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Form 8-K MORGAN STANLEY For: Jan 19

January 19, 2016 6:59 AM EST
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549 


FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 19, 2016

Morgan Stanley 

(Exact name of Registrant as specified
in its charter)


Delaware
1-11758
36-3145972
(State or other jurisdiction of incorporation)
(Commission
File Number)
(I.R.S. Employer Identification No.)

 
1585 Broadway, New York, New York 10036 

(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code:     (212) 761-4000

 
(Former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[ ]     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ]     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ]     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ]     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 
 
 

 

Item 2.02.
Results of Operations and Financial Condition
 
On January 19, 2016, Morgan Stanley (the "Registrant") released financial information with respect to its quarter and year ended December 31, 2015. A copy of the press release containing this information is annexed as Exhibit 99.1 to this Report and by this reference incorporated herein and made a part hereof. In addition, a copy of the Registrant's Financial Data Supplement for its quarter and year ended December 31, 2015 is annexed as Exhibit 99.2 to this Report and by this reference incorporated herein and made a part hereof.
 
The information furnished under Item 2.02 of this Report, including Exhibit 99.1 and Exhibit 99.2, shall be deemed to be "filed" for purposes of the Securities Exchange Act of 1934, as amended.
 
 
Item 7.01.
Regulation FD Disclosure
 
On January 19, 2016, Morgan Stanley (the “Registrant”) released financial information with respect to its quarter and year ended December 31, 2015 and held an investor conference call. Exhibit 99.3 is a copy of a presentation (the “Presentation”) presented on the conference call, furnished for, and posted on the Registrant’s website.
 
The Presentation is being furnished pursuant to Item 7.01, and the information contained therein shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section. Furthermore, the information contained in Exhibit 99.3 shall not be deemed to be incorporated by reference into the filings of the Registrant under the Securities Act of 1933, as amended.

Item 7.01 of this Current Report on Form 8-K (including Exhibit 99.3 hereto) contains forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made and which reflect management's current plans, estimates, projections, expectations or beliefs and which are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of additional risks and uncertainties that may affect the future results of Morgan Stanley, please see “Forward-Looking Statements” immediately preceding Part I, Item 1, “Competition” and “Supervision and Regulation” in Part I, Item 1, “Risk Factors” in Part I, Item 1A, “Legal Proceedings” in Part I, Item 3, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 7 and “Quantitative and Qualitative Disclosures about Market Risk” in Part I, Item 7A, each of Morgan Stanley’s Annual Report on Form 10-K for the year ended December 31, 2014 and other items throughout the Form 10-K, and Morgan Stanley’s Current Reports on Form 8-K, including any amendments thereto, which have been filed with the Securities and Exchange Commission and are available on Morgan Stanley’s website at www.morganstanley.com and on the Securities and Exchange Commission’s website at www.sec.gov. Morgan Stanley does not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements.
 
 
Item 9.01.
Financial Statements and Exhibits

 
99.1
Press release of the Registrant, dated January 19, 2016, containing financial information for the quarter and year ended December 31, 2015.
     
 
99.2
Financial Data Supplement of the Registrant for the quarter and year ended December 31, 2015.
     
  99.3
Morgan Stanley Presentation, dated January 19, 2016.
 
 
 
 

 
 
SIGNATURE

                Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, hereunto duly authorized.

 
MORGAN STANLEY
 
 
(Registrant)
 
  By: /s/ Paul C. Wirth  
     
     
 
Paul C. Wirth
 
 
Deputy Chief Financial Officer
 

Dated:  January 19, 2016
Exhibit 99.1
 
             
Media Relations:
Michele Davis
212-761-9621
 
Investor Relations:
Kathleen McCabe
212-761-4469
 
 
Logo
 
 
Morgan Stanley Reports Fourth Quarter and Full Year 2015:

●  
Fourth Quarter Net Revenues of $7.7 Billion and Earnings per Diluted Share of $0.39

●  
Excluding DVA,1 Net Revenues of $7.9 Billion and Earnings per Diluted Share of $0.432,3,4

●  
Full Year Net Revenues of $35.2 Billion and Earnings per Diluted Share of $2.90; Excluding DVA, Net Revenues were $34.5 Billion and Earnings per Diluted Share of $2.702,3,4

●  
Strong Full Year Performance in Equity Sales and Trading; Investment Banking Ranked #1 in Global IPOs and #2 in Global Announced M&A and Global Equity5

●  
Record Full Year Wealth Management Profit Before Taxes of $3.3 Billion with Pre-Tax Margin of 22%6


NEW YORK, January 19, 2016 – Morgan Stanley (NYSE: MS) today reported net revenues of $7.7 billion for the fourth quarter ended December 31, 2015 compared with $7.8 billion a year ago.  For the current quarter, net income applicable to Morgan Stanley was $908 million, or $0.39 per diluted share,7 compared with net losses of $1.6 billion, or $0.91 per diluted share,7 for the same period a year ago.  The prior year quarter included several significant items which aggregated to a net loss of $1.37 per diluted share.8
 
Results for the current quarter included negative revenue related to changes in Morgan Stanley’s debt-related credit spreads and other credit factors (Debt Valuation Adjustment, DVA) of $124 million, compared with positive revenue of $223 million a year ago.
 
Excluding DVA, net revenues for the current quarter were $7.9 billion compared with $7.5 billion a year ago.1,4  Net income applicable to Morgan Stanley in the current quarter was $986 million, or $0.43 per diluted share, compared with net losses of $1.8 billion, or $0.99 per diluted share in the prior year.3,4
 
Compensation expense of $3.7 billion compared with $5.1 billion a year ago. Results for the current quarter include severance expense of $155 million,9 while results for the prior period included compensation deferral expense adjustments of approximately $1.1 billion.8  Excluding these items, compensation expense decreased year over year reflecting disciplined compensation management.
 
Non-compensation expenses of $2.6 billion decreased from $5.6 billion a year ago.  Excluding $3.1 billion of litigation costs related to residential mortgage and credit crisis matters in the prior year period,8 non-compensation expenses were $2.6 billion compared with $2.5 billion a year ago.
 
The annualized return on average common equity was 4.4 percent in the current quarter, or 4.9 percent excluding DVA.1,10
 
1

 

As of December 31, 2015, the Firm estimates its pro forma fully phased-in Common Equity Tier 1 risk-based capital and Supplementary Leverage ratios to be approximately 14.1% and 5.8%, respectively.11,12,13

             
Summary of Firm Results
(dollars in millions)
             
 
As Reported
 
Excluding DVA 4
 
 
Net
Net Income
 
Net
Net Income
 
 
Revenue (a)
App. to MS (b)
 
Revenue (a)
App. to MS (b)
 
4Q 2015
$7,738
$908
 
$7,862
$986
 
3Q 2015
$7,767
$1,018
 
$7,332
$740
 
4Q 2014
$7,764
$(1,630)
 
$7,541
$(1,775)
 
 
a)
Revenues in 4Q 2014 included a pre-tax charge of $468 million related to the initial implementation of FVA.
b)
Net income applicable to Morgan Stanley in 4Q 2014 included litigation costs of $2.9 billion (after-tax), compensation deferral expense adjustments of $781 million (after-tax), FVA charge of $338 million (after-tax) and a net discrete tax benefit of $1,380 million.
 
Fourth Quarter Business Overview
 
●  
Institutional Securities net revenues, excluding DVA were $3.5 billion reflecting continued strength in Equity sales and trading, solid results in Investment Banking and continued weakness in Fixed Income & Commodities sales and trading.14
 
●  
Wealth Management net revenues were $3.8 billion and pre-tax margin was 20%.6  Fee based asset flows for the quarter were $11.4 billion.
 
●  
Investment Management reported net revenues of $621 million with assets under management or supervision of $406 billion.
 

James P. Gorman, Chairman and Chief Executive Officer, said, “A strong overall performance in the first half of the year was impacted by difficult market conditions in the second half that dampened trading activity.  In the fourth quarter we took action to meaningfully restructure our Fixed Income business on a capital and expense basis.  We enter 2016 with a continued focus on managing expenses across the Firm and driving up returns for our shareholders.”

 
2

 

FOURTH QUARTER RESULTS
             
Summary of Institutional Securities Results
(dollars in millions)
             
 
As Reported
 
Excluding DVA 14
 
 
Net
Pre-Tax
 
Net
Pre-Tax
 
 
Revenue (a)
Income (a)
 
Revenue (a)
Income (a)
 
4Q 2015
$3,419
$548
 
$3,543
$672
 
3Q 2015
$3,904
$688
 
$3,469
$253
 
4Q 2014
$3,430
$(3,661)
 
$3,207
$(3,884)
 
             
 
a)
Pre-tax income in 4Q 2014 included litigation costs of $3.1 billion, compensation deferral expense adjustments of $904 million and a charge (negative revenues) of $468 million related to the initial implementation of FVA.
 
INSTITUTIONAL SECURITIES

Institutional Securities reported pre-tax income from continuing operations of $548 million compared with a pre-tax loss of $3.7 billion in the fourth quarter of last year.  Results for the prior year quarter included litigation costs related to residential mortgage and credit crisis related matters, compensation deferral expense adjustments and a charge related to the initial incorporation of funding valuation adjustments (FVA).8  Net revenues for both the current and prior year quarters were $3.4 billion.  DVA resulted in negative revenues of $124 million in the current quarter compared with positive revenues of $223 million a year ago. Excluding DVA and the FVA charge in the prior year quarter, net revenues of $3.5 billion for the current quarter decreased from $3.7 billion a year ago.1,14  The following discussion for sales and trading excludes DVA in both periods and the prior year FVA charge.

●  
Advisory revenues of $516 million increased from $488 million a year ago on higher levels of M&A activity.  Equity underwriting revenues of $352 million were relatively unchanged from the prior year quarter.  Fixed income underwriting revenues of $346 million decreased from $462 million in the prior year quarter reflecting lower non-investment grade bond and loan fees.
 
●  
Equity sales and trading net revenues of $1.8 billion increased from $1.6 billion from a year ago reflecting higher results across products and regions.15
 
●  
Fixed Income & Commodities sales and trading net revenues of $550 million decreased from $599 million a year ago reflecting challenging market conditions and lower results in securitized products.8,15
 
●  
Other sales and trading net losses of $103 million compared with losses of $37 million a year ago primarily reflecting lower revenues associated with corporate lending activity.
 
●  
Other revenues were $31 million compared with $161 million a year ago, primarily reflecting lower results in our Japanese joint venture Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., mark-to-market losses on loans and commitments and the absence of a commodities related gain in the prior year period.
 
●  
Compensation expense of $1.2 billion9 decreased from $2.4 billion in the prior year quarter. The prior year quarter included expense adjustments related to changes in discretionary incentive compensation deferrals.8  Excluding the prior year compensation deferral expense adjustments, compensation expenses of $1.2 billion decreased from $1.5 billion a year ago reflecting disciplined compensation management.
 
 
3

 
 
●  
Non-compensation expenses of $1.6 billion for the current quarter decreased from $4.7 billion a year ago. Excluding $3.1 billion of litigation costs associated with residential mortgage and credit crisis related matters in the prior year period,8 non-compensation expenses were relatively unchanged year over year.
 
●  
Morgan Stanley’s average trading Value-at-Risk (VaR) measured at the 95% confidence level was $46 million compared with $53 million in the third quarter of 2015 and $47 million in the fourth quarter of the prior year.16
 
       
Summary of Wealth Management Results
(dollars in millions)
       
 
Net
Pre-Tax
 
 
Revenues
Income (a)
 
4Q 2015
$3,751
$768
 
3Q 2015
$3,640
$824
 
4Q 2014
$3,804
$736
 
 
a)
Pre-tax income in 4Q 2014 included compensation deferral expense adjustments of $88 million.

WEALTH MANAGEMENT

Wealth Management reported pre-tax income from continuing operations of $768 million compared with $736 million in the fourth quarter of last year.  The quarter’s pre-tax margin was 20%, or 21% excluding severance costs.6,9  Net revenues for the current quarter were $3.8 billion.

●  
Asset management fee revenues of $2.1 billion were essentially unchanged from a year ago, reflecting the impact of lower markets offset by positive flows.
 
●  
Transactional revenues17 of $861 million decreased from $976 million a year ago primarily reflecting lower commission revenues and lower levels of new issue activity.
 
●  
Net interest income of $779 million increased from $625 million a year ago on higher deposit and loan balances.  Wealth Management client liabilities were $64 billion at quarter end, an increase of $13 billion compared with the prior year quarter.18
 
●  
Compensation expense for the current quarter of $2.1 billion9 compared with $2.3 billion a year ago. The prior year quarter included compensation deferral expense adjustments of $88 million.8  Excluding the prior year compensation adjustments, compensation expenses of $2.1 billion decreased from $2.2 billion a year ago on lower revenues.
 
●  
Non-compensation expenses of $837 million increased from $777 million a year ago on higher professional services costs.
 
●  
Total client assets were $2.0 trillion and client assets in fee based accounts were $795 billion at quarter end.  Fee based asset flows for the quarter were $11.4 billion.
 
●  
Wealth Management representatives of 15,889 produced average annualized revenue per representative of $947,000 in the current quarter.
 
 
4

 
 
       
Summary of Investment Management Results
(dollars in millions)
       
 
Net
Pre-Tax
 
 
Revenues
Income (a)
 
4Q 2015
$621
$123
 
3Q 2015
$274
$(38)
 
4Q 2014
$588
$(6)
 
       
 
a)
Pre-tax income in 4Q 2014 included compensation deferral expense adjustments of $145 million.
 
 
INVESTMENT MANAGEMENT

Investment Management reported a pre-tax income from continuing operations of $123 million compared with a pre-tax loss of $6 million in the fourth quarter of last year. The prior year quarter included expense adjustments of $145 million related to changes in discretionary incentive compensation deferrals.8

●  
Net revenues of $621 million increased from $588 million in the prior year primarily reflecting higher results in the Merchant Banking and Real Estate Investing business, partly offset by lower results in Traditional Asset Management.
 
●  
Compensation expense for the current quarter of $278 million9 compared with $381 million a year ago.8  Excluding the prior year compensation deferral expense adjustments, compensation expenses of $278 million increased from $236 million in the prior year quarter primarily due to an increase in the fair value of deferred compensation plan referenced investments.
 
●  
Assets under management or supervision at December 31, 2015 were $406 billion.
 

