Morgan Stanley Reports Third Quarter 2018•

Strong Third Quarter Net Revenues of $9.9 Billion1•

Firm Expense Efficiency Ratio of 71%2 Reflects
Ongoing Operating Leverage•

Earnings per Diluted Share of $1.17, Up 26%
versus a year ago•

ROE of 11.5% and ROTCE of 13.2%3,4James P. Gorman, Chairman and Chief Executive
Officer, said, “In the first half of the year, we produced
strong results across the franchise. Despite theseasonal summer slowdown in the third quarter, we
reported solid revenue and earnings growthdemonstrating the stability of the franchise. Year todate, we have produced an ROE of 13% and ROTCE of
15%. We remain well positioned and optimistic for theremainder of the year.”

Financial Overview4
NEW YORK, October 16, 2018 – Morgan Stanley (NYSE: MS) today reported net revenues of $9.9 billion1 for thethird quarter ended September 30, 2018 compared with $9.2 billion a year ago. For the current quarter, net income
applicable to Morgan Stanley was $2.1 billion, or $1.17 per diluted share,5 compared with net income of $1.8 billion, or$0.93 per diluted share,5 for the same period a year ago.
Compensation expense of $4.3 billion increased from $4.2 billion a year ago on higher revenues. Non-compensation
expenses of $2.7 billion increased from $2.5 billion a year ago primarily on higher volume driven expenses andinvestments in technology, partly offset by lower litigation costs.1 The Firm’s expense efficiency ratio for the current
quarter was 71% compared with 73% a year ago.2
The annualized return on average common equity was 11.5% and the annualized return on average tangible common
equity was 13.2% in the current quarter.3

Business Highlights

Summary of Segment Results(dollars in millions)

Net Revenues

1

Pre-Tax Income

6

3Q 2018 3Q 2017 3Q 2018 3Q 2017
Institutional Securities$4,929$4,376$1,556$1,236

Wealth Management$4,399$4,220$1,194$1,119

$653

$675

$102

$131

$9,872$9,197$2,851$2,482

Investment Management
Firm

Media Relations: Michele Davis 212-761-9621• Institutional Securities net revenues increased 13%
reflecting strong results in underwriting and solid
performance in M&A advisory and sales and trading.
• Wealth Management achieved a pre-tax margin of 27.1%,7reflecting continuing operating leverage. Results reflect
growth in bank lending and positive fee-based flows.
• Investment Management AUM8 of $471 billion reflect sevenconsecutive quarters of positive long-term net flows,9 withasset management fees up 6%.

Investor Relations: Sharon Yeshaya 212-761-1632

Institutional Securities
Institutional Securities reported pre-tax income from continuing operations of $1.6 billion compared with $1.2
billion a year ago. Net revenues for the current quarter were $4.9 billion compared with $4.4 billion a year
ago.1
•

•

Investment Banking revenues of $1.5 billion increased from $1.3 billion a year ago:

Advisory revenues of $510 million decreased from $555 million a year ago on lower levels ofcompleted M&A activity.



Equity underwriting revenues of $441 million increased from $273 million a year ago primarily driven
by higher revenues on IPOs and convertible offerings.

Fixed income underwriting revenues of $508 million increased from $442 million a year ago on higher
loan and bond fees which benefited from event-related financings.

Sales and Trading net revenues of $3.1 billion increased from $2.9 billion a year ago:

Equity sales and trading net revenues of $2.0 billion increased from $1.9 billion a year ago reflecting
solid performance across products with notable strength in our financing business.

Fixed Income sales and trading net revenues of $1.2 billion were relatively unchanged from a year ago
reflecting higher revenues in foreign exchange and commodities offset by declines in rates.



Other sales and trading net losses of $68 million compared with net losses of $147 million a year ago
reflecting lower net funding costs.

•

Investment revenues of $96 million increased from $52 million a year ago. Results for the current quarter
included a gain from the disposition of a business related investment.

•

Other revenues of $244 million increased from $143 million a year ago primarily reflecting higher revenues
associated with corporate lending activity.

