Morgan Stanley(MS) - 2024 Q1 - Quarterly Report

Part I - Financial Information Management's Discussion and Analysis of Financial Condition and Results of Operations Morgan Stanley's Management's Discussion and Analysis (MD&A) provides a comprehensive overview of the firm's financial performance for the first quarter of 2024. It details strong consolidated results, with net revenues of $15.1 billion and net income of $3.4 billion, driven by robust performance across its Institutional Securities, Wealth Management, and Investment Management segments. The analysis covers key financial metrics, segment-specific results, liquidity and capital management, and regulatory compliance, highlighting operating leverage in an improving market environment Introduction Morgan Stanley operates as a global financial services firm across Institutional Securities, Wealth Management, and Investment Management - Morgan Stanley operates as a global financial services firm with three primary business segments: Institutional Securities, Wealth Management, and Investment Management[11] - The Institutional Securities segment provides investment banking, sales, trading, financing, and research services to corporations, governments, and financial institutions[11] - The Wealth Management segment offers a wide array of financial services and solutions to individual investors and small to medium-sized businesses, including brokerage, investment advisory, lending, and banking services[12] - The Investment Management segment provides a broad range of investment strategies and products across various asset classes to institutional and individual clients through intermediaries[13] Executive Summary Highlights strong Q1 2024 consolidated results with increased net revenues, net income, and improved key performance metrics Q1 2024 Consolidated Financial Results | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Revenues | $15.1 billion | $14.5 billion | +4% | | Net Income | $3.4 billion | $3.0 billion | +14% | | Diluted EPS | $2.02 | $1.70 | +19% | Q1 2024 Key Performance Metrics | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Return on Equity (ROE) | 14.5% | 12.4% | | Return on Tangible Common Equity (ROTCE) | 19.7% | 16.9% | | Expense Efficiency Ratio | 71% | 72% | - The Provision for credit losses was a net release of $6 million, primarily due to improvements in the macroeconomic outlook, a significant reversal from the $234 million provision in the prior year quarter[21] Net Revenues by Business Segment (in millions) | Business Segment | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Institutional Securities | $7,016 | $6,797 | +3% | | Wealth Management | $6,880 | $6,559 | +5% | | Investment Management | $1,377 | $1,289 | +7% | Key Balance Sheet and Capital Ratios | Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $1,228.5 billion | $1,193.7 billion | | Deposits | $352.5 billion | $351.8 billion | | Common Equity | $90.4 billion | $90.3 billion | | Standardized CET1 Ratio | 15.0% | 15.2% | Business Segments The firm's three business segments all contributed positively to Q1 2024 results. Institutional Securities revenues grew 3% to $7.0 billion, driven by strong underwriting. Wealth Management revenues increased 5% to $6.9 billion, benefiting from higher asset management fees and significant net new assets. Investment Management revenues rose 7% to $1.4 billion, supported by higher average AUM and positive long-term net flows Institutional Securities Institutional Securities reported a 3% year-over-year increase in net revenues to $7.0 billion. This growth was primarily fueled by a 16% rise in Investment Banking revenues, driven by a 62% surge in underwriting activities. Equity revenues saw a modest 4% increase, while Fixed Income revenues declined by 4%. The segment's pre-tax income grew 24% to $2.4 billion, reflecting improved profitability Institutional Securities Financial Summary (in millions) | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Revenues | $7,016 | $6,797 | +3% | | Total Investment Banking | $1,447 | $1,247 | +16% | | Advisory | $461 | $638 | (28)% | | Total Underwriting | $986 | $609 | +62% | | Equity | $2,842 | $2,729 | +4% | | Fixed Income | $2,485 | $2,576 | (4)% | | Income