 
FULL YEAR RESULTS

Full year net revenues were $35.2 billion compared with $34.3 billion a year ago.  Net income applicable to Morgan Stanley for the current year was $6.1 billion, or $2.90 per diluted share, compared with net income of $3.5 billion, or $1.60 per diluted share, a year ago.7  The current year included approximately $564 million, or $0.29 per diluted share, of net discrete tax benefits compared with approximately $2.2 billion, or $1.13 per diluted share, of net discrete tax benefits in the prior year.8  The prior year also included litigation costs of $3.1 billion in the fourth quarter, or a loss of $1.47 per diluted share, compensation deferral expense adjustments of approximately $1.1 billion or a loss of $0.39 per diluted share and a funding valuation adjustment charge of $468 million or a loss of $0.17 per diluted share.8
 
Results for the year included positive revenue related to DVA of $618 million, compared with revenue of $651 million a year ago.  Excluding DVA, net revenues for the current year were $34.5 billion compared with $33.6 billion a year ago and net income applicable to Morgan Stanley was $5.7 billion, or $2.70 per diluted share, compared with net income of $3.0 billion, or $1.39 per diluted share, a year ago.2,3,4
 
The Firm’s compensation expense of $16.0 billion9 for the current year decreased from $17.8 billion a year ago, which included approximately $1.1 billion related to the changes in discretionary incentive compensation deferrals.8  Non-compensation expenses of $10.6 billion decreased from $12.9 billion a year ago driven by lower litigation costs.8
 
 
5

 
 
The return on average common equity was 8.5 percent for the full year ended 2015, or 7.8 percent excluding DVA.10

             
Summary of Firm Results
(dollars in millions)
             
 
As Reported
 
Excluding DVA 4
 
 
Net
Net Income
 
Net
Net Income
 
 
Revenues
App. To MS
 
Revenues
App. To MS
 
FY 2015
$35,155
$6,127
 
$34,537
$5,728
 
FY 2014
$34,275
$3,467
 
$33,624
$3,049
 
             
 
 
 
                                 
Summary of Segment Results
(dollars in millions)
                                 
 
As Reported
 
Excluding DVA 14
 
 
Net
 
Pre-Tax
 
Net
 
Pre-Tax
 
 
Revenues (a)
 
Income (b)
 
Revenues (a)
 
Income (b)
 
 
FY 2015
 
FY 2014
 
FY 2015
 
FY 2014
 
FY 2015
 
FY 2014
 
FY 2015
 
FY 2014
 
Institutional Securities
$17,953
 
$16,871
 
$4,671
 
$(58)
 
$17,335
 
$16,220
 
$4,053
 
$(709)
 
Wealth Management
$15,100
 
$14,888
 
$3,332
 
$2,985
 
$15,100
 
$14,888
 
$3,332
 
$2,985
 
Investment Management
$2,315
 
$2,712
 
$492
 
$664
 
$2,315
 
$2,712
 
$492
 
$664
 
                                 
 
a)
2014 Institutional Securities revenues included a pre-tax charge of $468 million related to the initial implementation of FVA.
b)
2014 Institutional Securities pre-tax income included 4Q 2014 litigation costs of $3.1 billion.
 

INSTITUTIONAL SECURITIES

Institutional Securities reported pre-tax income from continuing operations of $4.7 billion compared with a pre-tax loss of $58 million a year ago.  Net revenues for the current year were $18.0 billion compared with $16.9 billion a year ago.  Net revenues for the prior year included the impact of a pre-tax charge of approximately $468 million related to the initial incorporation of FVA into the fair value measurements of certain over-the-counter derivatives.8  DVA resulted in positive revenue of $618 million in the current year compared with revenue of $651 million a year ago.
 
Excluding DVA and the FVA charge in the prior year, net revenues for the current year were $17.3 billion compared with $16.7 billion a year ago.8,14 Compensation expense of $6.5 billion9 compared with $7.8 billion a year ago which included compensation deferral expense adjustments of $904 million.8  Excluding DVA, the compensation to net revenue ratio for the current year was 37%,19 reflecting disciplined compensation management. Non-compensation expenses of $6.8 billion decreased from $9.1 billion a year ago on lower litigation related costs.8
 
 
6

 
 
WEALTH MANAGEMENT

Wealth Management reported pre-tax income from continuing operations of $3.3 billion compared with $3.0 billion a year ago.  Net revenues for the current year were $15.1 billion compared with $14.9 billion a year ago.  The year’s pre-tax margin was 22%.6 Compensation expense was $8.6 billion9 compared with $8.8 billion a year ago.8  Non-compensation expenses of $3.2 billion increased from $3.1 billion a year ago.
 
 
INVESTMENT MANAGEMENT

Investment Management reported pre-tax income from continuing operations of $492 million compared with $664 million a year ago.  Net revenues of $2.3 billion decreased from $2.7 billion a year ago primarily reflecting lower investment revenues in the Merchant Banking and Real Estate Investing business.  Compensation expense was $954 million9 compared with $1.2 billion a year ago.8  Non-compensation expenses of $869 million compared with $835 million a year ago.
 
 
CAPITAL

As of December 31, 2015, 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 15.4% and 17.3%, respectively.11
 
As of December 31, 2015, 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 14.1% and 5.8%, respectively11,12,13
 
At December 31, 2015, book value and tangible book value per common share were $35.24 and $30.26,20 respectively, based on approximately 1.9 billion shares outstanding.


OTHER MATTERS

The effective tax rate from continuing operations for the current quarter was 34.5%, reflecting an increase from the prior quarter due to a change in the geographic mix of earnings.  The effective tax rate from continuing operations for the full year was 25.9%.
 
During the quarter ended December 31, 2015, the Firm repurchased approximately $625 million of its common stock or approximately 19 million shares.  During the year ended December 31, 2015, the Firm repurchased approximately $2.1 billion of its common stock or approximately 59 million shares.
 
The Board of Directors declared a $0.15 quarterly dividend per share payable on February 15, 2016 to common shareholders of record on January 29, 2016.
 
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.
 
 
7

 
 
A financial summary follows.  Financial, statistical and business-related information, as well as information regarding business and segment trends, is included in the Financial Supplement.  Both the earnings release and the Financial Supplement are available online in the Investor Relations section at www.morganstanley.com.


 





# # #
 
(See Attached Schedules)
 

NOTICE:
 
The information provided herein may include certain non-GAAP financial measures.  The reconciliation of such measure to the comparable GAAP figures are included in this earnings release and the Financial Supplement, both of which are available on www.morganstanley.com.
 
This earnings release contains forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made and which reflect management's current estimates, projections, expectations or beliefs and which are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of additional risks and uncertainties that may affect the future results of the Company, please see “Forward-Looking Statements” immediately preceding Part I, Item 1, “Competition” and “Supervision and Regulation” in Part I, Item 1, “Risk Factors” in Part I, Item 1A, “Legal Proceedings” in Part I, Item 3, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 and “Quantitative and Qualitative Disclosures about Market Risk” in Part II, Item 7A in the Company's Annual Report on Form 10-­K for the year ended December 31, 2014 and other items throughout the Form 10-K, the Company’s Quarterly Reports on Form 10-Q and the Company’s Current Reports on Form 8-K, including any amendments thereto.

 
8

 
 

1 Represents 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).
 
2 From time to time, Morgan Stanley may disclose certain “non-GAAP financial measures” in the course of its earnings releases, earnings conference calls, financial presentations and otherwise.  For these purposes, “GAAP” refers to generally accepted accounting principles in the United States.  The Securities and Exchange Commission (SEC) defines a “non-GAAP financial measure” as a numerical measure of historical or future financial performance, financial positions, or cash flows that is subject to adjustments that effectively exclude, or include amounts from the most directly comparable measure calculated and presented in accordance with GAAP.  Non-GAAP financial measures disclosed by Morgan Stanley are provided as additional information to investors in order to provide them with greater transparency about, or an alternative method for assessing, our financial condition, operating results, or prospective regulatory capital requirements.  These measures are not in accordance with, or a substitute for GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies.  Whenever we refer to a non-GAAP financial measure, we will also generally define it or present the most directly comparable financial measure calculated and presented in accordance with GAAP, along with a reconciliation of the differences between the non-GAAP financial measure we reference and such comparable GAAP financial measure.
 
3 Earnings (loss) per diluted share amounts, excluding DVA are non-GAAP financial measures that the Firm considers useful for investors to allow better comparability of period-to-period operating performance.  The DVA exclusion is provided to differentiate revenues associated with Morgan Stanley borrowings, regardless of whether the impact is either positive, or negative, that result solely from fluctuations in credit spreads and other credit factors.  The reconciliation of earnings (loss) per diluted share applicable to Morgan Stanley common shareholders from a non-GAAP to GAAP basis is as follows (number of shares are presented in millions):
 
 
4Q 2015
4Q 2014
FY 2015
FY 2014
Earnings (loss) per diluted share - Non-GAAP
$0.43
$(0.99)
$2.70
$1.39
DVA Impact
$(0.04)
$0.08
$0.20
$0.21
Earnings (loss) per diluted share - GAAP
$0.39
$(0.91)
$2.90
$1.60
         
Average diluted shares - GAAP
1,939
1,920
1,953
1,971
 
4 Net revenues, excluding DVA and net income (loss) applicable to Morgan Stanley, excluding DVA, are non-GAAP financial measures that the Firm considers useful for investors to allow for better comparability of period-to-period operating performance. The reconciliation of net revenues and net income (loss) applicable to Morgan Stanley from a non-GAAP to GAAP basis is as follows (amounts are presented in millions):
 
 
4Q 2015
3Q 2015
4Q 2014
FY 2015
FY 2014
Firm net revenues - Non-GAAP
$7,862
$7,332
$7,541
$34,537
$33,624
DVA impact
$(124)
$435
$223
$618
$651
Firm net revenues - GAAP
$7,738
$7,767
$7,764
$35,155
$34,275
           
Net income (loss) applicable to MS ex. DVA - Non-GAAP
$986
$740
$(1,775)
$5,728
$3,049
DVA impact
$(78)
$278
$145
$399
$418
Net income (loss) applicable to MS - GAAP
$908
$1,018
$(1,630)
$6,127
$3,467
 
5 Source: Thomson Reuters – for the period of January 1, 2015 to December 31, 2015 as of January 4, 2016.
 
6 Pre-tax margin is a non-GAAP financial measure that the Firm considers useful for investors to assess operating performance. Pre-tax margin represents income (loss) from continuing operations before taxes divided by net revenues.
 
 
9

 
 

 7 Includes preferred dividends and other adjustments related to the calculation of earnings per share for the fourth quarter of 2015 and 2014 of approximately $155 million and $119 million, respectively. Includes preferred dividends and other adjustments related to the calculation of earnings per share for the years ended 2015 and 2014 of approximately $456 million and $315 million, respectively.  Refer to page 13 of Morgan Stanley’s Financial Supplement accompanying this release for the calculation of earnings per share.
 
8 The prior year fourth quarter included several significant items which impacted earnings as follows:

i.  
Litigation costs of $3.1 billion related to residential mortgage backed securities and credit crisis related matters.
 
ii.  
A net discrete tax benefit of approximately $1.4 billion related to a legal entity restructuring that included a change in tax status of Morgan Stanley Smith Barney Holdings LLC (MSSBH) from a partnership to a corporation, which resulted in the release of a deferred tax liability which was previously established.
 
iii.  
Compensation expense adjustments of approximately $1.1 billion.  The compensation deferral expense adjustments were recorded in the business segments as follows: Institutional Securities: $904 million, Wealth Management: $88 million and Investment Management: $145 million. On December 1, 2014, the Firm’s Compensation, Management Development and Succession (CMDS) Committee of the Board of Directors approved an approach for awards of discretionary incentive compensation for the 2014 performance year to be granted in 2015 that would reduce the average deferral of such awards to an approximate baseline of 50%. Additionally, the CMDS Committee approved the acceleration of vesting for certain outstanding deferred cash-based incentive compensation awards.
 
iv.  
A charge of $468 million related to the incorporation of funding valuation adjustments (FVA) into the fair value measurements of over-the-counter uncollateralized or partially collateralized derivatives, and in collateralized derivatives where the terms of the agreement do not permit the reuse of the collateral received.  The pre-tax charge of approximately $468 million represented a change in accounting estimate, of which $466 million was reflected as a reduction to Institutional Securities Fixed Income & Commodities sales and trading net revenues.
 
The impact to earnings per diluted share of the significant items noted above is calculated by dividing the after-tax impact of each item by the average number of diluted shares outstanding for each period noted:
 
 
4Q 2014
FY 2014
Litigation costs
$(1.50)
$(1.47)
Net discrete tax benefit
$0.72
$0.70
Compensation deferral expense adjustments
$(0.41)
$(0.39)
FVA
$(0.18)
$(0.17)
Total Significant Items
$(1.37)
$(1.33)
 
In addition to the fourth quarter net discrete tax benefit noted above, there were additional tax benefits recognized during the course of 2014. Full year 2014 net discrete tax benefits aggregated to $2.2 billion, or $1.13 per diluted share.
 
9 The severance expense is associated with the Firm’s restructuring actions in the current quarter and is recorded in the business segments approximately as follows: Institutional Securities: $125 million, Wealth Management: $20 million and Investment Management: $10 million. After adjusting Wealth Management’s income (loss) from continuing operations by excluding the severance expense, the pre-tax margin was 21% in the fourth quarter.
 
 
10

 

10 Annualized return on average common equity (ROE) and ROE excluding DVA are non-GAAP financial measures that the Firm considers useful for investors to allow better comparability of period-to-period operating performance.  The calculation of ROE uses net income applicable to Morgan Stanley less preferred dividends as a percentage of average common equity.  To determine the ROE excluding DVA, both the numerator and denominator were adjusted to exclude this item. The reconciliation of ROE to ROE excluding DVA is as follows:
 
 
4Q 2015
FY 2015
ROE excluding DVA
4.9%
7.8%
DVA impact
-0.5%
0.7%
ROE
4.4%
8.5%
 
11 As a U.S. Basel III Advanced Approach banking organization, the Firm is required to compute risk-based capital ratios using both (i) standardized approaches for calculating credit risk weighted assets (“RWAs”) and market risk RWAs (the “Standardized Approach”); and (ii) an advanced internal ratings-based approach for calculating credit risk RWAs, an advanced measurement approach for calculating operational risk RWAs, and an advanced approach for market risk RWAs calculated under Basel III (the “Advanced Approach”). To implement a provision of the Dodd-Frank Act, U.S. Basel III subjects Advanced Approach banking organizations that have been approved by their regulators to exit the parallel run, such as the Firm, to a permanent “capital floor”. Beginning on January 1, 2015, the capital floor is the lower of the capital ratios computed under the Advanced Approach or the Standardized Approach under U.S. Basel III, taking into consideration applicable transitional provisions. As of December 31, 2015, the lower ratio is represented by the U.S. Basel III Advanced Approach. These computations are preliminary estimates as of January 19, 2016 (the date of this release) and could be subject to revision in Morgan Stanley’s Annual Report on Form 10-K for the year ended December 31, 2015. The methods for calculating the Firm’s risk-based capital ratios will change through January 1, 2022 as aspects of the U.S. Basel III final rule are phased in. For information on the calculation of regulatory capital and ratios for prior periods, please refer to Part II, Item 7 "Liquidity and Capital Resources - Regulatory Requirements" in the 2014 Form 10-K and Part I, Item 2 "Liquidity and Capital Resources - Regulatory Requirements" in Morgan Stanley's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015.
 
12 U.S. Basel III requires the Firm to disclose information related to its supplementary leverage ratio beginning on January 1, 2015, which through to the end of 2017 will include the effects of transitional provisions. The supplementary leverage ratio will become effective as a capital standard on January 1, 2018. Specifically, beginning on January 1, 2018, the Firm must maintain a Tier 1 supplementary leverage capital buffer of at least 2% in addition to the 3% minimum supplementary leverage ratio (for a total of at least 5%), in order to avoid limitations on capital distributions, including dividends and stock repurchases, and discretionary bonus payments to executive officers. The Firm’s pro forma Supplementary Leverage Ratio estimate utilizes a fully phased-in U.S. Basel III Tier 1 capital numerator and a denominator of approximately $1.10 trillion. The Firm’s estimates are subject to risks and uncertainties that may cause actual results to differ materially from estimates based on these regulations. Further, these expectations should not be taken as projections of what the Firm’s supplementary leverage ratios or earnings, assets or exposures will actually be at future dates. See “Risk Factors” in Part I, Item 1A in the 2014 Form 10-K for a discussion of risks and uncertainties that may affect the future results of the Firm.
 
13 The pro forma fully phased-in Common Equity Tier 1 risk-based capital ratio and pro forma fully phased-in Supplementary Leverage Ratio are non-GAAP financial measures that the Company considers to be useful measures for evaluating compliance with new regulatory capital requirements that have not yet become effective.
 