•

Compensation expense of $1.6 billion increased from $1.5 billion a year ago on higher revenues.
Non-compensation expenses of $1.7 billion increased from $1.6 billion a year ago on higher volume driven
expenses, partly offset by lower litigation costs.1

Morgan Stanley’s average trading Value-at-Risk (VaR) measured at the 95% confidence level was $42 million
compared with $44 million from the second quarter of 2018 and $43 million in the third quarter of the prioryear.10

Wealth Management
Wealth Management reported pre-tax income from continuing operations of $1.2 billion compared with $1.1
billion in the third quarter of last year. The quarter’s pre-tax margin was 27.1%.7 Net revenues for the current
quarter were $4.4 billion compared with $4.2 billion a year ago.
•

Asset management revenues of $2.6 billion increased from $2.4 billion a year ago reflecting higher asset
levels and positive flows.

•

Transactional revenues11 of $698 million decreased from $739 million a year ago driven by lower fixedincome revenues.

•

Net interest income of $1.1 billion increased 4 percent compared with a year ago primarily driven by
growth in bank lending. Wealth Management client liabilities12 were $83 billion at quarter end comparedwith $78 billion a year ago.

•

Compensation expense for the current quarter of $2.4 billion increased from $2.3 billion a year ago on
higher revenues. Non-compensation expenses of $790 million increased from $775 million a year ago
reflecting continued investment in technology.

2

Total client assets were $2.5 trillion and client assets in fee-based accounts were $1.1 trillion at the end of thequarter. Fee-based asset flows for the quarter were a positive $16.2 billion.
Wealth Management representatives of 15,655 produced average annualized revenue per representative of$1.1 million in the current quarter.13

Investment Management
Investment Management reported pre-tax income from continuing operations of $102 million compared with$131 million in the third quarter of last year. Net revenues of $653 million decreased from $675 million a year
ago.1•

Asset management revenues of $604 million increased from $568 million a year ago on higher levels ofassets under management.

•

Investment revenues of $40 million decreased from $114 million a year ago. Results for the prior year
reflected higher carried interest related to Infrastructure investments.

•

Compensation expense for the current quarter of $269 million decreased from $311 million a year ago
principally due to a decrease in deferred compensation associated with carried interest.
Non-compensation expenses of $282 million increased from $233 million a year ago primarily driven bybrokerage and clearing expenses.1•

Total assets under management or supervision at September 30, 2018 were $471 billion compared with
$447 billion a year ago.

Capital
As of September 30, 2018, the Firm’s Common Equity Tier 1 and Tier 1 risk-based capital ratios under the fully
phased-in Standardized Approach were approximately 16.7% and 19.0%, respectively; the fully phased-in
Supplementary Leverage Ratio was approximately 6.4%.14,15
At September 30, 2018, book value and tangible book value per common share were $40.6716 and $35.50,17
respectively, based on approximately 1.7 billion shares outstanding.

Other Matters
The effective tax rate from continuing operations for the quarter was 24.4%.
During the quarter ended September 30, 2018, the Firm repurchased approximately $1.2 billion of its common
stock or approximately 24 million shares.
The Board of Directors declared a $0.30 quarterly dividend per share, payable on November 15, 2018 tocommon shareholders of record on October 31, 2018.

3

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 41 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.
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 releaseand the Financial Supplement are available online in the Investor Relations section atwww.morganstanley.com.

###(See Attached Schedules)

NOTICE:The information provided herein and in the financial supplement may include certain non-GAAP financial
measures. The definition of such measures or reconciliation of such metrics to the comparable U.S. GAAP
figures are included in this earnings release and the Financial Supplement, both of which are available on
www.morganstanley.com.

This earnings release may contain forward-looking statements including the attainment of certain financial andother targets, objectives and goals. Readers 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, assumptions, interpretations or beliefs and which are subject to risks anduncertainties that may cause actual results to differ materially. For a discussion of risks and uncertainties that
may affect the future results of the Firm, 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” inPart II, Item 7A in the Firm’s Annual Report on Form 10-K for the year ended December 31, 2017 and otheritems throughout the Form 10-K, the Firm’s Quarterly Reports on Form 10-Q and the Firm’s Current Reports
on Form 8-K, including any amendments thereto.

