Morgan Stanley 2024 Q1 Form 10-Q Summary
Reporting period: Three months ended March 31, 2024. Morgan Stanley is a global financial services firm operating through Institutional Securities, Wealth Management and Investment Management. Interim financial statements are unaudited; the independent accountant performed a review, not an audit.
Financial performance
| Metric | Q1 2024 | Q1 2023 or prior date |
|---|---|---|
| Net revenues | $15.136 billion | $14.517 billion; up 4% |
| Net income applicable to Morgan Stanley | $3.412 billion | $2.980 billion; up 14% |
| Diluted earnings per common share | $2.02 | $1.70; up 19% |
| Income before tax | $4.395 billion | $3.760 billion |
| Effective tax rate | 21.2% | 19.3% |
| Expense efficiency ratio | 71% | 72% |
| ROE / ROTCE | 14.5% / 19.7% | 12.4% / 16.9% |
Total non-interest expenses rose 2% to $10.747 billion. Compensation and benefits increased 4% to $6.696 billion; non-compensation expenses were $4.051 billion, down 2%. Net interest income fell 23% to $1.796 billion, as higher interest expense more than offset higher interest income. The provision for credit losses was a net release of $6 million, versus a $234 million provision a year earlier.
Business segments
- Institutional Securities: Revenue was $7.016 billion, up 3%; net income applicable to Morgan Stanley was $1.819 billion, up 23%. Underwriting revenue increased 62% to $986 million, while Advisory revenue fell 28% to $461 million. Equity revenue rose 4%; Fixed Income revenue declined 4%.
- Wealth Management: Revenue was $6.880 billion, up 5%; net income was $1.403 billion, up 2%, and pre-tax margin was 26.3%. Asset management revenue increased 13%, while net interest revenue declined 14%. Net new assets were $94.9 billion, compared with $109.6 billion.
- Investment Management: Revenue was $1.377 billion, up 7%; net income applicable to Morgan Stanley was $192 million, up 43%. Average AUM was $1.479 trillion, up from $1.329 trillion, and long-term net flows were positive $10 billion ($63 billion inflows less $53 billion outflows).
Cash flow, balance sheet and capital
- Operating cash flow was $4.360 billion, versus cash used of $9.865 billion in Q1 2023. Investing cash flow was positive $1.054 billion; financing cash flow was positive $8.857 billion. Cash and cash equivalents ended the quarter at $102.305 billion, up from $89.232 billion at year-end. Cash flows are affected by trading and secured-financing activity.
- Total assets were $1.229 trillion, compared with $1.194 trillion at December 31, 2023. Loans were $227.145 billion, deposits $352.494 billion and borrowings $271.383 billion. Borrowings increased from $263.732 billion, primarily due to issuances net of maturities and redemptions.
- Average liquidity resources were $318.664 billion. The average liquidity coverage ratio was 125%, down from 129% in the prior quarter and above the 100% minimum; the Firm reported compliance with minimum LCR and NSFR requirements.
- Standardized CET1 capital ratio was 15.0%, down from 15.2% at year-end and above the 12.9% required ratio. Supplementary leverage ratio was 5.4%, versus 5.5%, against a 5.0% requirement. The Firm reported compliance with TLAC requirements.
- Common equity was $90.448 billion and tangible common equity was $66.813 billion. Book value per common share was $55.60; tangible book value per share was $41.07.
Changes, outlook and risks
- Management said the market environment improved in Q1, but remained uncertain due to geopolitical risks, persistent inflation concerns and uncertainty about the timing and pace of interest-rate changes. No specific full-year earnings or revenue guidance is provided in the filing. The Firm’s stated ROTCE goal is 20% in a normal market environment; Q1 ROTCE was 19.7%.
- Wealth Management net interest revenue remains exposed to changes in deposit mix, client cash allocations, interest rates and loan demand. Management cautioned that persistent trends could further affect future net interest income. Deposits were relatively unchanged overall, while brokerage sweep deposits continued to decline.
- Commercial real estate remains under heightened monitoring because of higher rates, refinancing risk and property-specific pressures, particularly in office. Institutional Securities CRE loans and commitments totaled $10.3 billion; Wealth Management direct CRE exposure was $7.3 billion. The Firm reported no material loan charge-offs in Q1.
- The FDIC special assessment generated an incremental $42 million expense in Q1, following a $286 million charge recorded in Q4 2023. Technology spending and execution-related expenses increased; the filing cites lower legal and professional services costs as a partial offset.
- Reported legal expenses were a net credit of $26 million, compared with $151 million of expense in Q1 2023. The filing describes multiple ongoing legal and regulatory matters, including antitrust litigation, the UK government-bond investigation, the Danish OW Bunker claims and the Viacom/Archegos securities case. For certain matters, a material loss is reasonably possible but cannot be estimated; outcomes and timing remain uncertain.
- Other notable items include a $563 million after-tax reduction in other comprehensive income from the change in debt valuation adjustment, and adoption of a tax-credit investment accounting update that reduced opening retained earnings by $60 million net of tax. Management identified fair value measurements, goodwill and intangible assets, legal and regulatory contingencies, and income taxes as areas involving significant judgment.
Important facts for investors to verify
- Whether improving underwriting and market activity can offset subdued M&A activity and weaker Fixed Income results.
- Whether deposit mix and client cash reallocations continue to pressure Wealth Management net interest income and deposit costs.
- Changes in commercial real estate credit quality, past-due and nonaccrual loans, and the allowance for credit losses.
- Capital and liquidity trends, including CET1 and LCR, and the effect of regulatory changes or the full phase-in of CECL capital treatment in 2025.
- Developments in material legal and regulatory matters, and any resulting settlements, charges or disclosures.
- Execution of capital returns: Q1 common-stock repurchases were $1.0 billion; the declared quarterly dividend was $0.85 per share, payable May 15, 2024.