 
11

 
 
14 Institutional Securities net revenues and pre-tax income (loss), excluding DVA, and excluding DVA and the initial implementation of FVA, are non-GAAP financial measures that the Firm considers useful for investors to allow for better comparability of period-to-period operating performance. The reconciliation of net revenues and pre-tax income (loss) from a non-GAAP to GAAP basis is as follows (amounts are presented in millions):
 
 
4Q 2015
3Q 2015
4Q 2014
FY 2015
FY 2014
Net revenues - ex. DVA/FVA - Non-GAAP
$3,543
$3,469
$3,675
$17,335
$16,688
FVA impact
$0
$0
$(468)
$0
$(468)
Net revenues - ex. DVA - Non-GAAP
$3,543
$3,469
$3,207
$17,335
$16,220
DVA impact
$(124)
$435
$223
$618
$651
Net revenues - GAAP
$3,419
$3,904
$3,430
$17,953
$16,871
           
Pre-tax income (loss) - ex. DVA/FVA - Non-GAAP
$672
$253
$(3,416)
$4,053
$(241)
FVA impact
$0
$0
$(468)
$0
$(468)
Pre-tax income (loss) - ex. DVA Non-GAAP
$672
$253
$(3,884)
$4,053
$(709)
DVA impact
$(124)
$435
$223
$618
$651
Pre-tax income (loss) - GAAP
$548
$688
$(3,661)
$4,671
$(58)
 
15 Sales and trading net revenues, including Fixed Income & Commodities (FIC) and Equity sales and trading net revenues excluding DVA, and excluding DVA and the initial implementation of FVA, are non-GAAP financial measures that the Firm considers useful for investors to allow better comparability of period-to-period operating performance.  The reconciliation of sales and trading, including FIC and Equity sales and trading net revenues from a non-GAAP to GAAP basis is as follows (amounts are presented in millions):
 
 
4Q 2015
4Q 2014
FY 2015
FY 2014
Sales & Trading - ex. DVA/FVA - Non-GAAP
$2,265
$2,189
$11,832
$10,561
FVA Impact
$0
$(468)
$0
$(468)
Sales & Trading - ex. DVA - Non-GAAP
$2,265
$1,721
$11,832
$10,093
DVA Impact
$(124)
$223
$618
$651
Sales & Trading - GAAP
$2,141
$1,944
$12,450
$10,744
         
FIC Sales & Trading - ex. DVA/FVA - Non-GAAP
$550
$599
$4,303
$4,261
FVA Impact
$0
$(466)
$0
$(466)
FIC Sales & Trading - ex. DVA - Non-GAAP
$550
$133
$4,303
$3,795
DVA Impact
$(90)
$161
$455
$419
FIC Sales & Trading - GAAP
$460
$294
$4,758
$4,214
         
Equity Sales & Trading - ex. DVA/FVA - Non-GAAP
$1,818
$1,627
$8,125
$6,905
FVA Impact
$0
$(2)
$0
$(2)
Equity Sales & Trading - ex. DVA - Non-GAAP
$1,818
$1,625
$8,125
$6,903
DVA Impact
$(34)
$62
$163
$232
Equity Sales & Trading - GAAP
$1,784
$1,687
$8,288
$7,135
 
16 VaR represents the loss amount that one would not expect to exceed, on average, more than five times every one hundred trading days in the Firm’s trading positions if the portfolio were held constant for a one-day period.  Further discussion of the calculation of VaR and the limitations of the Firm’s VaR methodology is disclosed in Part II, Item 7A “Quantitative and Qualitative Disclosures about Market Risk” included in the 2014 Form 10-K.  Refer to page 6 of Morgan Stanley’s Financial Supplement accompanying this release for the VaR disclosure.
 
17 Transactional revenues include investment banking, trading, and commissions and fee revenues.
 
 
12

 
 
18 Wealth Management client liabilities reflect U.S. Bank lending and broker dealer margin activity.
 
19 Institutional Securities full year 2015 compensation ratio of 37% is calculated based on compensation expense of $6,467 million divided by net revenues, excluding DVA of $17,335 million (net revenues of $17,953 million less positive DVA of $618 million).
 
20 Tangible common equity and tangible book value per common share are non-GAAP financial measures that the Firm considers to be useful measures of capital adequacy.  Tangible common equity equals common equity less goodwill and intangible assets net of allowable mortgage servicing rights deduction.  Tangible book value per common share equals tangible common equity divided by period end common shares outstanding.
 
 
13

 
 
MORGAN STANLEY
 
Quarterly Consolidated Financial Summary
 
(unaudited, dollars in millions, except for per share data)
 
                                                 
                                                 
                                                 
   
Quarter Ended
   
Percentage Change From:
   
Twelve Months Ended
   
Percentage
 
   
Dec 31, 2015
   
Sept 30, 2015
   
Dec 31, 2014
   
Sept 30, 2015
   
Dec 31, 2014
   
Dec 31, 2015
   
Dec 31, 2014
   
Change
 
Net revenues
                                               
Institutional Securities
  $ 3,419     $ 3,904     $ 3,430       (12 %)     --     $ 17,953     $ 16,871       6 %
Wealth Management
    3,751       3,640       3,804       3 %     (1 %)     15,100       14,888       1 %
Investment Management
    621       274       588       127 %     6 %     2,315       2,712       (15 %)
Intersegment Eliminations
    (53 )     (51 )     (58 )     (4 %)     9 %     (213 )     (196 )     (9 %)
Net revenues
  $ 7,738     $ 7,767     $ 7,764       --       --     $ 35,155     $ 34,275       3 %
                                                                 
Income (loss) from continuing operations before tax
                                                               
Institutional Securities
  $ 548     $ 688     $ (3,661 )     (20 %)     *     $ 4,671     $ (58 )     *  
Wealth Management
    768       824       736       (7 %)     4 %     3,332       2,985       12 %
Investment Management
    123       (38 )     (6 )     *       *       492       664       (26 %)
Intersegment Eliminations
    0       0       0       --       --       0       0       --  
Income (loss) from continuing operations before tax
  $ 1,439     $ 1,474     $ (2,931 )     (2 %)     *     $ 8,495     $ 3,591       137 %
                                                                 
Net Income (loss) applicable to Morgan Stanley
                                                               
Institutional Securities
  $ 341     $ 518     $ (3,440 )     (34 %)     *     $ 3,696     $ (96 )     *  
Wealth Management
    480       509       1,825       (6 %)     (74 %)     2,085       3,192       (35 %)
Investment Management
    87       (9 )     (15 )     *       *       346       371       (7 %)
Intersegment Eliminations
    0       0       0       --       --       0       0       --  
Net Income (loss) applicable to Morgan Stanley
  $ 908     $ 1,018     $ (1,630 )     (11 %)     *     $ 6,127     $ 3,467       77 %
Earnings (loss) applicable to Morgan Stanley common shareholders
  $ 753     $ 939     $ (1,749 )     (20 %)     *     $ 5,671     $ 3,152       80 %
                                                                 
Financial Metrics:
                                                               
                                                                 
Earnings per diluted share from continuing operations
  $ 0.39     $ 0.48     $ (0.91 )     (19 %)     *     $ 2.91     $ 1.61       81 %
Earnings per diluted share
  $ 0.39     $ 0.48     $ (0.91 )     (19 %)     *     $ 2.90     $ 1.60       81 %
                                                                 
Earnings per diluted share from continuing operations excluding DVA
  $ 0.43     $ 0.34     $ (0.98 )     26 %     *     $ 2.71     $ 1.39       95 %
Earnings per diluted share excluding DVA
  $ 0.43     $ 0.34     $ (0.99 )     26 %     *     $ 2.70     $ 1.39       94 %
                                                                 
Return on average common equity from continuing operations
    4.5 %     5.6 %     *                       8.5 %     4.9 %        
Return on average common equity
    4.4 %     5.6 %     *                       8.5 %     4.8 %        
                                                                 
Return on average common equity from continuing operations excluding DVA
    4.9 %     3.9 %     *                       7.8 %     4.1 %        
Return on average common equity excluding DVA
    4.9 %     3.9 %     *                       7.8 %     4.1 %        
                                                                 
                                                                 
                                                                 
 
Notes: - Refer to End Notes and Definition of Performance Metrics and GAAP to Non-GAAP Measures on pages 14-16 from the Financial Supplement for additional information related to the calculation of the financial metrics.
 
 
14

 
 
MORGAN STANLEY
 
Quarterly Consolidated Income Statement Information
 
(unaudited, dollars in millions)
 
                                                 
                                                 
   
Quarter Ended
   
Percentage Change From:
   
Twelve Months Ended
   
Percentage
 
   
Dec 31, 2015
   
Sept 30, 2015
   
Dec 31, 2014
   
Sept 30, 2015
   
Dec 31, 2014
   
Dec 31, 2015
   
Dec 31, 2014
   
Change
 
Revenues:
                                               
Investment banking
  $ 1,310     $ 1,313     $ 1,456       --       (10 %)   $ 5,594     $ 5,948       (6 %)
Trading
    1,465       2,026       1,451       (28 %)     1 %     10,114       9,377       8 %
Investments
    133       (119 )     112       *       19 %     541       836       (35 %)
Commissions and fees
    1,095       1,115       1,235       (2 %)     (11 %)     4,554       4,713       (3 %)
Asset management, distribution and admin. fees
    2,611       2,732       2,684       (4 %)     (3 %)     10,766       10,570       2 %
Other
    87       (62 )     223       *       (61 %)     493       1,096       (55 %)
Total non-interest revenues
    6,701       7,005       7,161       (4 %)     (6 %)     32,062       32,540       (1 %)
                                                                 
Interest income
    1,514       1,451       1,436       4 %     5 %     5,835       5,413       8 %
Interest expense
    477       689       833       (31 %)     (43 %)     2,742       3,678       (25 %)
Net interest
    1,037       762       603       36 %     72 %     3,093       1,735       78 %
Net revenues
    7,738       7,767       7,764       --       --       35,155       34,275       3 %
Non-interest expenses:
                                                               
Compensation and benefits
    3,650       3,437       5,104       6 %     (28 %)     16,016       17,824       (10 %)
                                                                 
Non-compensation expenses:
                                                               
Occupancy and equipment
    348       341       364       2 %     (4 %)     1,382       1,433       (4 %)
Brokerage, clearing and exchange fees
    457       485       468       (6 %)     (2 %)     1,892       1,806       5 %
Information processing and communications
    467       447       404       4 %     16 %     1,767       1,635       8 %
Marketing and business development
    194       158       186       23 %     4 %     681       658       3 %
Professional services
    638       576       611       11 %     4 %     2,298       2,117       9 %
Other
    545       849       3,558       (36 %)     (85 %)     2,624       5,211       (50 %)
Total non-compensation expenses
    2,649       2,856       5,591       (7 %)     (53 %)     10,644       12,860       (17 %)
                                                                 
Total non-interest expenses
    6,299       6,293       10,695       --       (41 %)     26,660       30,684       (13 %)
                                                                 
Income (loss) from continuing operations before taxes
    1,439       1,474       (2,931 )     (2 %)     *       8,495       3,591       137 %
Income tax provision / (benefit) from continuing operations
    496       423       (1,353 )     17 %     *       2,200       (90 )     *  
Income (loss) from continuing operations
    943       1,051       (1,578 )     (10 %)     *       6,295       3,681       71 %
Gain (loss) from discontinued operations after tax
    (7 )     (2 )     (8 )     *       13 %     (16 )     (14 )     (14 %)
Net income (loss)
  $ 936     $ 1,049     $ (1,586 )     (11 %)     *     $ 6,279     $ 3,667       71 %
Net income applicable to nonredeemable noncontrolling interests
    28       31       44       (10 %)     (36 %)     152       200       (24 %)
Net income (loss) applicable to Morgan Stanley
    908       1,018       (1,630 )     (11 %)     *       6,127       3,467       77 %
Preferred stock dividend / Other
    155       79       119       96 %     30 %     456       315       45 %
Earnings (loss) applicable to Morgan Stanley common shareholders
  $ 753     $ 939     $ (1,749 )     (20 %)     *     $ 5,671     $ 3,152       80 %
                                                                 
                                                                 
Pre-tax profit margin
    19 %     19 %     *                       24 %     10 %        
Compensation and benefits as a % of net revenues
    47 %     44 %     66 %                     46 %     52 %        
Non-compensation expenses as a % of net revenues
    34 %     37 %     72 %                     30 %     38 %        
Effective tax rate from continuing operations
    34.5 %     28.7 %     46.2 %                     25.9 %     *          
                                                                 
 
Notes: - Refer to End Notes and Definition of Performance Metrics and GAAP to Non-GAAP Measures on pages 14-16 from the Financial Supplement for additional information.
 
 
15

 
 
MORGAN STANLEY
 
Quarterly Earnings Per Share
 
(unaudited, dollars in millions, except for per share data)
 
                                                 
                                                 
   
Quarter Ended
   
Percentage Change From:
   
Twelve Months Ended
   
Percentage
 
   
Dec 31, 2015
   
Sept 30, 2015
   
Dec 31, 2014
   
Sept 30, 2015
   
Dec 31, 2014
   
Dec 31, 2015
   
Dec 31, 2014
   
Change
 
                                                 
                                                 
Income (loss) from continuing operations
  $ 943     $ 1,051     $ (1,578 )     (10 %)     *     $ 6,295     $ 3,681       71 %
Net income applicable to nonredeemable noncontrolling interests
    28       31       44       (10 %)     (36 %)     152       200       (24 %)
Income (loss) from continuing operations applicable to Morgan Stanley
    915       1,020       (1,622 )     (10 %)     *       6,143       3,481       76 %
Less: Preferred Dividends and allocation of earnings to Participating Restricted Stock Units
    155       79       119       96 %     30 %     456       315       45 %
Income (loss) from continuing operations applicable to Morgan Stanley
    760       941       (1,741 )     (19 %)     *       5,687       3,166       80 %
                                                                 
Gain (loss) from discontinued operations after tax
    (7 )     (2 )     (8 )     *       12 %     (16 )     (14 )     (14 %)
Less: Gain (loss) from discontinued operations after tax applicable to noncontrolling interests
    0       0       0       --       --       0       0       --  
Less: Allocation of earnings to Participating Restricted Stock Units
    0       0       0       --       --       0       0       --  
Earnings (loss) from discontinued operations applicable to Morgan Stanley common shareholders
    (7 )     (2 )     (8 )     *       13 %     (16 )     (14 )     (14 %)
                                                                 
Earnings (loss) applicable to Morgan Stanley common shareholders
  $ 753     $ 939     $ (1,749 )     (20 %)     *     $ 5,671     $ 3,152       80 %
                                                                 
Average basic common shares outstanding (millions)
    1,889       1,904       1,920       (1 %)     (2 %)     1,909       1,924       (1 %)
                                                                 
Earnings per basic share:
                                                               
Income from continuing operations
  $ 0.40     $ 0.49     $ (0.91 )     (18 %)     *     $ 2.98     $ 1.65       81 %
Discontinued operations
  $ -     $ -     $ -       --       --     $ (0.01 )   $ (0.01 )     --  
Earnings per basic share
  $ 0.40     $ 0.49     $ (0.91 )     (18 %)     *     $ 2.97     $ 1.64       81 %
                                                                 
Average diluted common shares outstanding and common stock equivalents (millions)
    1,939       1,949       1,920       (1 %)     1 %     1,953       1,971       (1 %)
                                                                 
Earnings per diluted share:
                                                               
Income from continuing operations
  $ 0.39     $ 0.48     $ (0.91 )     (19 %)     *     $ 2.91     $ 1.61       81 %
Discontinued operations
  $ -     $ -     $ -       --       --     $ (0.01 )   $ (0.01 )     --  
Earnings per diluted share
  $ 0.39     $ 0.48     $ (0.91 )     (19 %)     *     $ 2.90     $ 1.60       81 %
                                                                 
                                                                 
 
Notes: - Refer to End Notes and Definition of Performance Metrics and GAAP to Non-GAAP Measures on pages 14-16 from the Financial Supplement for additional information.
 
