• April 18, 2016
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Morgan Stanley reports first quarter 2016 results

• Net Revenues of $7.8 Billion and Earnings per Diluted Share of $0.55
• Ranked #1 in Global Completed M&A and Global IPOs
• Leadership in Equity Sales and Trading
• Wealth Management Pre-Tax Margin of 21%
• Pro forma Fully Phased-In Ratios: Common Equity Tier 1 of 14.5% and SLR of 6.0%

New York -- Morgan Stanley (NYSE: MS) today reported net revenues of $7.8 billion for the first quarter ended March 31, 2016 compared with $9.9 billion a year ago. For the current quarter, net income applicable to Morgan Stanley was $1.1 billion, or $0.55 per diluted share, compared with income of $2.4 billion, or $1.18 per diluted share, for the same period a year ago.

The prior year quarter included a net discrete tax benefit of $564 million or $0.29 per diluted share primarily associated with the repatriation of non-U.S. earnings at a lower cost than originally estimated and a Debt Valuation Adjustment (DVA) of $125 million or $0.04 per diluted share. Excluding the tax benefit and DVA, net income applicable to Morgan Stanley was $1.8 billion, or $0.85 per diluted share in the prior year period.

Compensation expense of $3.7 billion decreased from $4.5 billion a year ago driven by lower revenues. Noncompensation expenses of $2.4 billion compared with $2.5 billion a year ago.

The annualized return on average common equity was 6.2 percent in the current quarter.

Business Overview

• Institutional Securities net revenues were $3.7 billion reflecting challenging market conditions in Fixed Income & Commodities sales and trading and underwriting, with strength in Equity sales and trading and M&A advisory.
• Wealth Management net revenues were $3.7 billion and pre-tax margin was 21%. Results reflect strong growth in net interest income offset by weakness in transactional revenues. Fee based asset flows for the quarter were $5.9 billion.
• Investment Management reported net revenues of $477 million reflecting losses in private equity and real estate and stable asset management fees. Assets under management or supervision were $405 billion at the end of the quarter.

James P. Gorman, Chairman and Chief Executive Officer, said, “The first quarter was characterized by challenging market conditions and muted client activity. Against that backdrop, our businesses delivered stable results. While we see some signs of market recovery, global uncertainties continue to weigh on investor activity. We remain focused on executing against our priorities, helping clients navigate difficult markets while controlling our expenses and managing risk prudently.”

INSTITUTIONAL SECURITIES
Institutional Securities reported pre-tax income from continuing operations of $908 million compared with pre-tax income of $1.8 billion in the first quarter of last year, which included DVA. Net revenues for the current quarter were $3.7 billion compared with $5.5 billion a year ago including DVA, or $5.3 billion excluding DVA. The following discussion for sales and trading excludes DVA from the prior year period.

• Advisory revenues of $591 million increased from $471 million a year ago on higher completed M&A activity. Equity underwriting revenues of $160 million decreased from $307 million from the prior year quarter reflecting significantly lower market volumes. Fixed income underwriting revenues of $239 million decreased from $395 million in the prior year quarter primarily reflecting lower bond fees.
• Equity sales and trading net revenues of $2.1 billion decreased from $2.3 billion from a year ago primarily reflecting declines in cash equities in volatile global equity markets, partly offset by continued strength in prime brokerage.
• Fixed Income & Commodities sales and trading net revenues of $873 million decreased from $1.9 billion a year ago. Results reflect lower commodities revenues given the depressed energy price environment and the disposition of the Oil Merchanting business in the fourth quarter of 2015. Results for the current quarter also reflect lower levels of client activity in rates and foreign exchange and a challenging credit environment.
• Investment revenues of $32 million decreased from $112 million a year ago primarily reflecting losses on investments associated with the Firm’s compensation plans and lower gains on principal investments in real estate.
• Other revenues of $4 million decreased from $90 million a year ago reflecting an increase in the allowance for credit losses, mark-to-market losses on held for sale loans and commitments and lower results in our Japanese joint venture Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.
• Compensation expenses of $1.4 billion decreased from $2.0 billion a year ago on lower revenues. Noncompensation expenses of $1.4 billion for the current quarter decreased from $1.6 billion a year ago primarily reflecting lower litigation costs.

Morgan Stanley’s average trading Value-at-Risk (VaR) measured at the 95% confidence level was $46 million for the current quarter, unchanged from the fourth quarter of 2015 and compared with $47 million in the first quarter of the prior year.

WEALTH MANAGEMENT
Wealth Management reported pre-tax income from continuing operations of $786 million compared with $855 million in the first quarter of last year. The quarter’s pre-tax margin was 21%. Net revenues for the current quarter were $3.7 billion compared with $3.8 billion a year ago.

• Asset management fee revenues of $2.1 billion were down slightly from a year ago reflecting the impact of lower market levels, partially offset by positive flows.
• Transactional revenues of $727 million decreased from $950 million a year ago primarily driven by lower commissions and fees and investment banking revenues on reduced levels of underwriting activity.
• Net interest income of $831 million increased from $689 million a year ago on higher deposit and loan balances. Wealth Management client liabilities were $66 billion at quarter end, an increase of $12 billion compared with the prior year quarter.
• Compensation expense for the current quarter of $2.1 billion decreased from $2.2 billion a year ago on lower revenues and a decrease in the fair value of deferred compensation plan referenced investments. Non-compensation expenses of $794 million increased from $754 million a year ago on higher litigation costs and professional services fees.
• Total client assets were $2.0 trillion and client assets in fee based accounts were $798 billion at quarter end. Fee based asset flows for the quarter were $5.9 billion.
• Wealth Management representatives of 15,888 produced average annualized revenue per representative of $923,000 in the current quarter.

INVESTMENT MANAGEMENT
Investment Management reported pre-tax income from continuing operations of $44 million compared with pre-tax income of $187 million in the first quarter of last year.

• Net revenues of $477 million decreased from $669 million in the prior year. Results for the current quarter reflect markdowns on investments and the reversal of previously accrued carried interest in certain private equity and real estate funds compared with gains in the prior year. Asset management fees were relatively unchanged year over year.
• Compensation expense for the current quarter of $213 million decreased from $273 million a year ago, principally due to a decrease in deferred compensation associated with carried interest. Non-compensation expenses of $220 million increased from $209 million a year ago.
• Assets under management or supervision at March 31, 2016 were $405 billion. The business recorded net outflows of $3.6 billion in the current quarter.

CAPITAL
As of March 31, 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 15.7% and 17.4%, respectively.

As of March 31, 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 14.5% and 6.0%, respectively.

At March 31, 2016, book value and tangible book value per common share were $35.34 and $30.44,17 respectively, based on approximately 1.9 billion shares outstanding.

OTHER MATTERS
The effective tax rate from continuing operations for the current quarter was 33.3%.

During the quarter ended March 31, 2016, the Firm repurchased approximately $625 million of its common stock or approximately 25 million shares.

The Board of Directors declared a $0.15 quarterly dividend per share payable on May 13, 2016 to common shareholders of record on April 29, 2016.

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