NEW YORK--(BUSINESS WIRE)--Morgan Stanley (NYSE:MS) today reported net revenues of $8.9 billion for the second quarter ended June 30, 2016 compared with $9.7 billion a year ago.5 For the current quarter, net income applicable to Morgan Stanley was $1.6 billion, or $0.75 per diluted share,6 compared with income of $1.8 billion, or $0.85 per diluted share,6 for the same period a year ago.5

The prior year quarter included DVA revenue of $182 million. Excluding DVA in the prior year quarter, net income applicable to Morgan Stanley was $1.7 billion, or $0.79 per diluted share.7

Compensation expense of $4.0 billion decreased from $4.4 billion a year ago partially driven by lower revenues. Non-compensation expenses of $2.4 billion decreased from $2.6 billion a year ago. Results reflect execution of the Firm’s disciplined expense management strategy.

The annualized return on average common equity was 8.3 percent in the current quarter.8

Business Overview

• Institutional Securities net revenues were $4.6 billion reflecting continued strength in Equity sales and trading and solid performance in Fixed Income sales and trading, partly offset by lower underwriting results.
• Wealth Management net revenues were $3.8 billion and pre-tax margin was 22.5%.3 Fee based asset flows for the quarter were $12.0 billion.
• Investment Management reported net revenues of $583 million with assets under management or supervision of $406 billion.

James P. Gorman, Chairman and Chief Executive Officer, said, “Our results this quarter reflect solid performance in an improved but still fragile environment. In the midst of market uncertainty, we maintained our leadership positions across our core franchises and continued our focus on prudent risk management and judicious expense control. We remain committed to executing for our clients and delivering on our strategic priorities for our shareholders.”

INSTITUTIONAL SECURITIES

Institutional Securities reported pre-tax income from continuing operations of $1.5 billion compared with pre-tax income of $1.6 billion a year ago, or $1.4 billion excluding DVA.5,9 Net revenues for the current quarter were $4.6 billion compared with $5.2 billion a year ago, or $5.0 billion excluding DVA.5,9 The following discussion for sales and trading excludes DVA from the prior year period.

• Advisory revenues of $497 million increased from $423 million a year ago on higher levels of completed M&A. Equity underwriting revenues of $266 million decreased from $489 million in the prior year quarter reflecting significantly lower market volumes. Fixed income underwriting revenues of $345 million decreased from $528 million in the prior year quarter primarily reflecting lower bond and loan fees.
• Equity sales and trading net revenues of $2.1 billion decreased from $2.3 billion a year ago reflecting reduced volumes and levels of activity in Asia, partially offset by better performance in Europe and the U.S.5,10
• Fixed Income & Commodities sales and trading net revenues of $1.3 billion were consistent with the prior year period, despite the sale of the Oil Merchanting business in the fourth quarter of 2015.5,10
• Investment revenues of $76 million increased from $16 million a year ago driven by mark-to-market gains on business related investments.
• Other revenues of $138 million decreased from $212 million a year ago reflecting mark-to-market losses on held for sale loans and lower results in our Japanese joint venture Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.
• Compensation expenses of $1.6 billion decreased from $1.9 billion a year ago on lower revenues and continued expense discipline. Non-compensation expenses of $1.4 billion for the current quarter decreased from $1.7 billion a year ago primarily reflecting lower volume driven expenses and broad based expense discipline.

WEALTH MANAGEMENT

Wealth Management reported pre-tax income from continuing operations of $859 million compared with $885 million in the second quarter of last year. The quarter’s pre-tax margin was 22.5%.3 Net revenues for the current quarter were $3.8 billion compared with $3.9 billion a year ago.

• Asset management fee revenues of $2.1 billion decreased from $2.2 billion a year ago reflecting lower average fee rates related to fee-based accounts and lower market levels, partially offset by positive flows.
• Transactional revenues12 of $798 million decreased from $872 million a year ago primarily reflecting lower commission revenues and lower levels of new issue activity.
• Net interest income of $829 million increased from $737 million a year ago on higher deposit and loan balances. Wealth Management client liabilities were $69 billion at quarter end, an increase of $11 billion compared with the prior year quarter.13
• Compensation expense of $2.2 billion and non-compensation expenses of $800 million for the current quarter were relatively unchanged from a year ago.
• Total client assets were $2.0 trillion and client assets in fee based accounts were $820 billion at quarter end. Fee based asset flows for the quarter were $12.0 billion.
• Wealth Management representatives of 15,909 produced average annualized revenue per representative of $959,000 in the current quarter.

INVESTMENT MANAGEMENT

Investment Management reported pre-tax income from continuing operations of $118 million compared with pre-tax income of $220 million in the second quarter of last year.

• Net revenues of $583 million decreased from $751 million in the prior year primarily reflecting lower investment gains and carried interest in infrastructure and private equity investments. Asset management fees were relatively unchanged from a year ago.
• Compensation expense for the current quarter of $238 million decreased from $308 million a year ago, principally due to a decrease in deferred compensation associated with carried interest. Non-compensation expenses of $227 million were relatively unchanged from a year ago.
• Assets under management or supervision at June 30, 2016 were $406 billion. The business recorded net outflows of $1.7 billion in the current quarter.

CAPITAL

As of June 30, 2016, the Firm’s Common Equity Tier 1 and Tier 1 risk-based capital ratios under U.S. Basel III Advanced Approach transitional provisions were approximately 16.9% and 18.8%, respectively.14

As of June 30, 2016, the Firm estimates its pro forma fully phased-in Common Equity Tier 1 risk-based capital ratio (under U.S. Basel III Advanced Approach) and pro forma fully phased-in Supplementary Leverage Ratio to be approximately 15.8% and 6.1%, respectively.14,15,16

At June 30, 2016, book value and tangible book value per common share were $36.29 and $31.39,17 respectively, based on approximately 1.9 billion shares outstanding.

OTHER MATTERS

The effective tax rate from continuing operations for the current quarter was 33.5%.

During the quarter ended June 30, 2016, the Firm repurchased approximately $625 million of its common stock or approximately 23 million shares. The Firm announced a share repurchase of up to $3.5 billion of common stock beginning in the third quarter of 2016 through the end of second quarter of 2017.4

The Board of Directors declared a $0.20 quarterly dividend per share, payable on August 15, 2016 to common shareholders of record on July 29, 2016.4

In addition, the Firm announced on July 19, 2016 the redemption of all its issued and outstanding Trust Preferred securities.

Morgan Stanley is a leading global financial services firm providing a wide range of investment banking, securities, wealth management and investment management services. With offices in more than 43 countries, the Firm’s employees serve clients worldwide including corporations, governments, institutions and individuals. For further information about Morgan Stanley, please visit www.morganstanley.com.