 
16
 
Exhibit 99.2
 
 
Logo
MORGAN STANLEY
Financial Supplement - 4Q 2015
Table of Contents
 
Page #
   
       
 
1
…………….
Quarterly Consolidated Financial Summary
 
2
…………….
Quarterly Consolidated Income Statement Information
 
3
…………….
Quarterly Consolidated Financial Information and Statistical Data
 
4
…………….
Quarterly Consolidated Loans and Lending Commitments Financial Information
 
5
…………….
Quarterly Institutional Securities Income Statement Information
 
6
…………….
Quarterly Institutional Securities Financial Information and Statistical Data
 
7
…………….
Quarterly Wealth Management Income Statement Information
 
8
…………….
Quarterly Wealth Management Financial Information and Statistical Data
 
9
…………….
Quarterly Investment Management Income Statement Information
 
10
…………….
Quarterly Investment Management Financial Information and Statistical Data
 
11
…………….
Quarterly U.S. Bank Supplemental Financial Information
 
12
…………….
Quarterly Consolidated Return on Equity Financial Information
 
13
…………….
Quarterly Earnings Per Share Summary
 
14 - 15
…………….
End Notes
 
16
…………….
Definition of Performance Metrics and GAAP to Non-GAAP Measures
 
17
…………….
Legal Notice
 
 
 
 
 

 
 
Logo
MORGAN STANLEY
 
Quarterly Consolidated Financial Summary
 
(unaudited, dollars in millions, except for per share data)
 
                                                 
                                                 
                                                 
   
Quarter Ended
   
Percentage Change From:
   
Twelve Months Ended
   
Percentage
 
   
Dec 31, 2015
   
Sept 30, 2015
   
Dec 31, 2014
   
Sept 30, 2015
   
Dec 31, 2014
   
Dec 31, 2015
   
Dec 31, 2014
   
Change
 
Net revenues
                                               
Institutional Securities
  $ 3,419     $ 3,904     $ 3,430       (12 %)     --     $ 17,953     $ 16,871       6 %
Wealth Management
    3,751       3,640       3,804       3 %     (1 %)     15,100       14,888       1 %
Investment Management
    621       274       588       127 %     6 %     2,315       2,712       (15 %)
Intersegment Eliminations
    (53 )     (51 )     (58 )     (4 %)     9 %     (213 )     (196 )     (9 %)
Net revenues
  $ 7,738     $ 7,767     $ 7,764       --       --     $ 35,155     $ 34,275       3 %
                                                                 
Income (loss) from continuing operations before tax
                                                               
Institutional Securities
  $ 548     $ 688     $ (3,661 )     (20 %)     *     $ 4,671     $ (58 )     *  
Wealth Management
    768       824       736       (7 %)     4 %     3,332       2,985       12 %
Investment Management
    123       (38 )     (6 )     *       *       492       664       (26 %)
Intersegment Eliminations
    0       0       0       --       --       0       0       --  
Income (loss) from continuing operations before tax
  $ 1,439     $ 1,474     $ (2,931 )     (2 %)     *     $ 8,495     $ 3,591       137 %
                                                                 
Net Income (loss) applicable to Morgan Stanley
                                                               
Institutional Securities
  $ 341     $ 518     $ (3,440 )     (34 %)     *     $ 3,696     $ (96 )     *  
Wealth Management
    480       509       1,825       (6 %)     (74 %)     2,085       3,192       (35 %)
Investment Management
    87       (9 )     (15 )     *       *       346       371       (7 %)
Intersegment Eliminations
    0       0       0       --       --       0       0       --  
Net Income (loss) applicable to Morgan Stanley
  $ 908     $ 1,018     $ (1,630 )     (11 %)     *     $ 6,127     $ 3,467       77 %
                                                                 
                                                                 
Financial Metrics:
                                                               
                                                                 
Earnings per diluted share from continuing operations
  $ 0.39     $ 0.48     $ (0.91 )     (19 %)     *     $ 2.91     $ 1.61       81 %
Earnings per diluted share
  $ 0.39     $ 0.48     $ (0.91 )     (19 %)     *     $ 2.90     $ 1.60       81 %
                                                                 
Earnings per diluted share from continuing operations excluding DVA
  $ 0.43     $ 0.34     $ (0.98 )     26 %     *     $ 2.71     $ 1.39       95 %
Earnings per diluted share excluding DVA
  $ 0.43     $ 0.34     $ (0.99 )     26 %     *     $ 2.70     $ 1.39       94 %
                                                                 
Return on average common equity from continuing operations
    4.5 %     5.6 %     *                       8.5 %     4.9 %        
Return on average common equity
    4.4 %     5.6 %     *                       8.5 %     4.8 %        
                                                                 
Return on average common equity from continuing operations excluding DVA
    4.9 %     3.9 %     *                       7.8 %     4.1 %        
Return on average common equity excluding DVA
    4.9 %     3.9 %     *                       7.8 %     4.1 %        
                                                                 
                                                                 
                                                                 
 
Notes: - Refer to End Notes, Definition of Performance Metrics and GAAP to Non-GAAP Measures and Legal Notice on pages 14 - 17.
 
 
1

 
 
Logo
MORGAN STANLEY
 
Quarterly Consolidated Income Statement Information
 
(unaudited, dollars in millions)
 
                                                 
                                                 
   
Quarter Ended
   
Percentage Change From:
   
Twelve Months Ended
   
Percentage
 
   
Dec 31, 2015
   
Sept 30, 2015
   
Dec 31, 2014
   
Sept 30, 2015
   
Dec 31, 2014
   
Dec 31, 2015
   
Dec 31, 2014
   
Change
 
Revenues:
                                               
Investment banking
  $ 1,310     $ 1,313     $ 1,456       --       (10 %)   $ 5,594     $ 5,948       (6 %)
Trading
    1,465       2,026       1,451       (28 %)     1 %     10,114       9,377       8 %
Investments
    133       (119 )     112       *       19 %     541       836       (35 %)
Commissions and fees
    1,095       1,115       1,235       (2 %)     (11 %)     4,554       4,713       (3 %)
Asset management, distribution and admin. fees
    2,611       2,732       2,684       (4 %)     (3 %)     10,766       10,570       2 %
Other
    87       (62 )     223       *       (61 %)     493       1,096       (55 %)
Total non-interest revenues
    6,701       7,005       7,161       (4 %)     (6 %)     32,062       32,540       (1 %)
                                                                 
Interest income
    1,514       1,451       1,436       4 %     5 %     5,835       5,413       8 %
Interest expense
    477       689       833       (31 %)     (43 %)     2,742       3,678       (25 %)
Net interest
    1,037       762       603       36 %     72 %     3,093       1,735       78 %
Net revenues (1)
    7,738       7,767       7,764       --       --       35,155       34,275       3 %
Non-interest expenses:
                                                               
Compensation and benefits (2)
    3,650       3,437       5,104       6 %     (28 %)     16,016       17,824       (10 %)
                                                                 
Non-compensation expenses:
                                                               
Occupancy and equipment
    348       341       364       2 %     (4 %)     1,382       1,433       (4 %)
Brokerage, clearing and exchange fees
    457       485       468       (6 %)     (2 %)     1,892       1,806       5 %
Information processing and communications
    467       447       404       4 %     16 %     1,767       1,635       8 %
Marketing and business development
    194       158       186       23 %     4 %     681       658       3 %
Professional services
    638       576       611       11 %     4 %     2,298       2,117       9 %
Other (3)
    545       849       3,558       (36 %)     (85 %)     2,624       5,211       (50 %)
Total non-compensation expenses 
    2,649       2,856       5,591       (7 %)     (53 %)     10,644       12,860       (17 %)
                                                                 
Total non-interest expenses
    6,299       6,293       10,695       --       (41 %)     26,660       30,684       (13 %)
                                                                 
Income (loss) from continuing operations before taxes
    1,439       1,474       (2,931 )     (2 %)     *       8,495       3,591       137 %
Income tax provision / (benefit) from continuing operations (4)
    496       423       (1,353 )     17 %     *       2,200       (90 )     *  
Income (loss) from continuing operations
    943       1,051       (1,578 )     (10 %)     *       6,295       3,681       71 %
Gain (loss) from discontinued operations after tax
    (7 )     (2 )     (8 )     *       13 %     (16 )     (14 )     (14 %)
Net income (loss)
  $ 936     $ 1,049     $ (1,586 )     (11 %)     *     $ 6,279     $ 3,667       71 %
Net income applicable to nonredeemable noncontrolling interests
    28       31       44       (10 %)     (36 %)     152       200       (24 %)
Net income (loss) applicable to Morgan Stanley
    908       1,018       (1,630 )     (11 %)     *       6,127       3,467       77 %
Preferred stock dividend / Other
    155       79       119       96 %     30 %     456       315       45 %
Earnings (loss) applicable to Morgan Stanley common shareholders
  $ 753     $ 939     $ (1,749 )     (20 %)     *     $ 5,671     $ 3,152       80 %
                                                                 
Pre-tax profit margin
    19 %     19 %     *                       24 %     10 %        
Compensation and benefits as a % of net revenues
    47 %     44 %     66 %                     46 %     52 %        
Non-compensation expenses as a % of net revenues
    34 %     37 %     72 %                     30 %     38 %        
Effective tax rate from continuing operations (4)
    34.5 %     28.7 %     46.2 %                     25.9 %     *          
                                                                 
 
Notes: - Refer to End Notes, Definition of Performance Metrics and GAAP to Non-GAAP Measures and Legal Notice on pages 14 - 17.
 
 
2

 
 
Logo
MORGAN STANLEY
 
Quarterly Consolidated Financial Information and Statistical Data
 
(unaudited, dollars in millions)
 
                                                 
                                                 
   
Quarter Ended
   
Percentage Change From:
   
Twelve Months Ended
   
Percentage
 
   
Dec 31, 2015
   
Sept 30, 2015
   
Dec 31, 2014
   
Sept 30, 2015
   
Dec 31, 2014
   
Dec 31, 2015
   
Dec 31, 2014
   
Change
 
                                                 
                                                 
Regional revenues
                                               
Americas
  $ 5,721     $ 5,652     $ 6,118       1 %     (6 %)   $ 25,080     $ 25,140       --  
EMEA (Europe, Middle East, Africa)
    957       1,198       581       (20 %)     65 %     5,353       4,772       12 %
Asia
    1,060       917       1,065       16 %     --       4,722       4,363       8 %
Consolidated net revenues
  $ 7,738     $ 7,767     $ 7,764       --       --     $ 35,155     $ 34,275       3 %
                                                                 
Worldwide employees
    56,218       56,267       55,802       --       1 %                        
                                                                 
Deposits
  $ 156,034     $ 147,226     $ 133,544       6 %     17 %                        
Assets
  $ 787,985     $ 834,113     $ 801,510       (6 %)     (2 %)                        
Risk-weighted assets
  $ 384,964     $ 423,242     $ 456,008       (9 %)     (16 %)                        
Global liquidity reserve
  $ 203,264     $ 190,865     $ 193,169       6 %     5 %                        
Long-term debt outstanding
  $ 153,768     $ 160,343     $ 152,772       (4 %)     1 %                        
Maturities of long-term debt outstanding (next 12 months)
  $ 22,398     $ 25,022     $ 20,740       (10 %)     8 %                        
                                                                 
Common equity
  $ 67,662     $ 67,767     $ 64,880       --       4 %                        
Less: Goodwill and intangible assets
    (9,564 )     (9,652 )     (9,742 )     1 %     2 %                        
Tangible common equity
  $ 58,098     $ 58,115     $ 55,138       --       5 %                        
                                                                 
Preferred equity
  $ 7,520     $ 7,520     $ 6,020       --       25 %                        
Junior subordinated debt issued to capital trusts
  $ 2,870     $ 2,869     $ 4,868       --       (41 %)                        
                                                                 
Period end common shares outstanding (millions)
    1,920       1,938       1,951       (1 %)     (2 %)                        
Book value per common share
  $ 35.24     $ 34.97     $ 33.25                                          
Tangible book value per common share
  $ 30.26     $ 29.99     $ 28.26                                          
                                                                 
Common Equity Tier 1 capital Advanced (Transitional)
  $ 59,384     $ 59,056     $ 57,324       1 %     4 %                        
Tier 1 capital Advanced (Transitional)
  $ 66,701     $ 66,071     $ 64,182       1 %     4 %                        
                                                                 
Common Equity Tier 1 capital ratio Advanced (Transitional)
    15.4 %     14.0 %     12.6 %                                        
Common Equity Tier 1 capital ratio Advanced (Fully Phased-in)
    14.1 %     12.6 %     10.7 %                                        
Tier 1 capital ratio Advanced (Transitional)
    17.3 %     15.6 %     14.1 %                                        
Tier 1 leverage ratio (Transitional)
    8.3 %     8.1 %     7.9 %                                        
Supplementary Leverage Ratio (Transitional)
    6.1 %     5.9 %     5.4 %                                        
Supplementary Leverage Ratio (Fully Phased-in)
    5.8 %     5.5 %     4.7 %                                        
                                                                 
                                                                 
 
Notes: - Refer to End Notes, Definition of Performance Metrics and GAAP to Non-GAAP Measures and Legal Notice on pages 14 - 17.
 
 
3

 
 
Logo
MORGAN STANLEY
 
Quarterly Consolidated Loans and Lending Commitments Financial Information
 
(unaudited, dollars in billions)
 
                               
                               
                               
   
Quarter Ended
   
Percentage Change From:
 
   
Dec 31, 2015
   
Sept 30, 2015
   
Dec 31, 2014
   
Sept 30, 2015
   
Dec 31, 2014
 
                               
Institutional Securities
                             
Corporate loans (1)
  $ 16.2     $ 15.3     $ 16.2       6 %     --  
                                         
Corporate lending commitments (2)
  $ 91.6     $ 100.6     $ 82.0       (9 %)     12 %
                                         
Corporate Loans and Lending Commitments (3)
  $ 107.8     $ 115.9     $ 98.2       (7 %)     10 %
                                         
Other loans
  $ 30.7     $ 27.6     $ 24.5       11 %     25 %
                                         
Other lending commitments
  $ 3.9     $ 6.9     $ 5.2       (43 %)     (25 %)
                                         
Other Loans and Lending Commitments (4)
  $ 34.6     $ 34.5     $ 29.7       --       16 %
                                         
Institutional Securities Loans and Lending Commitments (5)
  $ 142.4     $ 150.4     $ 127.9       (5 %)     11 %
                                         
                                         
Wealth Management
                                       
                                         
Loans
  $ 49.5     $ 46.6     $ 37.8       6 %     31 %
                                         
Lending commitments
  $ 5.8     $ 5.7     $ 5.0       2 %     16 %
                                         
Wealth Management Loans and Lending Commitments (6)
  $ 55.3     $ 52.3     $ 42.8       6 %     29 %
                                         
Consolidated Loans and Lending Commitments
  $ 197.7     $ 202.7     $ 170.7       (2 %)     16 %
                                         
                                         
 
Notes: - Refer to End Notes, Definition of Performance Metrics and GAAP to Non-GAAP Measures and Legal Notice on pages 14 - 17.
 