4

1

Effective January 1, 2018, the Firm adopted new accounting guidance related to Revenue from Contracts
with Customers, which among other things, requires a gross presentation of certain costs that were previously
netted against net revenues. For the quarter ended September 30, 2018, this change in presentation resulted
in an increase to net revenues and non-compensation expenses of $93 million, of which $85 million wasreported in the Institutional Securities segment and $17 million in the Investment Management segment. In
addition, the Firm included an intersegment elimination of $(9) million related to intercompany activity. Thischange in presentation did not have an impact on net income. Prior periods have not been restated pursuant
to this guidance.
2

The Firm Expense Efficiency Ratio represents total non-interest expenses as a percentage of net revenues.

3

Annualized return on average common equity, annualized return on average tangible common equity andtangible common equity are non-GAAP financial measures that the Firm considers useful for investors andanalysts to allow better comparability of period-to-period operating performance and capital adequacy. The
calculation of return on average common equity and return on average tangible common equity uses
annualized net income applicable to Morgan Stanley less preferred dividends as a percentage of averagecommon equity and average tangible common equity, respectively. Tangible common equity represents
common equity less goodwill and intangible assets net of allowable mortgage servicing rights deduction.
4

The Firm prepares its Consolidated Financial Statements using accounting principles generally accepted in
the United States (U.S. GAAP). 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 andotherwise. The Securities and Exchange Commission defines a “non-GAAP financial measure” as a numericalmeasure of historical or future financial performance, financial positions, or cash flows that is subject toadjustments that effectively exclude, or include amounts from the most directly comparable measurecalculated and presented in accordance with U.S. GAAP. Non-GAAP financial measures disclosed by Morgan
Stanley are provided as additional information to investors and analysts in order to provide them with greatertransparency about, or an alternative method for assessing our financial condition, operating results, orprospective regulatory capital requirements. These measures are not in accordance with, or a substitute for
U.S. GAAP, and may be different from or inconsistent with non-GAAP financial measures used by othercompanies. 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 U.S. GAAP,
along with a reconciliation of the differences between the non-GAAP financial measure we reference and suchcomparable U.S. GAAP financial measure.

5

Includes preferred dividends related to the calculation of earnings per share of $93 million for the third
quarter of 2018 and 2017.
6

Pre-tax income represents income (loss) from continuing operations before taxes.

7

Pre-tax margin is a non-GAAP financial measure that the Firm considers useful for investors and analysts toassess operating performance. Pre-tax margin represents income (loss) from continuing operations before
taxes divided by net revenues.
8

AUM is defined as assets under management.

9Long-term net flows include the equity, fixed income and alternative/other asset classes and exclude theliquidity asset class.

5

10

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 isdisclosed in Part II, Item 7A “Quantitative and Qualitative Disclosures about Market Risk” included in the
Annual Report on Form 10-K for the year ended December 31, 2017 (“2017 Form 10-K”). Refer to page 7 ofMorgan Stanley’s Financial Supplement accompanying this release for the VaR disclosure.

11

Transactional revenues include investment banking, trading, and commissions and fee revenues.

12

Wealth Management client liabilities reflect U.S. Bank Subsidiaries’ lending and broker dealer margin
activity.
13

The average annualized revenue per Wealth Management representative metric represents annualized net
revenues divided by average representative headcount.
14

The Firm’s risk-based capital ratios for purposes of determining regulatory compliance are the lower of thecapital ratios computed under the (i) standardized approaches for calculating credit risk and market risk riskweighted assets (“RWAs”) (the “Standardized Approach”); and (ii) applicable advanced approaches forcalculating credit risk, market risk and operational risk RWAs (the “Advanced Approach”). At September 30,
2018, the Firm’s ratios are based on the Standardized Approach fully phased-in rules. Regulatory compliance
was determined based on capital ratios calculated under transitional rules until December 31, 2017. 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 Firm’s 2017 Form 10-K.
15

The Supplementary Leverage Ratio became effective as a capital standard on January 1, 2018. As such,
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 Supplementary Leverage Ratio utilizes a fully phased-in Tier 1 capital numerator of
approximately $70.3 billion and a fully phased-in supplementary leverage exposure denominator of
approximately $1.10 trillion.