before taxes | $2,351 | $1,892 | +24% | - Investment Banking revenues increased 16% due to higher underwriting revenues, particularly in equity (up 113%) and fixed income (up 37%), which offset a 28% decline in advisory revenues from fewer completed M&A transactions[41][43] - Equity net revenues rose 4%, driven by higher gains on inventory held to facilitate client activity in derivatives and cash equities[46] - Fixed Income net revenues decreased 4%, primarily reflecting lower client activity in foreign exchange and rates products[47] Wealth Management Wealth Management delivered a 5% year-over-year increase in net revenues to $6.9 billion, maintaining a strong pre-tax margin of 26.3%. Growth was driven by a 13% rise in asset management revenues due to higher market levels and positive fee-based flows. The segment attracted $95 billion in net new assets. However, net interest revenues declined 14% due to changes in deposit mix Wealth Management Financial Summary (in millions) | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Revenues | $6,880 | $6,559 | +5% | | Asset Management | $3,829 | $3,382 | +13% | | Transactional | $1,033 | $921 | +12% | | Net Interest | $1,856 | $2,158 | (14)% | | Income before taxes | $1,806 | $1,712 | +5% | Wealth Management Key Metrics | Metric | Q1 2024 | Q4 2023 | | :--- | :--- | :--- | | Total Client Assets | $5.495 trillion | $5.129 trillion | | Net New Assets (Quarter) | $94.9 billion | N/A | | Deposits | $347 billion | $346 billion | - Asset management revenues increased 13% primarily due to higher fee-based asset levels driven by higher market levels and cumulative positive fee-based flows[57][58] - Net interest revenues decreased 14% mainly due to changes in deposit mix as clients shifted cash to higher-yielding products, partially offset by the net effect of higher interest rates[60] Investment Management Investment Management net revenues grew 7% year-over-year to $1.4 billion, with pre-tax income increasing 45% to $241 million. The performance was driven by an 8% rise in asset management and related fees, reflecting higher average Assets under Management (AUM) of $1.5 trillion. The segment also recorded positive long-term net flows of $7.6 billion during the quarter Investment Management Financial Summary (in millions) | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Revenues | $1,377 | $1,289 | +7% | | Asset management fees | $1,346 | $1,248 | +8% | | Performance-based income | $31 | $41 | (24)% | | Income before taxes | $241 | $166 | +45% | Assets Under Management (AUM) (in billions) | Metric | March 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total AUM | $1,505 | $1,459 | | Long-Term Net Flows (Q1) | $7.6 | N/A | - Asset management and related fees increased by 8% primarily due to higher average AUM resulting from higher market levels and positive long-term net flows[68] Supplemental Financial Information Provides U.S. bank subsidiaries' financials and updates on accounting standards, with no material impact expected U.S. Bank Subsidiaries' Selected Financials (in billions) | Metric | March 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Investment Securities | $116.0 | $118.0 | | Wealth Management Loans | $147.4 | $146.5 | | Institutional Securities Loans | $63.9 | $65.7 | | Total Assets | $400.9 | $396.1 | | Deposits | $346.6 | $346.1 | - The firm is evaluating new accounting updates related to Income Tax Disclosures and Segment Reporting, but does not expect a material impact upon adoption[79][80] Liquidity and Capital Resources The firm maintained a robust liquidity and capital position. Average liquidity resources for the quarter were $319 billion. Total assets stood at $1.23 trillion. The firm's Standardized Common Equity Tier 1 (CET1) capital ratio was 15.0%, comfortably above the 12.9% requirement. The Supplementary Leverage Ratio (SLR) was 5.4%, exceeding the 5.0% minimum. The firm remains compliant with all regulatory liquidity and capital standards, including LCR, NSFR, and TLAC Key Capital Ratios | Ratio | March 31, 2024 | Required Ratio | | :--- | :--- | :--- | | Standardized CET1 Ratio | 15.0% | 12.9% | | Advanced CET1 Ratio | 15.4% | 10.0% | | Tier 1 Leverage Ratio | 6.7% | 4.0% | | Supplementary