 
4

 
 
Logo
MORGAN STANLEY
 
Quarterly Institutional Securities Income Statement Information
 
(unaudited, dollars in millions)
 
                                                 
                                                 
   
Quarter Ended
   
Percentage Change From:
   
Twelve Months Ended
   
Percentage
 
   
Dec 31, 2015
   
Sept 30, 2015
   
Dec 31, 2014
   
Sept 30, 2015
   
Dec 31, 2014
   
Dec 31, 2015
   
Dec 31, 2014
   
Change
 
Revenues:
                                               
Investment banking
  $ 1,214     $ 1,181     $ 1,295       3 %     (6 %)   $ 5,008     $ 5,203       (4 %)
Trading
    1,209       1,984       1,219       (39 %)     (1 %)     9,400       8,445       11 %
Investments
    33       113       30       (71 %)     10 %     274       240       14 %
Commissions and fees
    603       657       674       (8 %)     (11 %)     2,616       2,610       --  
Asset management, distribution and admin. fees
    70       66       68       6 %     3 %     281       281       --  
Other
    31       (112 )     161       *       (81 %)     221       684       (68 %)
Total non-interest revenues
    3,160       3,889       3,447       (19 %)     (8 %)     17,800       17,463       2 %
                                                                 
Interest income
    772       825       891       (6 %)     (13 %)     3,190       3,389       (6 %)
Interest expense
    513       810       908       (37 %)     (44 %)     3,037       3,981       (24 %)
Net interest
    259       15       (17 )     *       *       153       (592 )     *  
Net revenues (1)
    3,419       3,904       3,430       (12 %)     --       17,953       16,871       6 %
                                                                 
Compensation and benefits (2)
    1,226       1,318       2,432       (7 %)     (50 %)     6,467       7,786       (17 %)
Non-compensation expenses (3)
    1,645       1,898       4,659       (13 %)     (65 %)     6,815       9,143       (25 %)
Total non-interest expenses
    2,871       3,216       7,091       (11 %)     (60 %)     13,282       16,929       (22 %)
                                                                 
                                                                 
Income (loss) from continuing operations before taxes
    548       688       (3,661 )     (20 %)     *       4,671       (58 )     *  
Income tax provision / (benefit) from continuing operations (4)
    167       141       (261 )     18 %     *       825       (90 )     *  
Income (loss) from continuing operations
    381       547       (3,400 )     (30 %)     *       3,846       32       *  
Gain (loss) from discontinued operations after tax
    (7 )     (3 )     (8 )     (133 %)     13 %     (17 )     (19 )     11 %
Net income (loss)
    374       544       (3,408 )     (31 %)     *       3,829       13       *  
Net income applicable to nonredeemable noncontrolling interests
    33       26       32       27 %     3 %     133       109       22 %
Net income (loss) applicable to Morgan Stanley
  $ 341     $ 518     $ (3,440 )     (34 %)     *     $ 3,696     $ (96 )     *  
                                                                 
                                                                 
Pre-tax profit margin
    16 %     18 %     *                       26 %     *          
Compensation and benefits as a % of net revenues
    36 %     34 %     71 %                     36 %     46 %        
                                                                 
 
Notes: - Refer to End Notes, Definition of Performance Metrics and GAAP to Non-GAAP Measures and Legal Notice on pages 14 - 17.
 
 
5

 
 
Logo
MORGAN STANLEY
 
Quarterly Financial Information and Statistical Data
 
Institutional Securities
 
(unaudited, dollars in millions)
 
                                                 
                                                 
                                                 
   
Quarter Ended
   
Percentage Change From:
   
Twelve Months Ended
   
Percentage
 
   
Dec 31, 2015
   
Sept 30, 2015
   
Dec 31, 2014
   
Sept 30, 2015
   
Dec 31, 2014
   
Dec 31, 2015
   
Dec 31, 2014
   
Change
 
                                                 
Investment Banking
                                               
Advisory revenues
  $ 516     $ 557     $ 488       (7 %)     6 %   $ 1,967     $ 1,634       20 %
Underwriting revenues
                                                               
Equity
    352       250       345       41 %     2 %     1,398       1,613       (13 %)
Fixed income
    346       374       462       (7 %)     (25 %)     1,643       1,956       (16 %)
Total underwriting revenues
    698       624       807       12 %     (14 %)     3,041       3,569       (15 %)
                                                                 
Total investment banking revenues
  $ 1,214     $ 1,181     $ 1,295       3 %     (6 %)   $ 5,008     $ 5,203       (4 %)
                                                                 
Sales & Trading
                                                               
Equity
  $ 1,784     $ 1,869     $ 1,687       (5 %)     6 %   $ 8,288     $ 7,135       16 %
Fixed Income & Commodities (1)
    460       918       294       (50 %)     56 %     4,758       4,214       13 %
Other
    (103 )     (65 )     (37 )     (58 %)     (178 %)     (596 )     (605 )     1 %
Total sales & trading net revenues
  $ 2,141     $ 2,722     $ 1,944       (21 %)     10 %   $ 12,450     $ 10,744       16 %
                                                                 
Investments & Other
                                                               
Investments
  $ 33     $ 113     $ 30       (71 %)     10 %   $ 274     $ 240       14 %
Other
    31       (112 )     161       *       (81 %)     221       684       (68 %)
Total investments & other revenues
  $ 64     $ 1     $ 191       *       (66 %)   $ 495     $ 924       (46 %)
                                                                 
Institutional Securities net revenues
  $ 3,419     $ 3,904     $ 3,430       (12 %)     --     $ 17,953     $ 16,871       6 %
                                                                 
                                                                 
                                                                 
Average Daily 95% / One-Day Value-at-Risk ("VaR")
                                                               
Primary Market Risk Category ($ millions, pre-tax)
                                                               
Interest rate and credit spread
  $ 31     $ 37     $ 34                                          
Equity price
  $ 18     $ 18     $ 18                                          
Foreign exchange rate
  $ 11     $ 12     $ 11                                          
Commodity price
  $ 12     $ 17     $ 14                                          
                                                                 
Aggregation of Primary Risk Categories
  $ 43     $ 50     $ 43                                          
                                                                 
Credit Portfolio VaR
  $ 13     $ 12     $ 12                                          
                                                                 
Trading VaR
  $ 46     $ 53     $ 47                                          
                                                                 
                                                                 
                                                                 
 
Notes: For the periods noted below, sales and trading net revenues included positive / (negative) revenue related to DVA as follows:
   
December 31, 2015: Total QTD: $(124) million; Fixed Income & Commodities: $(90) million; Equity: $(34) million
   
September 30, 2015: Total QTD: $435 million; Fixed Income & Commodities: $335 million; Equity: $100 million
   
December 31, 2014: Total QTD: $223 million; Fixed Income & Commodities: $161 million; Equity: $62 million
   
December 31, 2015: Total YTD: $618 million; Fixed Income & Commodities: $455 million; Equity: $163 million
   
December 31, 2014: Total YTD: $651 million; Fixed Income & Commodities: $419 million; Equity: $232 million
  - Refer to End Notes, Definition of Performance Metrics and GAAP to Non-GAAP Measures and Legal Notice on pages 14 - 17.
 
 
6

 
 
Logo
MORGAN STANLEY
 
Quarterly Wealth Management Income Statement Information
 
(unaudited, dollars in millions)
 
                                                 
                                                 
   
Quarter Ended
   
Percentage Change From:
   
Twelve Months Ended
   
Percentage
 
   
Dec 31, 2015
   
Sept 30, 2015
   
Dec 31, 2014
   
Sept 30, 2015
   
Dec 31, 2014
   
Dec 31, 2015
   
Dec 31, 2014
   
Change
 
Revenues:
                                               
Investment banking
  $ 105     $ 140     $ 173       (25 %)     (39 %)   $ 623     $ 791       (21 %)
Trading
    256       47       230       *       11 %     731       957       (24 %)
Investments
    0       3       1       *       *       18       9       100 %
Commissions and fees
    500       465       573       8 %     (13 %)     1,981       2,127       (7 %)
Asset management, distribution and admin. fees
    2,065       2,182       2,135       (5 %)     (3 %)     8,536       8,345       2 %
Other
    46       52       67       (12 %)     (31 %)     255       320       (20 %)
Total non-interest revenues
    2,972       2,889       3,179       3 %     (7 %)     12,144       12,549       (3 %)
                                                                 
Interest income
    809       777       670       4 %     21 %     3,105       2,516       23 %
Interest expense
    30       26       45       15 %     (33 %)     149       177       (16 %)
Net interest
    779       751       625       4 %     25 %     2,956       2,339       26 %
Net revenues
    3,751       3,640       3,804       3 %     (1 %)     15,100       14,888       1 %
                                                                 
Compensation and benefits (1)
    2,146       2,024       2,291       6 %     (6 %)     8,595       8,825       (3 %)
Non-compensation expenses 
    837       792       777       6 %     8 %     3,173       3,078       3 %
Total non-interest expenses
    2,983       2,816       3,068       6 %     (3 %)     11,768       11,903       (1 %)
                                                                 
Income (loss) from continuing operations before taxes
    768       824       736       (7 %)     4 %     3,332       2,985       12 %
Income tax provision / (benefit) from continuing operations (2)
    288       315       (1,089 )     (9 %)     *       1,247       (207 )     *  
Income (loss) from continuing operations
    480       509       1,825       (6 %)     (74 %)     2,085       3,192       (35 %)
Gain (loss) from discontinued operations after tax
    0       0       0       --       --       0       0       --  
Net income (loss)
    480       509       1,825       (6 %)     (74 %)     2,085       3,192       (35 %)
Net income applicable to nonredeemable noncontrolling interests
    -       -       -       --       --       -       -       --  
Net income (loss) applicable to Morgan Stanley
  $ 480     $ 509     $ 1,825       (6 %)     (74 %)   $ 2,085     $ 3,192       (35 %)
                                                                 
Pre-tax profit margin
    20 %     23 %     19 %                     22 %     20 %        
Compensation and benefits as a % of net revenues
    57 %     56 %     60 %                     57 %     59 %        
                                                                 
 
Notes: - Refer to End Notes, Definition of Performance Metrics and GAAP to Non-GAAP Measures and Legal Notice on pages 14 - 17.
 
 
7

 
 
Logo
MORGAN STANLEY  
Quarterly Financial Information and Statistical Data  
Wealth Management  
(unaudited)  
                               
                               
                               
   
Quarter Ended
   
Percentage Change From:
 
   
Dec 31, 2015
   
Sept 30, 2015
   
Dec 31, 2014
   
Sept 30, 2015
   
Dec 31, 2014
 
                               
                               
Bank deposit program (billions) (1)
  $ 149     $ 139     $ 137       7 %     9 %
                                         
Wealth Management Metrics
                                       
                                         
Wealth Management representatives
    15,889       15,807       16,076       1 %     (1 %)
                                         
Annualized revenue per representative (000's)
  $ 947     $ 922     $ 944       3 %     --  
                                         
Client assets (billions)
  $ 1,985     $ 1,925     $ 2,025       3 %     (2 %)
Client assets per representative (millions)
  $ 125     $ 122     $ 126       2 %     (1 %)
Client liabilities (billions)
  $ 64     $ 61     $ 51       5 %     25 %
                                         
Fee based asset flows (billions)
  $ 11.4     $ 7.7     $ 20.8       48 %     (45 %)
Fee based client account assets (billions)
  $ 795     $ 770     $ 785       3 %     1 %
Fee based assets as a % of client assets
    40 %     40 %     39 %                
                                         
Retail locations
    608       616       622       (1 %)     (2 %)
                                         
                                         
 
Notes: - Refer to End Notes, Definition of Performance Metrics and GAAP to Non-GAAP Measures and Legal Notice on pages 14 - 17.
 
 
8

 
 
Logo
MORGAN STANLEY
 
Quarterly Investment Management Income Statement Information
 
(unaudited, dollars in millions)
 
                                                 
                                                 
   
Quarter Ended
   
Percentage Change From:
   
Twelve Months Ended
   
Percentage
 
   
Dec 31, 2015
   
Sept 30, 2015
   
Dec 31, 2014
   
Sept 30, 2015
   
Dec 31, 2014
   
Dec 31, 2015
   
Dec 31, 2014
   
Change
 
Revenues:
                                               
Investment banking
  $ -     $ 1     $ -       *       --     $ 1     $ 5       (80 %)
Trading
    2       0       3       *       (33 %)     (1 )     (19 )     95 %
Investments (1)
    100       (235 )     81       *       23 %     249       587       (58 %)
Commissions and fees
    1       0       0       *       *       1       0       *  
Asset management, distribution and admin. fees
    502       511       506       (2 %)     (1 %)     2,049       2,049       --  
Other
    17       1       2       *       *       32       106       (70 %)
Total non-interest revenues
    622       278       592       124 %     5 %     2,331       2,728       (15 %)
                                                                 
Interest income
    1       0       0       *       *       2       2       --  
Interest expense
    2       4       4       (50 %)     (50 %)     18       18       --  
Net interest
    (1 )     (4 )     (4 )     75 %     75 %     (16 )     (16 )     --  
Net revenues
    621       274       588       127 %     6 %     2,315       2,712       (15 %)
                                                                 
Compensation and benefits (2)
    278       95       381       193 %     (27 %)     954       1,213       (21 %)
Non-compensation expenses 
    220       217       213       1 %     3 %     869       835       4 %
Total non-interest expenses
    498       312       594       60 %     (16 %)     1,823       2,048       (11 %)
                                                                 
Income (loss) from continuing operations before taxes
    123       (38 )     (6 )     *       *       492       664       (26 %)
Income tax provision / (benefit) from continuing operations
    41       (33 )     (3 )     *       *       128       207       (38 %)
Income (loss) from continuing operations
    82       (5 )     (3 )     *       *       364       457       (20 %)
Gain (loss) from discontinued operations after tax
    0       1       0       *       --       1       5       (80 %)
Net income (loss)
    82       (4 )     (3 )     *       *       365       462       (21 %)
Net income applicable to nonredeemable noncontrolling interests
    (5 )     5       12       *       *       19       91       (79 %)
Net income (loss) applicable to Morgan Stanley
  $ 87     $ (9 )   $ (15 )     *       *     $ 346     $ 371       (7 %)
                                                                 
Pre-tax profit margin
    20 %     *       *                       21 %     24 %        
Compensation and benefits as a % of net revenues
    45 %     35 %     65 %                     41 %     45 %        
                                                                 
 
Notes: - Refer to End Notes, Definition of Performance Metrics and GAAP to Non-GAAP Measures and Legal Notice on pages 14 - 17.
 
 
9

 
 
Logo
MORGAN STANLEY
 
Quarterly Financial Information and Statistical Data
 
Investment Management
 
(unaudited)
 
                                                 
   
Quarter Ended
   
Percentage Change From:
   
Twelve Months Ended
   
Percentage
 
   
Dec 31, 2015
   
Sept 30, 2015
   
Dec 31, 2014
   
Sept 30, 2015
   
Dec 31, 2014
   
Dec 31, 2015
   
Dec 31, 2014
   
Change
 
                                                 
Net Revenues (millions)
                                               
Traditional Asset Management
  $ 410     $ 389     $ 432       5 %     (5 %)   $ 1,669     $ 1,798       (7 %)
Merchant Banking and Real Estate Investing (1)
    211       (115 )     156       *       35 %     646       914       (29 %)
Total Investment Management
  $ 621     $ 274     $ 588       127 %     6 %   $ 2,315     $ 2,712       (15 %)
                                                                 
Assets under management or supervision (billions)
                                                               
                                                                 
Net flows by asset class (2)
                                                               
Traditional Asset Management
                                                               
Equity (3)
  $ (2.9 )   $ (1.5 )   $ (2.9 )     (93 %)     --     $ (10.8 )   $ (1.9 )     *  
Fixed Income
    0.0       (3.0 )     1.4       *       *       (2.2 )     5.2       *  
Liquidity
    1.4       15.8       3.3       (91 %)     (58 %)     20.7       17.4       19 %
Alternatives
    0.1       (0.7 )     0.6       *       (83 %)     0.1       3.5       (97 %)
Managed Futures
    0.0       (0.1 )     (0.2 )     *       *       (0.4 )     (0.9 )     56 %
Total Traditional Asset Management
    (1.4 )     10.5       2.2       *       *       7.4       23.3       (68 %)
                                                                 
Merchant Banking and Real Estate Investing
    0.4       0.5       1.3       (20 %)     (69 %)     (0.1 )     0.7       *  
Total net flows
  $ (1.0 )   $ 11.0     $ 3.5       *       *     $ 7.3     $ 24.0       (70 %)
                                                                 
Assets under management or supervision by asset class (4)
   
 
                                                         
Traditional Asset Management
                                                               
Equity
  $ 126     $ 125     $ 141       1 %     (11 %)                        
Fixed Income
    60       61       65       (2 %)     (8 %)                        
Liquidity
    149       148       128       1 %     16 %                        
Alternatives
    36       36       36       --       --                          
Managed Futures
    3       3       3       --       --                          
Total Traditional Asset Management
    374       373       373       --       --                          
                                                                 
Merchant Banking and Real Estate Investing
    32       31       30       3 %     7 %                        
Total Assets Under Management or Supervision
  $ 406     $ 404     $ 403       --       1 %                        
Share of minority stake assets
  $ 7     $ 8     $ 7       (13 %)     --                          
                                                                 
                                                                 
 
Notes: - Refer to End Notes, Definition of Performance Metrics and GAAP to Non-GAAP Measures and Legal Notice on pages 14 - 17.
 