16

Book value per common share represents common equity divided by period end common shares
outstanding.
17

Tangible book value per common share is a non-GAAP financial measure that the Firm considers to be auseful measure of capital adequacy for investors and analysts. Tangible book value per common sharerepresents tangible common equity divided by period end common shares outstanding.

6

Consolidated Financial Summary(unaudited, dollars in millions, except for per share data)

Net revenues
Institutional Securities
Wealth Management
Investment Management
Intersegment Eliminations
Net revenues
Income (loss) from continuing operations before tax
Institutional Securities
Wealth Management
Investment Management
Intersegment Eliminations
Income (loss) from continuing operations before tax

Sep 30, 2018

Quarter Ended
Jun 30, 2018 Sep 30, 2017

$

$

$

$

$

4,929
4,399
653
(109)
9,872

$

1,556
1,194
102
(1)
2,851

$

$

5,714
4,325
691
(120)
10,610

$

$

(14%)
2%
(5%)
9%
(7%)

13%
4%
(3%)
(47%)
7%

1,236
1,119
131
(4)
2,482

(14%)
3%
(27%)
*
(8%)

26%
7%
(22%)
75%
15%

$

(23%)
4%
(23%)
*
(13%)

15%
31%
(30%)
75%
19%

$

$

$

$

1,457
876
104
0
2,437

$

973
698
114
(4)
1,781

$

Nine Months Ended
Sep 30, 2018 Sep 30, 2017

4,376
4,220
675
(74)
9,197

1,812
1,157
140
0
3,109

$

Percentage Change From:Jun 30, 2018 Sep 30, 2017$$

16,74313,0982,062(344)
31,559$$14,29012,4291,949(223)
28,445

17%
5%
6%
(54%)
11%

4,409
3,149
376
(2)
7,932

24%
11%
4%
50%
18%

32%
34%
11%
50%
32%

5,480
3,511
390
(1)
9,380

$

$

$

4,204
2,703
311
(1)
7,217

$

3,179
2,010
281
(2)
5,468

$

$

Percentage
ChangeNet Income (loss) applicable to Morgan Stanley
Institutional Securities
Wealth Management
Investment Management
Intersegment Eliminations
Net Income (loss) applicable to Morgan Stanley

$

1,120
913
80
(1)
2,112

Earnings (loss) applicable to Morgan Stanley common shareholders

$

2,019

$

2,267

$

1,688

(11%)

20%

$

6,861

$

5,115

34%

$
$

1.19
1.17

$
$

1.32
1.30

$
$

0.95
0.93

(10%)
(10%)

25%
26%

$
$

3.99
3.92

$
$

2.86
2.79

40%
41%

$

Financial Metrics:
Earnings per basic share
Earnings per diluted share
Return on average common equity
Return on average tangible common equity
Book value per common share
Tangible book value per common share
Excluding intermittent net discrete tax provision / benefit
Adjusted earnings per diluted share
Adjusted return on average common equity
Adjusted return on average tangible common equity

11.5%
13.2%

13.0%
14.9%

9.6%
11.0%

$
$

40.67
35.50

$
$

40.34
35.19

$
$

38.87
33.86

$

1.17
11.5%
13.2%

$

1.25
12.5%
14.3%

$

0.88
9.1%
10.5%

13.1%
15.1%

(6%)

33%

9.8%
11.3%

$
$

40.67
35.50

$
$

38.87
33.86

$

3.87
13.0%
14.9%

$

2.76
9.6%
11.1%

Notes: ‐ Refer to End Notes, Definition of U.S. GAAP to Non‐GAAP Measures and Definition of Performance Metrics on pages 13 ‐ 16 from the Financial Supplement for additional information
related to the calculation of the financial metrics.
740%