Leverage Ratio (SLR) | 5.4% | 5.0% | Average Liquidity Resources (in millions) | Resource Type | Q1 2024 Average | Q4 2023 Average | | :--- | :--- | :--- | | Total HQLA | $311,414 | $306,368 | | Total Liquidity Resources | $318,664 | $314,504 | - The firm is compliant with the minimum Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) requirements of 100%. The average LCR for Q1 2024 was 125%[92][93] - During Q1 2024, the firm repurchased $1.0 billion of its common stock[110] - The firm is in compliance with all Total Loss-Absorbing Capacity (TLAC) requirements, with an external TLAC ratio of 55.0% of RWA, well above the 21.5% required ratio[127][128] Quantitative and Qualitative Disclosures about Risk This section details the firm's management of various risks. Market risk, measured by 95%/One-Day Management Value-at-Risk (VaR), averaged $54 million for the quarter, an increase from the prior quarter due to higher interest rate and credit spread exposure. Credit risk exposure from loans and lending commitments increased to $385 billion, with a decrease in the allowance for credit losses due to an improved macroeconomic outlook. The firm also outlines its framework for managing country, operational, model, liquidity, legal, and climate risks Market Risk Market risk (VaR) increased due to higher interest rate and credit spread exposure, with few trading loss days 95%/One-Day Management VaR (in millions) | Risk Category | Q1 2024 Average | Q4 2023 Average | | :--- | :--- | :--- | | Interest rate and credit spread | $40 | $31 | | Equity price | $21 | $22 | | Foreign exchange rate | $9 | $7 | | Commodity price | $13 | $13 | | Total Management VaR | $54 | $46 | - Average Total Management VaR increased from the prior quarter, primarily driven by increased exposure in the interest rate and credit spread risk category[145] - There were 2 trading loss days in the current quarter, none of which exceeded the 95% Total Management VaR[146] Credit Risk Credit risk exposure increased, while ACL decreased due to improved macroeconomic outlook, focusing on commercial real estate Total Loans and Lending Commitments Exposure (in millions) | Category | March 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Loans, net of ACL | $227,145 | $226,828 | | Lending Commitments | $157,686 | $149,973 | | Total Exposure | $384,831 | $376,801 | Allowance for Credit Losses (ACL) Rollforward (in millions) | ACL Category | Beginning Balance (Dec 31, 2023) | Provision for Credit Losses | Ending Balance (Mar 31, 2024) | | :--- | :--- | :--- | :--- | | ACL - Loans | $1,169 | $(22) | $1,141 | | ACL - Lending Commitments | $551 | $16 | $565 | | Total ACL | $1,720 | $(6) | $1,706 | - The allowance for credit losses decreased, primarily related to improvements in the macroeconomic outlook, partially offset by provisions for specific commercial real estate and corporate loans[160] - Commercial real estate (CRE) exposure totaled $10.3 billion in Institutional Securities and $7.3 billion in Wealth Management. The CRE sector remains under heightened focus due to economic and secular factors[170][177] Country and Other Risks Manages country risk (UK, France, Germany) and frameworks for operational, model, liquidity, legal, and climate risks Top 5 Non-U.S. Country Exposures (Net, in millions) | Country | March 31, 2024 | | :--- | :--- | | United Kingdom | $23,259 | | France | $8,191 | | Germany | $7,799 | | Brazil | $6,194 | | China | $5,968 | - The firm outlines its management frameworks for various other risks, including Operational Risk, Model Risk, Liquidity Risk, Legal, Regulatory and Compliance Risk, and Climate Risk[187][188][189] Consolidated Financial Statements and Notes This section presents the unaudited consolidated financial statements for the three months ended March 31, 2024. It includes the Income Statement, Comprehensive Income Statement, Balance Sheet, Statement of Changes in Total Equity, and Cash Flow Statement. The accompanying notes provide detailed disclosures on significant accounting policies, fair value measurements, derivative instruments, loans and credit losses, commitments, regulatory capital, and segment information Consolidated Financial Statements Presents the firm's unaudited