 
10

 
 
Logo
MORGAN STANLEY
 
Quarterly U.S. Bank Supplemental Financial Information
 
(unaudited, dollars in billions)
 
                               
                               
                               
                               
   
Quarter Ended
   
Percentage Change From:
 
   
Dec 31, 2015
   
Sept 30, 2015
   
Dec 31, 2014
   
Sept 30, 2015
   
Dec 31, 2014
 
                               
                               
U.S. Bank assets
  $ 174.2     $ 163.5     $ 151.2       7 %     15 %
                                         
U.S. Bank investment securities portfolio (1)
  $ 57.9     $ 52.4     $ 57.3       10 %     1 %
                                         
                                         
Wealth Management U.S. Bank Data
                                       
Securities-based lending and other loans
  $ 28.5     $ 26.8     $ 21.9       6 %     30 %
Residential real estate loans
    21.0       19.7       15.8       7 %     33 %
Total Securities-based and residential loans
  $ 49.5     $ 46.5     $ 37.7       6 %     31 %
                                         
                                         
Institutional Securities U.S. Bank Data
                                       
Corporate Lending
  $ 10.0     $ 10.0     $ 9.6       --       4 %
Other Lending:
                                       
Corporate loans
    12.9       10.5       8.0       23 %     61 %
Wholesale real estate and other loans (2)
    8.9       9.2       8.6       (3 %)     3 %
Total other loans
  $ 21.8     $ 19.7     $ 16.6       11 %     31 %
Total corporate and other loans
  $ 31.8     $ 29.7     $ 26.2       7 %     21 %
                                         
                                         
                                         
 
Notes: - Refer to End Notes, Definition of Performance Metrics and GAAP to Non-GAAP Measures and Legal Notice on pages 14 - 17.
 
 
11

 
 
Logo
MORGAN STANLEY
 
Quarterly Consolidated Return on Equity Financial Information
 
(unaudited, dollars in billions)
 
                                                 
                                                 
                                                 
   
Quarter Ended
   
Percentage Change From:
   
Twelve Months Ended
   
Percentage
 
   
Dec 31, 2015
   
Sept 30, 2015
   
Dec 31, 2014
   
Sept 30, 2015
   
Dec 31, 2014
   
Dec 31, 2015
   
Dec 31, 2014
   
Change
 
Average Common Equity Tier 1 capital
                                               
Institutional Securities
  $ 30.7     $ 32.0     $ 31.5       (4 %)     (3 %)   $ 32.8     $ 31.3       5 %
Wealth Management
    5.7       5.1       4.8       12 %     19 %     4.9       5.2       (6 %)
Investment Management
    1.2       1.3       2.0       (8 %)     (40 %)     1.3       1.9       (32 %)
Parent capital
    21.6       20.4       21.5       6 %     --       19.2       19.2       --  
Firm
  $ 59.2     $ 58.8     $ 59.8       1 %     (1 %)   $ 58.2     $ 57.6       1 %
                                                                 
Average Common Equity
                                                               
Institutional Securities
  $ 32.3     $ 33.8     $ 32.3       (4 %)     --     $ 34.6     $ 32.2       7 %
Wealth Management
    11.9       11.4       10.7       4 %     11 %     11.2       11.2       --  
Investment Management
    2.0       2.1       2.9       (5 %)     (31 %)     2.2       2.9       (24 %)
Parent capital
    21.5       20.3       21.3       6 %     1 %     18.9       19.0       (1 %)
Firm
  $ 67.7     $ 67.6     $ 67.2       --       1 %   $ 66.9     $ 65.3       2 %
                                                                 
                                                                 
Return on average Common Equity Tier 1 capital (1)
                                                               
Institutional Securities
    3 %     6 %     *                       11 %     *          
Wealth Management
    30 %     38 %     148 %                     39 %     59 %        
Investment Management
    29 %     *       *                       27 %     19 %        
Firm
    5 %     6 %     *                       10 %     5 %        
                                                                 
Return on average Common Equity (1)
                                                               
Institutional Securities
    3 %     6 %     *                       10 %     *          
Wealth Management
    14 %     17 %     66 %                     17 %     27 %        
Investment Management
    17 %     *       *                       16 %     13 %        
Firm
    4 %     6 %     *                       8 %     5 %        
                                                                 
                                                                 
 
Notes: - Refer to End Notes, Definition of Performance Metrics and GAAP to Non-GAAP Measures and Legal Notice on pages 14 - 17.
 
 
12

 
 
Logo
MORGAN STANLEY
 
Quarterly Earnings Per Share
 
(unaudited, dollars in millions, except for per share data)
 
                                                 
                                                 
   
Quarter Ended
   
Percentage Change From:
   
Twelve Months Ended
   
Percentage
 
   
Dec 31, 2015
   
Sept 30, 2015
   
Dec 31, 2014
   
Sept 30, 2015
   
Dec 31, 2014
   
Dec 31, 2015
   
Dec 31, 2014
   
Change
 
                                                 
                                                 
Income (loss) from continuing operations
  $ 943     $ 1,051     $ (1,578 )     (10 %)     *     $ 6,295     $ 3,681       71 %
Net income applicable to nonredeemable noncontrolling interests
    28       31       44       (10 %)     (36 %)     152       200       (24 %)
Income (loss) from continuing operations applicable to Morgan Stanley
    915       1,020       (1,622 )     (10 %)     *       6,143       3,481       76 %
Less: Preferred Dividends and allocation of earnings to Participating Restricted Stock Units
    155       79       119       96 %     30 %     456       315       45 %
Income (loss) from continuing operations applicable to Morgan Stanley
    760       941       (1,741 )     (19 %)     *       5,687       3,166       80 %
                                                                 
Gain (loss) from discontinued operations after tax
    (7 )     (2 )     (8 )     *       12 %     (16 )     (14 )     (14 %)
Less: Gain (loss) from discontinued operations after tax applicable to noncontrolling interests
    0       0       0       --       --       0       0       --  
Less: Allocation of earnings to Participating Restricted Stock Units
    0       0       0       --       --       0       0       --  
Earnings (loss) from discontinued operations applicable to Morgan Stanley common shareholders
    (7 )     (2 )     (8 )     *       13 %     (16 )     (14 )     (14 %)
                                                                 
Earnings (loss) applicable to Morgan Stanley common shareholders
  $ 753     $ 939     $ (1,749 )     (20 %)     *     $ 5,671     $ 3,152       80 %
                                                                 
Average basic common shares outstanding (millions)
    1,889       1,904       1,920       (1 %)     (2 %)     1,909       1,924       (1 %)
                                                                 
Earnings per basic share:
                                                               
Income from continuing operations
  $ 0.40     $ 0.49     $ (0.91 )     (18 %)     *     $ 2.98     $ 1.65       81 %
Discontinued operations
  $ -     $ -     $ -       --       --     $ (0.01 )   $ (0.01 )     --  
Earnings per basic share
  $ 0.40     $ 0.49     $ (0.91 )     (18 %)     *     $ 2.97     $ 1.64       81 %
                                                                 
Average diluted common shares outstanding and common stock equivalents (millions)
    1,939       1,949       1,920       (1 %)     1 %     1,953       1,971       (1 %)
                                                                 
Earnings per diluted share:
                                                               
Income from continuing operations
  $ 0.39     $ 0.48     $ (0.91 )     (19 %)     *     $ 2.91     $ 1.61       81 %
Discontinued operations
  $ -     $ -     $ -       --       --     $ (0.01 )   $ (0.01 )     --  
Earnings per diluted share
  $ 0.39     $ 0.48     $ (0.91 )     (19 %)     *     $ 2.90     $ 1.60       81 %
                                                                 
                                                                 
 
Notes: - Refer to End Notes, Definition of Performance Metrics and GAAP to Non-GAAP Measures and Legal Notice on pages 14 - 17.
 
 
13

 
 
Logo
MORGAN STANLEY
End Notes
   
   
   
Page 2:
(1)
During the fourth quarter of 2014, Morgan Stanley incorporated funding valuation adjustments (FVA) into the fair value measurements of over-the-counter uncollateralized or partially collateralized derivatives, and in collateralized derivatives where the terms of the agreement do not permit the reuse of the collateral received.  In connection with its implementation of FVA, Morgan Stanley incurred a pre-tax charge of approximately $468 million, representing a change in accounting estimate, of which $466 million was reflected as a reduction to Institutional Securities Fixed Income & Commodities sales and trading net revenues.
(2)
On December 1, 2014, the Firm’s Compensation, Management Development and Succession (CMDS) Committee of the Board of Directors approved an approach for awards of discretionary incentive compensation for the 2014 performance year to be granted in 2015 that would reduce the average deferral of such awards to an approximate baseline of 50%. Additionally, the CMDS Committee approved the acceleration of vesting for certain outstanding deferred cash-based incentive compensation awards.  The impact of these actions on compensation and benefits expenses for the Firm and each business segment are as follows: Firm: $1,137 million, ISG: $904 million, WM: $88 million, IM: $145 million.
(3)
For the quarter and full year ended December 31, 2014, other expenses included approximately $3.1 billion of additions to legal reserves associated with legacy residential mortgage and credit crisis related matters (reported in the Institutional Securities segment).
(4)
For the year ended December 31, 2015, income tax provision / (benefit) from continuing operations included a net discrete tax benefit of $564 million primarily associated with the repatriation of non-U.S. earnings at a cost lower than originally estimated due to an internal restructuring to simplify the Firm's legal entity organization in the U.K. For the year ended December 31, 2014, the income tax provision / (benefit) from continuing operations included net discrete tax benefits of approximately $2.2 billion.  On October 31, 2014, the Firm completed a legal entity restructuring that included a change in tax status of Morgan Stanley Smith Barney Holdings LLC (MSSBH) from a partnership to a corporation.  As a result of this change in tax status, the Firm’s effective tax rate from continuing operations for the quarter and full year ended December 31, 2014, included a net discrete tax benefit of approximately $1.4 billion primarily due to the release of a deferred tax liability which was previously established.   Also included in the full year ended December 31, 2014, were net discrete tax benefits of approximately $609 million related to the remeasurement of reserves and related interest based on new information regarding the status of a multi-year tax authority examination, and approximately $237 million primarily associated with the repatriation of non-U.S. earnings at a cost lower than originally estimated.  In addition, the Firm's provision for (benefit from) income taxes was impacted by approximately $900 million as a result of non-deductible expenses related to litigation and regulatory matters.
   
Page 4:
(1)
For the quarters ended December 31, 2015, September 30, 2015 and December 31, 2014 the percentage of Institutional Securities corporate loans by credit rating was as follows:
 
- % investment grade: 36%, 37% and 39%
 
- % non-investment grade: 64%, 63% and 61%
(2)
For the quarters ended December 31, 2015, September 30, 2015 and December 31, 2014 the percentage of Institutional Securities corporate lending commitments by credit rating was as follows:
 
- % investment grade: 73%, 72% and 74%
 
- % non-investment grade: 27%, 28% and 26%
(3)
On December 31, 2015, September 31, 2015 and December 31, 2014, the "event-driven" portfolio of loans and lending commitments to non-investment grade borrowers were $13.5 billion, $15.8 billion and $11.6 billion, respectively.
(4)
The Institutional Securities business segment engages in other lending activity.  These activities include commercial and residential mortgage lending, asset-backed lending, corporate loans purchased in the secondary market, financing extended to equities and commodities customers, and loans to municipalities.
(5)
For the quarters ended December 31, 2015, September 30, 2015 and December 31, 2014, Institutional Securities recorded a provision for credit losses of $37.3 million, $3.5 million and $12.5 million, respectively, related to loans and $22.8 million, $4.8 million and $8.0 million related to lending commitments, respectively.
(6)
For the quarters ended December 31, 2015, September 30, 2015 and December 31, 2014, Wealth Management recorded a provision for credit losses of $14.9 million, $1.3 million and $1.0 million, respectively, related to loans. For the quarter ended December 31, 2015  a provision of $1.4 million was recorded related to lending commitments, and there was no material provision for the prior quarterly periods presented.
   
Page 5:
(1)
For the quarter and full year ended December 31, 2014, Morgan Stanley incurred a pre-tax charge of approximately $468 million for the initial implementation of FVA, representing a change in accounting estimate, of which $466 million was reflected as a reduction to Institutional Securities Fixed Income & Commodities sales and trading net revenues.
(2)
In the quarter ended December 31, 2014, the impact of compensation deferral expense adjustments for the Institutional Securities business segment was $904 million.
(3)
For the quarter and full year ended December 31, 2014, non-compensation expenses included approximately $3.1 billion of additions to legal reserves associated with legacy residential mortgage and credit crisis related matters.
(4)
For the year ended December 31, 2015, income tax provision / (benefit) from continuing operations included a net discrete tax benefit of $564 million primarily associated with the repatriation of non-U.S. earnings at a cost lower than originally estimated due to an internal restructuring to simplify the Firm's legal entity organization in the U.K. For the year ended December 31, 2014, income tax provision / (benefit) from continuing operations included an aggregate net discrete tax benefit of approximately $839 million comprised of: $612 million principally associated with the remeasurement of reserves and related interest due to new information regarding the status of a multi-year tax authority examination and approximately $237 million primarily associated with the repatriation of non-U.S. earnings at a cost lower than originally estimated.  In addition, the Firm's provision for (benefit from) income taxes was impacted by approximately $900 million as a result of non-deductible expenses related to litigation and regulatory matters.
 
 
14

 
 
Logo
MORGAN STANLEY
End Notes
   
   
Page 6:
(1)
For the quarter and full year ended December 31, 2014, Morgan Stanley incurred a pre-tax charge of approximately $468 million for the initial implementation of FVA, representing a change in accounting estimate, of which $466 million was reflected as a reduction to Institutional Securities Fixed Income & Commodities sales and trading net revenues.
   
Page 7:
(1)
In the quarter ended December 31, 2014, the impact of compensation deferral expense adjustments for the Wealth Management business segment was $88 million.
   
(2)
On October 31, 2014, the Firm completed a legal entity restructuring that included a change in tax status of Morgan Stanley Smith Barney Holdings LLC (MSSBH) from a partnership to a corporation. As a result of this change in tax status, the Firm’s effective tax rate from continuing operations for the quarter and full year ended December 31, 2014, included a net discrete tax benefit of approximately $1.4 billion primarily due to the release of a deferred tax liability which was previously established.
   