Consolidated Income Statement Information(unaudited, dollars in millions)

Revenues:
Investment banking
Trading
Investments
Commissions and fees
Asset management
Other
Total non‐interest revenues

Sep 30, 2018

Quarter Ended
Jun 30, 2018 Sep 30, 2017

$

$

1,567
2,752
136
932
3,251
298
8,936

1,793
3,293
147
1,039
3,189
243
9,704

$

Percentage Change From:Jun 30, 2018 Sep 30, 2017

1,380
2,704
167
937
3,026
200
8,414

(13%)
(16%)
(7%)
(10%)
2%
23%
(8%)

14%
2%
(19%)
(1%)
7%
49%
6%

Nine Months Ended
Sep 30, 2018 Sep 30, 2017
$

4,994
9,815
409
3,144
9,632
748
28,742$

Percentage
Change

4,455
8,870
495
2,997
8,695
628
26,140

12%
11%
(17%)
5%
11%
19%
10%

Interest income
Interest expense
Net interest
Net revenues

3,627
2,691
936
9,872

3,294
2,388
906
10,610

2,340
1,557
783
9,197

10%
13%
3%
(7%)

55%
73%
20%
7%

9,781
6,964
2,817
31,559

6,411
4,106
2,305
28,445

53%
70%
22%
11%

Non‐interest expenses:
Compensation and benefits

4,310

4,621

4,169

(7%)

3%

13,845

12,887

7%

Non‐compensation expenses:
Occupancy and equipment
Brokerage, clearing and exchange fees
Information processing and communications
Marketing and business development
Professional services
Other
Total non‐compensation expenses

351
559
513
152
570
566
2,711

346
609
496
179
580
670
2,880

330
522
459
128
534
573
2,546

1%
(8%)
3%
(15%)
(2%)
(16%)
(6%)

6%
7%
12%
19%
7%
(1%)
6%

1,033
1,795
1,487
471
1,660
1,888
8,334

990
1,556
1,320
419
1,622
1,719
7,626

4%
15%
13%
12%
2%
10%
9%

7,021

7,501

6,715

(6%)

5%

22,17920,513

8%

2,851
696
2,155
(1)
2,154
42
2,112
93
2,019

3,109
640
2,469
(2)
2,467
30
2,437
170
2,267

2,482
697
1,785
6
1,791
10
1,781
93
1,688

(8%)
9%
(13%)
50%
(13%)
40%
(13%)
(45%)
(11%)

15%
‐‐
21%
*
20%
*
19%
‐‐
20%

9,380
2,050
7,330
(5)
7,325
108
7,217
356
6,861

7,932
2,358
5,574
(21)
5,553
85
5,468
353
5,115

18%
(13%)
32%
76%
32%
27%
32%
1%
34%

Total non‐interest expenses
Income (loss) from continuing operations before taxes
Income tax provision / (benefit) from continuing operations
Income (loss) from continuing operations
Gain (loss) from discontinued operations after tax
Net income (loss)
Net income applicable to nonredeemable noncontrolling interests
Net income (loss) applicable to Morgan Stanley
Preferred stock dividend / Other
Earnings (loss) applicable to Morgan Stanley common shareholders
Pre‐tax profit margin
Compensation and benefits as a % of net revenues
Non‐compensation expenses as a % of net revenues
Firm expense efficiency ratio
Effective tax rate from continuing operations

$

$

$

$

$

$

$

$

$

$

29%
44%
27%
71%

29%
44%
27%
71%

27%
45%
28%
73%

30%
44%
26%
70%

28%
45%
27%
72%

24.4%

20.6%

28.1%

21.9%

29.7%

Notes: ‐ Refer to End Notes, Definition of U.S. GAAP to Non‐GAAP Measures and Definition of Performance Metrics on pages 13 ‐ 16 from the Financial Supplement for additional information.
8