Morgan Stanley 2022 Form 10-K Summary
Business context and reporting period. Morgan Stanley is a global financial services firm operating through Institutional Securities, Wealth Management and Investment Management. This Form 10-K covers the year ended December 31, 2022; it is an annual report, not a standalone fourth-quarter filing. Comparisons below are primarily with 2021.
Key financial results
| Metric | 2022 | 2021 |
|---|---|---|
| Net revenues | $53.7 billion | $59.8 billion |
| Net income applicable to Morgan Stanley | $11.0 billion | $15.0 billion |
| Diluted earnings per common share | $6.15 | $8.03 |
| Net interest income | $9.3 billion | $8.0 billion |
| Non-interest expenses | $39.3 billion | $40.1 billion |
| Expense efficiency ratio | 73% | 67% |
| Return on tangible common equity (ROTCE) | 15.3% | 19.8% |
| Operating cash flow | $(6.4) billion | $34.0 billion |
| Total assets | $1.180 trillion | $1.188 trillion |
| Deposits / borrowings | $356.6 billion / $238.1 billion | $347.6 billion / $233.1 billion |
Operating cash flow was negative primarily amid changes in trading assets and liabilities and other balance-sheet movements; it should not be read as a simple measure of earnings. Year-end cash and cash equivalents were $128.1 billion, while average liquidity resources for the fourth quarter were $312.3 billion. The firm reported a 132% Liquidity Coverage Ratio and a 15.3% standardized Common Equity Tier 1 ratio, down from 16.0% a year earlier.
Business segments and changes versus 2021
- Institutional Securities: Revenue was $24.4 billion, down 18%; net income attributable to Morgan Stanley was $5.2 billion, down 41%. Investment banking revenue fell 49% to $5.2 billion amid lower advisory and underwriting activity. Fixed Income revenue rose 20%, while Equity revenue fell 6%. Other revenue included $876 million of mark-to-market losses on held-for-sale corporate loans, including hedges.
- Wealth Management: Revenue rose 1% to $24.4 billion and net income increased 9% to $5.1 billion. Higher net interest revenue, up 38% to $7.4 billion, was offset by lower transactional revenue. Net new assets were $311 billion, versus $438 billion in 2021. Year-end client assets were $4.2 trillion, down from $5.0 trillion.
- Investment Management: Revenue fell 14% to $5.4 billion and net income attributable to Morgan Stanley fell 51% to $660 million. Lower performance-based income and asset-management fees weighed on results. Year-end AUM was $1.3 trillion, compared with $1.6 trillion.
Firmwide revenue declined about 10% and net income applicable to Morgan Stanley fell about 27%. Rising interest rates supported net interest income, but weaker investment-banking activity, market declines, lower investment-management performance income and higher credit provisions weighed on results. The credit-loss provision rose to $280 million from $4 million.
Outlook, commentary, risks and unusual items
- Management’s stated ROTCE goal is above 20%, based on a normal market environment; 2022 ROTCE was 15.3% (15.7% excluding integration-related expenses). The filing does not provide specific near-term earnings guidance.
- Management said elevated inflation, rising rates and market volatility affected 2022 results and continued into 2023. It cautioned that investment-banking revenue could remain pressured if M&A and underwriting activity stayed near second-half 2022 levels.
- Non-compensation expenses included $200 million related to a regulatory matter in the second quarter. Fourth-quarter 2022 compensation expense included $133 million associated with an employee action. The firm introduced non-GAAP measures that adjust for mark-to-market effects on certain employee deferred cash-based compensation plans; these measures are not substitutes for GAAP results.
- Legal and regulatory risks include ongoing investigations into block-trading practices, litigation and regulatory proceedings, and a Dutch tax dispute involving approximately €124 million plus interest. The filing says potential losses in some matters cannot be reasonably estimated. Legal expenses were $443 million in 2022, versus $157 million in 2021.
- Other key risks include market and credit volatility, funding access and rating-related collateral requirements, cybersecurity and operational disruptions, regulatory and capital changes, climate-related exposures, and execution risks from integrating E*TRADE and Eaton Vance. Direct Russia and Ukraine exposure was described as limited.
- The firm repurchased $9.9 billion of common stock in 2022 and announced a quarterly common dividend of $0.775 per share in January 2023. Its board authorized up to $20 billion of repurchases, subject to conditions and regulatory limits.
The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. The audit identified recurring Level 3 fair-value valuation as a critical audit matter; recurring Level 3 assets and liabilities were approximately $10.1 billion and $6.1 billion, respectively.
Important facts for investors to verify
- Reconcile the year-over-year earnings decline and assess whether investment-banking activity, Investment Management performance income and Wealth Management client assets recover.
- Review the composition and valuation of investment securities, including $5.6 billion of unrealized losses on available-for-sale securities, and the implications for capital and liquidity.
- Track credit growth, provision adequacy and exposure to corporate, commercial real estate and residential lending; total loans, net of allowance, were $222.2 billion.
- Assess capital and funding headroom, including CET1, liquidity resources, deposit mix, borrowing maturities and potential collateral calls following rating downgrades.
- Monitor the block-trading investigations, Dutch tax dispute and other litigation for developments, accrual changes or cash impacts.
- Compare reported GAAP results with management’s non-GAAP adjustments, particularly deferred-compensation mark-to-market effects and integration costs.