Page 8:
(1)
For the quarter ended December 31, 2014, approximately $128 billion of the assets in the bank deposit program were attributable to Morgan Stanley.
   
Page 9:
(1)
The quarters ended December 31, 2015, September 30, 2015 and December 31, 2014 include investment gains (losses) for certain funds included in the Firm's consolidated financial statements.  The limited partnership interests in these gains were reported in net income (loss) applicable to noncontrolling interests.
(2)
In the quarter ended December 31, 2014, the impact of the compensation deferral expense adjustments for the Investment Management business segment was $145 million.
   
Page 10:
(1)
Real Estate Investing revenues within Merchant Banking and Real Estate Investing includes gains or losses related to investments held by certain consolidated real estate funds.  These gains or losses are offset in net income (loss) applicable to noncontrolling interests.
(2)
Net Flows by region [inflow / (outflow)] for the quarters ended December 31, 2015, September 30, 2015 and December 31, 2014 were:
 
North America: $(4.5) billion, $18.0 billion and $3.7 billion
 
International: $3.5 billion, $(7.0) billion and $(0.2) billion
(3)
For the quarter ended September 30, 2015 and the full year ended December 31, 2015, Traditional Asset Management Equity net flows include $4.6 billion of inflows related to the transfer of certain portfolio managers, and their portfolios, from Wealth Management to Investment Management.
(4)
Assets under management or supervision by region for the quarters ended December 31, 2015, September 30, 2015 and December 31, 2014 were:
 
North America: $263 billion, $266 billion and $250 billion
 
International: $143 billion, $138 billion and $153 billion
   
Page 11:
(1)
For the quarters ended December 31, 2015, September 30, 2015 and December 31, 2014, the U.S. Bank investment securities portfolio included held to maturity investment securities of $4.9 billion, $3.5 billion and $100 million, respectively.
(2)
For the quarters ended December 31, 2015, September 30, 2015 and December 31, 2014, Other loans represent residential mortgage loans held for sale of $45 million, $45 million and $16 million, respectively.
   
Page 12:
(1)
In the quarter and full year ended December 31, 2014, the returns on average Common Equity and average Common Equity Tier 1 Capital for Wealth Management reflect the impact of a net discrete tax benefit of $1.4 billion related to the restructuring of a legal entity.
 
 
15

 
 
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MORGAN STANLEY
Definition of Performance Metrics and GAAP to Non-GAAP Measures
   
GAAP vs. Non-GAAP Measures
(a)
From time to time, Morgan Stanley may disclose certain “non-GAAP financial measures” in the course of its earnings releases, earnings conference calls, financial presentations and otherwise.  For these purposes, “GAAP” refers to generally accepted accounting principles in the United States.  The Securities and Exchange Commission (SEC) defines a “non-GAAP financial measure” as a numerical measure of historical or future financial performance, financial positions, or cash flows that is subject to adjustments that effectively exclude, or include amounts from the most directly comparable measure calculated and presented in accordance with GAAP.  Non-GAAP financial measures disclosed by Morgan Stanley are provided as additional information to investors in order to provide them with greater transparency about, or an alternative method for assessing, our financial condition, operating results or prospective regulatory capital requirements. These measures are not in accordance with, or a substitute for GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies.  Whenever we refer to a non-GAAP financial measure, we will also generally define it or present the most directly comparable financial measure calculated and presented in accordance with GAAP, along with a reconciliation of the differences between the non-GAAP financial measure we reference and such comparable GAAP financial measure.  In addition to the following notes, please also refer to the Firm's fourth quarter earnings release footnotes for such definitions and reconciliations.
(b)
The following are considered non-GAAP financial measures: earnings (loss) per diluted share excluding DVA, return on average common equity metrics, return on average common equity excluding DVA metrics, return on average Common Equity Tier 1 capital, Tangible Common Equity, Tangible book value per common share and pre-tax margin. These measures are calculated as follows:
     - The earnings (loss) per diluted share amounts, excluding DVA represent net income (loss) from continuing operations applicable to Morgan Stanley, or net income (loss) applicable to Morgan Stanley, in each case adjusted for the positive / (negative) impact of DVA, less preferred dividends divided by the average number of diluted shares outstanding.
     - The return on average common equity and the return on average common equity from continuing operations equal income applicable to Morgan Stanley in each case less preferred dividends as a percentage of average common equity.
     - The return on average common equity and the return on average common equity from continuing operations excluding DVA are adjusted for DVA in each case in the numerator and denominator.
     - The return on average Common Equity Tier 1 capital from continuing operations equals income applicable to Morgan Stanley less preferred dividends as a percentage of average Common Equity Tier 1 capital.
     - Tangible common equity equals common equity less goodwill and intangible assets net of allowable mortgage servicing rights deduction.
     - Tangible book value per common share equals tangible common equity divided by period end common shares outstanding.
     - Pre-tax profit margin percentages represent income from continuing operations before income taxes as a percentage of net revenues.
(c)
Results for the quarters ended December 31, 2015, September 30, 2015 and December 31, 2014, include positive/(negative) revenue of $(124) million, $435 million and $223 million, respectively, 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).  Results for the full year ended December 31, 2015 and December 31, 2014, include positive DVA revenue of $618 million and $651 million, respectively.
(d)
The fully phased-in Common Equity Tier 1 risk-based capital ratio and fully phased-in Supplementary Leverage Ratio are proforma estimates which represent non-GAAP financial measures that the Company considers to be useful measures for evaluating compliance with new regulatory capital requirements that have not yet become effective.  Supplementary leverage ratio equals Tier 1 capital (calculated under U.S. Basel III transitional rules) divided by the total supplementary leverage exposure.  For information on the calculation of regulatory capital and ratios for prior periods, please refer to Part 2, Item 7 "Regulatory Requirements" in Morgan Stanley's Annual Report on Form 10-K for the year ended December 31, 2014 and Part 1, Item 2 "Regulatory Requirements" in Morgan Stanley's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015.
   
Definitions and notes on financial performance metrics
(a)
Book value per common share equals common equity divided by period end common shares outstanding.
(b)
Firmwide regional revenues reflect the Firm's consolidated net revenues on a managed basis. Further discussion regarding the geographic methodology for net revenues is disclosed in Note 21 to the consolidated financial statements included in the Firm's Annual Report on Form 10-K for the year ended December 31, 2014.
(c)
As a U.S. Basel III Advanced Approach banking organization, the Firm is required to compute risk-based capital ratios using both (i) standardized approaches for calculating credit risk weighted assets (“RWAs”) and market risk RWAs (the “Standardized Approach”); and (ii) an advanced internal ratings-based approach for calculating credit risk RWAs, an advanced measurement approach for calculating operational risk RWAs, and an advanced approach for market risk RWAs calculated under Basel III (the “Advanced Approach”). To implement a provision of the Dodd-Frank Act, U.S. Basel III subjects Advanced Approach banking organizations that have been approved by their regulators to exit the parallel run, such as the Firm, to a permanent “capital floor.”  In calendar year 2014, the capital floor resulted in the Firm's capital ratios being the lower of the capital ratios computed under the Advanced Approach or the U.S. Basel I-based rules as supplemented by the market risk rules known as “Basel 2.5”. Beginning on January 1, 2015, the capital floor is the lower of the capital ratios computed under the Advanced Approach or the Standardized Approach under U.S. Basel III, taking into consideration applicable transitional provisions. As of December 31, 2015, the lower ratio is represented by U.S. Basel III Advanced Approach. These computations are preliminary estimates as of January 19, 2016 (the date of this release) and could be subject to revision in Morgan Stanley’s 2015 Form 10-K.  For information on the calculation of regulatory capital and ratios for prior periods, please refer to Part 2, Item 7 "Regulatory Requirements" in Morgan Stanley's Annual Report on Form 10-K for the year ended December 31, 2014 and Part 1, Item 2 "Regulatory Requirements" in Morgan Stanley's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015.
(d)
The global liquidity reserve, which is held within the bank and non-bank operating subsidiaries, is comprised of highly liquid and diversified cash and cash equivalents and unencumbered securities. Eligible unencumbered securities include U.S. government securities, U.S. agency securities, U.S. agency mortgage-backed securities, non-U.S. government securities and other highly liquid investment grade securities.
(e)
The Firm's goodwill and intangible balances are net of allowable mortgage servicing rights deduction.
(f)
Institutional Securities net income applicable to noncontrolling interests primarily represents the allocation to Mitsubishi UFJ Financial Group, Inc. of Morgan Stanley MUFG Securities Co., Ltd, which the Firm consolidates.
(g)
VaR represents the loss amount that one would not expect to exceed, on average, more than five times every one hundred trading days in the Firm's trading positions if the portfolio were held constant for a one-day period. Further discussion of the calculation of VaR and the limitations of the Firm's VaR methodology, is disclosed in Part II, Item 7A "Quantitative and Qualitative Disclosures about Market Risk"  included in the Firm's 2014 Form 10-K.
(h)
Annualized revenue per Wealth Management representative is defined as annualized revenue divided by average representative headcount.
(i)
Client assets per Wealth Management representative represents total client assets divided by period end representative headcount.
(j)
Wealth Management client liabilities reflect U.S. Bank lending and broker dealer margin activity.
(k)
Wealth Management fee based client account assets represent the amount of assets in client accounts where the basis of payment for services is a fee calculated on those assets.
(l)
Wealth Management fee based asset flows include net new fee-based assets, net account transfers, dividends, interest, and client fees and exclude cash management related activity.
(m)
The alternatives asset class within Traditional Asset Management includes a range of investment products such as funds of hedge funds, funds of private equity funds and funds of real estate funds.
(n)
Investment Management net flows include new commitments, investments or reinvestments, net of client redemptions, returns of capital post-fund investment period and dividends not reinvested; and excludes the impact of the transition of funds from their commitment period to the invested capital period.
(o)
The share of minority stake assets represents Investment Management's proportional share of assets managed by entities in which it owns a minority stake.
(p)
U.S. Bank refers to the Firm’s U.S. Bank operating subsidiaries Morgan Stanley Bank, N.A. and Morgan Stanley Private Bank, National Association and excludes transactions with affiliated entities.
(q)
The Institutional Securities U.S. Bank other lending data includes activities related to commercial and residential mortgage lending, asset-backed lending, corporate loans purchased in the secondary market, financing extended to equities and commodities customers, and loans to municipalities.
(r)
The Firm’s capital estimation and attribution to the business segments are based on the Required Capital framework, an internal capital adequacy measure which considers risk, leverage, potential losses from extreme stress events, and diversification under a going concern capital concept at a point in time.  The framework also takes into consideration regulatory capital requirements as well as capital required for organic growth, acquisitions and other business needs. For further discussion of the framework, refer to Part I, Item 2 "Regulatory Requirements" in Morgan Stanley's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015.
(s)
Preferred stock dividend / other includes allocation of earnings to Participating Restricted Stock Units (RSUs).
(t)
The Firm calculates earnings per share using the two-class method as described under the accounting guidance for earnings per share.  For further discussion of the Firm's earnings per share calculations, see page 13 of the Financial Supplement and Note 14 to the consolidated financial statements in the Firm's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015.
 
 
16

 
 
Logo
MORGAN STANLEY
Legal Notice
 
 
 
 
 
 
 
This Financial Supplement contains financial, statistical and business-related information, as well as business and segment trends.
The information should be read in conjunction with the Firm's fourth quarter earnings press release issued January 19, 2016.
 
 
17
 
Exhibit 99.3
 
Slide 1


 
Strategic Update James P. Gorman, Chairman and Chief Executive Officer January 19, 2016
 
 
 

 
 
Slide 2

 
Notice The information provided herein may include certain non-GAAP financial measures. The reconciliation of such measures to the comparable GAAP figures are included in this presentation or in the Company’s most recent Annual Report on Form 10-K, Definitive Proxy Statement, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as applicable, which are available on www.morganstanley.com. This presentation may contain forward-looking statements including the attainment of certain financial and other targets and goals. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made, which reflect management’s current estimates, projections, expectations or beliefs and which are subject to risks and uncertainties that may cause actual results to differ materially. The Company does not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of forwardlooking statements. For a discussion of risks and uncertainties that may affect the future results of the Company, please see the Company’s most recent Annual Report on Form 10- K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as applicable, which are available on www.morganstanley.com. This presentation is not an offer to buy or sell any security. Please note this presentation is available at www.morganstanley.com. 2
 
 

 
 
Slide 3

Investment Management Investment Management 3 Full Year 2009 Net Revenues, ex-DVA: $28.7Bn(1)(2) Full Year 2015 Net Revenues, ex-DVA: $34.5Bn(1)(2) Wealth Management Fixed Income and Commodities (ex-DVA) Investment Banking Equity Sales and Trading (ex-DVA) Wealth Management Fixed Income and Commodities (ex-DVA) Investment Banking Equity Sales and Trading (ex-DVA) Strategy: Multi-Year Transformation of Business Mix (1) The End Notes are an integral part of this Strategic Update. See slide 19 for information related to the financial metrics presented on this page.3
 
 
 

 
 
Slide 4

Continued Execution in Areas of Leadership in Institutional Securities 2.2 2.2 3.2 4.3 2012 2013 2014 2015 118 166 252 188 2012 2013 2014 2015 Industry Industry Announced M&A Volumes(1) ($Tn) IPO Volumes(1) ($Bn) Morgan Stanley – #2 in Global Announced M&A in 2015 Morgan Stanley – #1 in IPOs in 2015 5.9 6.6 6.9 8.1 2012 2013 2014 2015 Equity Sales & Trading Net Revenues, ex-DVA ($Bn)(2)(3)(4) 2 2 1 Global Rank 1 4 As of 3Q YTD (1) The End Notes are an integral part of this Strategic Update. See slide 19 for information related to the financial metrics presented on this page.4
 
 
 

 
 
Slide 5

Execution: Mark to Market(1) on 2015 Strategic Plan 1 Achieved FY 2015 22% pre-tax margin(2) Ongoing Wealth Management upside through additional margin improvement 2 Achieved 46% NII growth in U.S. Banks versus 2014 in a flat rate environment(3) Continued execution of U.S. Bank strategy in Wealth Management and Institutional Securities 3 Failed to meet objective: Initiated Progress in Fixed Income and Commodities ROE major restructuring 4 Tailwind from lower funding costs Ongoing 5 Maintaining focus on expense management • Achieved 37% ISG compensation ratio(4) • Expense initiatives underway Steadily increase capital return to shareholders Received non-objection to 2015 plan to 6 increase buyback and dividend 5 (1) The End Notes are an integral part of this Strategic Update. See slide 19 for information related to the financial metrics presented on this page.5
 
 
 

 
 
Slide 6

Results: Performance and Return on Equity(1) Target = 10% ROE Gap = ~300bps 2015 Earnings: $4.7Bn = 7% ROE 2015 Avg. Common Equity: $67Bn (1) The End Notes are an integral part of this Strategic Update. See slide 19 for information related to the financial metrics presented on this page.6
 
 
 

 
 
Slide 7

Path to 10% ROE A Capital Sufficiency B Expense Efficiency C Wealth Management Revenue Growth 7 D Capital Return
 
 
 

 
 
Slide 8

8 De-Risked Balance Sheet, Increased Capital Return and Grew Capital $460Bn $397Bn 2012 2015 Advanced Fully Phased-in Pro Forma RWAs(1)(2) $0.4Bn $3.2Bn 2012 2015 $60Bn $67Bn 2012 2015 Buyback & Common Dividend Average Common Equity, ex-DVA(3) $781Bn $788Bn 2012 2015 Assets +1% (14%) +740% +12% (1) The End Notes are an integral part of this Strategic Update. See slide 20 for information related to the financial metrics presented on this page.
 
