertaining to changes in the company's debt-related credit
spreads and DVA, net revenue declined nearly 8% year over year to
$6.94 billion.
Morgan Stanley recorded a net interest loss of $59 million
compared with a net interest income of $6 million in the prior-year
quarter. The deterioration was primarily a result of substantially
higher interest expense.
Total non-interest revenues fell 8% year over year to $7.0
billion. All the non-interest income components except other income
declined from the prior-year quarter.
Total non-interest expenses inched up 1% year over year to $6.73
billion. The main reason for the rise was higher total compensation
expenses (up 3% year over year), partially mitigated by a decline
in total non-compensation expenses (down 4% year over year).
Morgan Stanley's compensation to net revenue ratio for the
reported quarter was 64%, compared with 57% in the year-ago
quarter.
Segment Performance
Institutional Securities
reported pre-tax loss from continuing operations of $312 million
compared with pre-tax income of $432 million in the prior-year
quarter. Net revenue was $3.0 billion, down 15% from $3.6 billion
in the year-ago quarter. One of main reasons for the decline in net
revenue is the drop in advisory and equity underwriting revenues as
a result of lower levels of market activity.
Global Wealth Management
pre-tax income from continuing operations was $387 million, up
12.5% from $344 million in the year-ago quarter. Net revenue was
$3.41 billion, up marginally from $3.4 billion in the year-ago
quarter, reflecting higher asset management and net interest
revenues that were mostly offset by lower commissions.
Asset Management
pre-tax income from continuing operations was $128 million, up
slightly 2.4% from $125 million in the year-ago quarter. Net
revenue for the reported quarter was $533 million, down nearly 14%
from $622 million in the year-ago quarter. The fall reflects lower
gains on principal investments in the Merchant Banking
business.
As of March 31, 2012, total assets under management were $304
billion, up nearly 10% from $276 billion as of March 31, 2011.
Capital Ratios
As of March 31, 2012, book value per share was $30.74, down from
$31.45 as of March 31, 2011. However, tangible book value per share
was $27.37, up from $26.97 as ofMarch 31, 2011.
Morgan Stanley's Tier 1 capital ratio, under Basel I, was
approximately 16.8% and Tier 1 common ratio was approximately
13.2%.
Dividend Update
Concurrent with the earnings release, Morgan Stanley declared a
quarterly dividend of 5 cents per share. The dividend will be paid
on May 15 to shareholders of record on April 30.
Performance of Peers
Among Morgan Stanley's close peers,both
JPMorgan Chase & Co.
(
JPM
) and
The
Goldman Sachs Group Inc.
(
GS
) reported better-than-expected results. Marked recovery of the
bond and equity market coupled with consequent revenue growth
helped JPMorgan outpace the Zacks Consensus Estimate. Moreover, the
results primarily benefited from improved revenue and slowdown in
provision for credit losses, which more-than-offset higher
non-interest expense.
Similarly, Goldman Sachs' earnings also significantly surpassed
the Zacks Consensus Estimate. Amid the improving economy and global
markets, the results were driven by increases in investment banking
revenues and equity trading. Further, higher client activity levels
added fuel to the fire. Higher operating expenses were also on the
downside.
However, the results of
Citigroup Inc.
(
C
) were mixed. It was impacted by accounting charges though modestly
gaining from its recent stake sale activities and increasing global
consumer banking as well as the revenues from transaction
services.
Our Viewpoint
We expect Morgan Stanley's initiatives to offload its non-core
assets will help lowering balance sheet risk. Moreover, its organic
and inorganic growth initiatives continue to be the significant
growth drivers. Nevertheless, there are concerns related to the
company's financials being marred by new regulatory requirements,
elevated expenses and intense pricing competition.
Further, an investor with an appetite to absorb risks related to
the market volatility should not be disappointed with investments
in Morgan Stanley over the long term. The company's fundamentals
remain highly promising with a diverse business model and a stable
balance sheet and capital position.
Also, from the risk perspective, as Morgan Stanley cleared the
most difficult stress test, it is for sure that the company would
be able to withstand another financial crisis. However, we remain
concerned about the company's ability to enhance shareholder value
in the near term as it had not asked for any dividend rise or share
repurchases authorization in its capital plan.
Morgan Stanley currently retains a Zacks #3 Rank, which
translates into a short-term Hold rating. Also, we maintain a
long-term Neutral recommendation on the stock.
CITIGROUP INC (
C
): Free Stock Analysis Report
GOLDMAN SACHS (
GS
): Free Stock Analysis Report
JPMORGAN CHASE (
JPM
): Free Stock Analysis Report
MORGAN STANLEY (
MS
): Free Stock Analysis Report
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