consolidated income statement, balance sheet, and cash flow statement for Q1 2024 Consolidated Income Statement Summary (in millions) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Revenues | $15,136 | $14,517 | | Provision for Credit Losses | $(6) | $234 | | Total Non-interest Expenses | $10,747 | $10,523 | | Income before Taxes | $4,395 | $3,760 | | Net Income | $3,462 | $3,033 | | Net Income applicable to Morgan Stanley | $3,412 | $2,980 | Consolidated Balance Sheet Summary (in millions) | Line Item | March 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | $1,228,503 | $1,193,693 | | Cash and cash equivalents | $102,305 | $89,232 | | Loans, net | $217,220 | $218,640 | | Total Liabilities | $1,128,363 | $1,093,711 | | Deposits | $352,494 | $351,804 | | Borrowings | $271,383 | $263,732 | | Total Equity | $100,140 | $99,982 | Consolidated Cash Flow Statement Summary (in millions) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash from operating activities | $4,360 | $(9,865) | | Net cash from investing activities | $1,054 | $(1,041) | | Net cash from financing activities | $8,857 | $(6,288) | | Net increase (decrease) in cash | $13,073 | $(16,869) | Notes to Consolidated Financial Statements The notes provide detailed explanations of the firm's accounting policies and financial results. Key disclosures include fair value measurements, where most assets are Level 1 or 2; extensive use of derivatives for trading and hedging; a loan portfolio of $217 billion with a corresponding ACL of $1.1 billion; and robust regulatory capital, with a Standardized CET1 ratio of 15.0%. The notes also detail legal contingencies, segment performance, and equity changes, including $1.0 billion in share repurchases Controls and Procedures The firm's management, including the CEO and CFO, evaluated the disclosure controls and procedures and concluded they were effective as of March 31, 2024. There were no material changes to the internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the Firm's disclosure controls and procedures were effective as of the end of the reporting period[404] Part II - Other Information Legal Proceedings The firm is involved in various legal actions, regulatory investigations, and proceedings. Key matters include antitrust litigation related to interest rate swaps, securities lending, and Variable Rate Demand Obligations (VRDOs), as well as tax disputes in Europe. The firm has reached agreements in principle to settle the interest rate swaps and securities lending class actions - The firm is responding to governmental investigations and civil litigation regarding alleged anticompetitive conduct in the financial services industry[333] - An agreement in principle was reached to settle the In Re: Interest Rate Swaps Antitrust Litigation class claims on February 28, 2024[334] - An agreement in principle was reached to settle the securities lending antitrust class action (Iowa Public Employees' Retirement System et al. v. Bank of America Corporation et al.) on May 20, 2023[335] Risk Factors This section refers to the detailed discussion of risk factors affecting the firm as disclosed in Part I, Item 1A of the 2023 Annual Report on Form 10-K - For a discussion of the risk factors affecting the Firm, readers are referred to "Risk Factors" in Part I, Item 1A of the 2023 Form 10-K[406] Unregistered Sales of Equity Securities and Use of Proceeds During the first quarter of 2024, the firm repurchased a total of 11.5 million shares for approximately $1.0 billion under its publicly announced share repurchase authorization. As of the end of March 2024, $16.2 billion remained available under the current authorization Issuer Purchases of Equity Securities (Q1 2024) | Month | Total Shares Purchased as Part of Program | Average Price Paid per Share | Dollar Value of Remaining Authorization (in millions) | | :--- | :--- | :--- | :--- | | January | 1,878,800 | $86.00 | $17,039 | | February | 5,213,800 | $86.05 | $16,590 | | March | 4,429,444 | $88.02 | $16,200 | | Total Q1 | 11,522,044 | N/A | $16,200 | - On June 30, 2023, the Board of Directors reauthorized a multi-year share repurchase program of up to $20 billion of outstanding common stock with no set expiration date[379][409]