 
 

 
 
Slide 9

9 Firm Has Sufficient Capital to Support A Our Business (1) The End Notes are an integral part of this Strategic Update. See slide 20 for information related to the financial metrics presented on this page. Pro Forma Common Equity Tier 1 Ratio Advanced, Fully Phased-in 11.6% 14.1% 10% in 2019 Pro Forma Supplementary Leverage Ratio Fully Phased-in 4.2% 5.8% 5% in 2018 CCAR Stress Test Continued Capital Return Unknown impact of G-SIB buffer Continued Capital Return Key Capital Requirement(1)(2)(3) 1Q14 4Q15 Requirement(4)(5)
 
 
 

 
 
Slide 10

Reducing Capital Allocated to Fixed Income and Commodities 10 3Q15 YE 2017 End State Reduction Pro Forma $158Bn <$120Bn <$110Bn Advanced RWA $50Bn Pro Forma SLR Exposure $417Bn $300Bn <$250Bn $170Bn $5Bn-$8Bn of excess capital over time 4Q15(2)(3) $136Bn $354Bn We significantly exceeded our 2015 RWA year-end target of $180Bn We have set new targets of <$110Bn RWA and <$250Bn SLR exposure Fixed Income and Commodities (excluding Lending)(1) (1) The End Notes are an integral part of this Strategic Update. See slide 20 for information related to the financial metrics presented on this page.10
 
 
 

 
 
Slide 11

Restructuring the Fixed Income and Commodities Businesses 11 • Recently announced management changes will strengthen FIC team • Headcount reduction of 25% on strategic lines; significant compensation run-rate savings • Ongoing reduction of capital, balance sheet and expense base • Exit / unwind areas not strategically important to the Firm • Improve asset velocity Action Plan Ongoing Right-sizing for a critical and credible Fixed Income and Commodities business 11
 
 
 

 
 
Slide 12

Continued Compensation Expense Discipline 12 39% 37% 37% 2015 Target 2015 2017 Target in Flat Revenue Institutional Securities, ex-DVA(1) 57% 56% 2015 2017 Target 41% <40% 2015 2017 Target Wealth Management(1) Investment Management(1) B (1) The End Notes are an integral part of this Strategic Update. See slide 20 for information related to the financial metrics presented on this page.12
 
 
 

 
 
Slide 13

Next Phase of Expense Reduction: Project Streamline 2016 - 2017 13 · Ongoing area of focus and execution with benefit over the medium term Ongoing Focus on Structurally Simplifying the Organization Location Strategy · Acceleration of ongoing efforts to further optimize location strategy in first half of 2016; achievable given existing centers of excellence Leverage Technology to Rationalize Infrastructure · High level of near term focus · Opportunity for meaningful cost savings while investing over medium term through cross asset-class and cross-business technology conversion · Outsource to vendors and industry consortia Consolidate Processes · Multiple initiatives underway in business and support levels Further Outsourcing · Currently re-examining additional processes suitable for outsourcing · Execution to occur over medium term 13
 
 
 

 
 
Slide 14

Expense Efficiency 14 79% 77% 74% Previous Expense Efficiency Target 2015 2017 Target on Flat Revenues Firm Expense Efficiency Ratio, ex-DVA(1) • The 2015 Firm expense efficiency ratio of 77% exceeded the target of 79% • Through the FIC restructuring, a renewed Firmwide expense reduction plan, and continued compensation discipline, we will drive our efficiency ratio to 74%, in a flat revenue environment Planned $1Bn+ reduction in expenses (1) The End Notes are an integral part of this Strategic Update. See slide 21 for information related to the financial metrics presented on this page.14
 
 
 

 
 
Slide 15

Continued High Quality Lending in Wealth Management 19 25 16 3 21 4 YE 2014 YE 2015 Pro-Forma YE 2016 Pro-Forma YE 2017 $38Bn $49Bn ~$60Bn $70Bn Wealth Management Lending in US Banks(1) Percentage of Wealth Management Clients With a Loan at Morgan Stanley(2) 1.3% 1.6% 1.9% 2013 2014 3Q15 YTD 9% 12% 15% 2013 2014 3Q15 YTD Securities-Based Lending Residential Lending Tailored Lending C (1) The End Notes are an integral part of this Strategic Update. See slide 21 for information related to the financial metrics presented on this page.15
 
 
 

 
 
Slide 16

16 Wealth Management Margin Potential Driven By Revenue Growth and Expense Discipline FY 2015 Pre-tax Margin 22% 2017 Pre-tax Margin Potential 23%-25% Net Interest Income Growth • Wealth Management $20Bn lending growth through YE 2017 will drive NII upside in US Banks • Deposits in Bank Deposit Program (BDP) of $149Bn as of YE 2015 ~0.75% – 1.75% 1 Expense Discipline • Savings across compensation and non-compensation expenses 2 0.25% – 0.75% _ Retention Deals: Upside beyond 2017 as FA notes issued in 2009 roll off in January 2019, resulting in a ~1.50% PBT margin benefit Business Growth • Ongoing shift to fee-based managed accounts, digital strategy, ISG connectivity, FA productivity 0.25% – 0.50% 3  16
 
 
 

 
 
Slide 17

Continued Return of Capital to Shareholders 17 $0.5Bn $1.0Bn $2.5Bn $0.20 $0.20 $0.40 $0.60 2012 CCAR 2013 CCAR 2014 CCAR 2015 CCAR • Our goal is to continue to increase our dividends and buybacks over time, subject to regulatory approval Annual Dividend per Share (cents) 4-Quarter Share Repurchases (2) (3) In 2012 and 2013, the Firm acquired the remaining 14% and 35% interest of the Wealth Management JV, respectively (4) Morgan Stanley’s Capital Returns(1) D (1) The End Notes are an integral part of this Strategic Update. See slide 21 for information related to the financial metrics presented on this page.17
 
 
 

 
 
Slide 18

7% 9%-11% 2015 2017 Path to a Return on Equity of 10% and Higher 18 Target Return on Equity Key Drivers · $1Bn+ compensation and noncompensation savings, assuming flat revenue environment (not including any one-time outsized litigation expense or penalties) Tangible Expense Targets Modest Revenue Growth (3%-5% annually) · Wealth Management margin improvement to ~23%-25% · Retain strength in Investment Banking and Equity Sales & Trading · Steady performance in Investment Management business Sufficient Capital · Right-sized FIC business · Increasing capital returns, subject to regulatory approval (1) (1) The End Notes are an integral part of this Strategic Update. See slide 21 for information related to the financial metrics presented on this page.18
 
 
 

 
 
Slide 19

End Notes These notes refer to the financial metrics presented on Slide 3. 1. 2009 and 2015 Net Revenues of $28,693 million and $34,537 million, respectively, excluding the negative impact of $5,510 million and the positive impact of $618 million from Debt Valuation Adjustment (‘DVA’), respectively. Net Revenue, ex-DVA is a non-GAAP financial measure the Company considers useful for investors to allow better comparability of period to period operating performance. 2. 2009 and 2015 Net Revenues exclude $94 million and $314 million, respectively, of ‘Other’ net losses. ‘Other’ includes Other Sales & Trading, Investments, Other Revenue and Intersegment eliminations. These notes refer to the financial metrics presented on Slide 4. 1. Industry volumes and league table rankings are for the period of January 1, 2015 to December 31, 2015 from Thomson Reuters as of January 4, 2016. 2. Net Revenues, excluding the positive / (negative) impact from DVA for years ending December 31st: 2015 - $163 million; 2014 - $232 million; 2013 - $(78) million; and 2012 - $(1,130) million. Equity Sales and Trading Net Revenues, ex-DVA is a non-GAAP financial measure the Company considers useful for investors to allow better comparability of period to period operating performance. 3. 2012 and 2013 have been recast to include the International Wealth Management business, previously reported in the Wealth Management business segment. 4. Morgan Stanley Global Rank for 2015 as of September 30th, year-to-date. Peers included in Global Rank include Goldman Sachs, JP Morgan, Bank of America, Citigroup, UBS, Deutsche Bank, Credit Suisse, and Barclays. These notes refer to the financial metrics presented on Slide 5. 1. Represents progress during the calendar year against the goals established at the beginning of 2015. 2. Pre-tax margin represents income (loss) from continuing operations before taxes divided by Net Revenues. Pre-tax margin is a non-GAAP financial measure that the Company considers useful for investors to assess operating performance. 3. Net Interest Income (‘NII’) growth in U.S. Banks represents the year-over-year NII percentage increase for the Company’s U.S. Bank operating subsidiaries, Morgan Stanley Bank, N.A. and Morgan Stanley Private Bank, National Association. 4. ISG compensation ratio of 37% for 2015 represents compensation and benefits expense ($6,467 million) as a percentage of Net Revenues, ex-DVA ($17,335 million excluding the positive impact of $618 million from DVA). The ISG compensation ratio, ex-DVA is a non-GAAP financial measure the Company considers useful for investors to assess operating performance. This note refers to the financial metrics presented on Slide 6. 1. The 7% Return on Equity (‘ROE’) represents ROE excluding DVA and the 2015 net discrete tax benefits (‘Discrete Tax Benefits’). The calculation of ROE uses net income applicable to Morgan Stanley less preferred dividends as a percentage of average common equity. To determine ROE, ex-DVA and Discrete Tax Benefits both the numerator and denominator were adjusted to exclude these items. ROE and ROE, ex-DVA and Discrete Tax Benefits are non-GAAP financial measures that the Firm considers useful for investors to assess operating performance. The reconciliation of ROE to ROE, ex-DVA and Discrete Tax Benefits is as follows: 19 FY 2015 ROE, ex-DVA and Tax Benefits 7.0% DVA impact 0.7% Discrete Tax Benefits impact 0.8% ROE 8.5% 19
 
 
 

 
 
Slide 20

End Notes These notes refer to the financial metrics presented on Slide 8. 1. The pro forma estimate of Advanced Fully Phased-in Risk weighted assets (‘RWA’) is based on the Company’s current understanding of U.S. Basel III and other factors, which may be subject to change as the Company receives additional clarification and implementation guidance from the Federal Reserve. This pro forma computation is a preliminary estimate as of January 19, 2016 and could be subject to revision in Morgan Stanley’s Annual Report on Form 10-K for the year ended December 31, 2015. 2. The pro forma estimate of Advanced Fully Phased-in RWAs is a non-GAAP financial measure that the Company considers to be a useful measure for evaluating compliance with new regulatory capital requirements that have not yet become effective. 3. Average Common Equity excluding DVA is adjusted for inception-to-date DVA. Average Common Equity, ex-DVA a non-GAAP financial measure that the Firm considers useful for investors to allow better comparability of period-to-period operating performance. These notes refer to the financial metrics presented on Slide 9. 1. The Company estimates its pro forma fully phased-in Basel III Common Equity Tier 1 ratio based on the Company’s current assessment of the Basel III final rules and other factors, including the Company’s expectations and interpretations of the proposed requirements, which may be subject to change as the Company receives additional clarification and guidance from the Federal Reserve. This pro forma computation is a preliminary estimate as of January 19, 2016 and could be subject to revision in Morgan Stanley’s Annual Report on Form 10-K for the year ended December 31, 2015. 2. Pro-forma fully phased-in U.S. Supplementary Leverage Ratio is based on preliminary analysis of the U.S. final rules from September 2014 and estimated as of December 31, 2015. These estimates are preliminary and are subject to change. 3. Pro-forma Basel III Common Equity Tier 1 Common ratio and pro-forma U.S. Supplementary Leverage ratio, are non-GAAP financial measures that the Company consider to be useful measures to the Company and investors to evaluate compliance with future regulatory capital requirements. 4. As of January 1, 2015, the Company is subject to a minimum Common Equity Tier 1 capital ratio of 4.5%. On a fully phased-in basis by 2019, the Company will be subject to 2.5% Common Equity Tier 1 capital conservation buffer and a G-SIB buffer. In July 2015, the Federal Reserve issued a final rule imposing risk-based capital surcharges on U.S. bank holding companies that are identified as G-SIBs, which include the Company. Under the Federal Reserve’s calculation for the Company, the Company’s G-SIB surcharge would be 3%. 5. As of January 1, 2018, the Company will be subject to a supplementary leverage ratio requirement of at least 5.0%, which includes a Tier 1 supplementary leverage capital buffer of at least 2.0% in addition to the 3.0% minimum supplementary leverage ratio. These notes refer to the financial metrics presented on Slide 10. 1. All figures presented exclude RWAs and leverage exposure associated with lending. 2. The Company estimates its pro forma fully phased-in Advanced risk-weighted assets and pro forma fully phased-in Supplementary leverage exposure based on the Company’s current assessment of the Basel III final rules and other factors, including the Company’s expectations and interpretations of the proposed requirements, which may be subject to change as the Company receives additional clarification and guidance from the Federal Reserve. These pro forma computations are preliminary estimates as of January 19, 2016 and could be subject to revision in Morgan Stanley’s Annual Report on Form 10-K for the year ended December 31, 2015. 3. Pro forma fully phased-in Advanced risk-weighted assets and pro forma fully phased-in Supplementary leverage exposure, are non-GAAP financial measures that the Company consider to be useful measures to the Company and investors to evaluate compliance with future regulatory capital requirements These notes refer to the financial metrics presented on Slide 12. 1. Compensation ratio is calculated as compensation and benefits expense as a percentage of Net Revenues (or for ISG, Net Revenues, ex-DVA). When the Compensation ratio is based on Net Revenues ex-DVA, such ratios are non-GAAP financial measures that the Company considers useful for investors to assess operating performance. 20
 
 
 

 
 
Slide 21

End Notes These notes refer to the financial metrics presented on Slide 14. 1. Firm Expense Efficiency ratio represents total non-interest expenses as a percentage of Net Revenues excluding DVA. For 2015, the 77% Expense Efficiency ratio was calculated as non-interest expenses of $26,660 million divided by Net Revenues of $34,537 which excludes the positive impact of $618 million from DVA. The Expense Efficiency ratio, ex-DVA is a non-GAAP financial measure the Company considers useful for investors to assess operating performance. These notes refer to the financial metrics presented on Slide 15. 1. U.S. Banks represents the Company’s U.S. Bank operating subsidiaries, Morgan Stanley Bank, N.A. and Morgan Stanley Private Bank, National Association. Sum of components may not match totals due to rounding. 2. “Percentage of Wealth Management Clients With a Loan at Morgan Stanley” is a Morgan Stanley internal designation referring to the percentage of clients or eligible clients who have one of these lending products with Morgan Stanley. Data is as of third quarter-to-date as data for FY 2015 is not yet available. These notes refer to the financial metrics presented on Slide 17. 1. In 2012, 2013, 2014, and 2015 the Firm received a “non-objection” from the Federal Reserve for each respective year’s CCAR submission. 2. In 2013, the Firm received a non-objection to repurchase up to $500MM of common stock beginning in 3Q13 through 1Q14 under rules permitting annual capital distributions. 3. In 2014, the Firm received a non-objection to repurchase up to $1Bn of common stock beginning in 2Q14 through 1Q15 and to increase the Firm’s quarterly common stock dividend to $0.10 per share from $0.05 per share beginning with the dividend declared in 2Q14. 4. In 2015, the Firm received a non-objection to repurchase up to $3.1Bn of common stock beginning in 2Q15 through 2Q16, $2.5Bn annually, and to increase the Firm’s quarterly common stock dividend to $0.15 per share from $0.10 per share beginning with the dividend declared in 2Q15. These notes refer to the financial metrics presented on Slide 18. 1. The 7% Return on Equity represents ROE excluding DVA and the 2015 net discrete tax benefits (‘Discrete Tax Benefits’). See note 1 pertaining to Slide 6. 21
 
 
 

 
 
Slide 22

 
Strategic Update James P. Gorman, Chairman and Chief Executive Officer January 19, 2016
 


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