Morgan Stanley Reports Second Quarter 2018•

Net Revenues of $10.6 Billion and Earnings per
Diluted Share of $1.301

James P. Gorman, Chairman and Chief Executive•

Results Reflect Strong Performance in Investment
Banking and Sales and Trading•

Wealth Management Continued to Deliver Solid
Results with Pre-Tax Margin of 26.8%2•

Quarterly Dividend Increased to $0.30 per Share;
Share Repurchase of up to $4.7 Billion Authorizedthrough 2Q193

Officer, said, “We reported robust revenue andearnings growth this quarter with strength across all
businesses and geographies. The second quarter
performance reflected active markets and healthyclient engagement. Our strong global franchisepositions us well to continue to grow organically
across each of our businesses and to deliver
operating leverage.”

Financial Overview 4
NEW YORK, July 18, 2018 – Morgan Stanley (NYSE: MS) today reported net revenues of $10.6 billion for thesecond quarter ended June 30, 2018 compared with $9.5 billion a year ago. For the current quarter, net income
applicable to Morgan Stanley was $2.4 billion, or $1.30 per diluted share,5 compared with net income of $1.8 billion, or$0.87 per diluted share, for the same period a year ago.5
Compensation expense of $4.6 billion increased from $4.3 billion a year ago on higher revenues. Non-compensation
expenses of $2.9 billion increased from $2.6 billion a year ago primarily reflecting higher volume driven expenses.
The Firm’s expense efficiency ratio for the current quarter was 71% compared with 72% in the prior year quarterreflecting continued expense discipline.6
The annualized return on average common equity was 13.0% and the annualized return on average tangible common
equity was 14.9% in the current quarter.7

Business Highlights

Summary of Segment Results(dollars in millions)

1

Net Revenues

Pre-Tax Income•

Institutional Securities net revenues were $5.7
billion reflecting strong performance across ourSales and Trading franchise and Investment
Banking, with Global Announced and Completed
M&A and Global IPOs ranked #1.9•

Wealth Management net revenues were $4.3 billion
with a pre-tax margin of 26.8%2 reflecting continued
improvement in operating leverage.

•

Investment Management net revenues were $691
million on higher management fees. Assets undermanagement of $474 billion reflect continued
positive long-term net flows in the quarter.10

8

2Q 2018 2Q 2017 2Q 2018 2Q 2017
Institutional Securities$5,714$4,762$1,812$1,443

Wealth Management$4,325$4,151$1,157$1,057

$691

$665

$140

$142

$10,610$9,503$3,109$2,642

Investment Management
Firm

Media Relations: Michele Davis 212-761-9621

Investor Relations: Sharon Yeshaya 212-761-1632

Institutional Securities
Institutional Securities reported pre-tax income from continuing operations of $1.8 billion compared with pretax income of $1.4 billion a year ago. Net revenues for the current quarter were $5.7 billion compared with
$4.8 billion a year ago.1••

Investment Banking revenues of $1.7 billion increased from $1.4 billion a year ago:

Advisory revenues of $618 million increased from $504 million a year ago on higher levels ofcompleted M&A activity across all regions.



Equity underwriting revenues of $541 million increased from $405 million in the prior year quarter
primarily driven by higher revenues on IPOs.



Fixed income underwriting revenues of $540 million increased from $504 million in the prior year
quarter primarily driven by non-investment grade loan fees.

Sales and Trading net revenues of $3.8 billion increased from $3.2 billion a year ago:

Equity sales and trading net revenues of $2.5 billion increased from $2.2 billion a year ago reflecting
strong performance across all products, particularly in our financing business.

Fixed Income sales and trading net revenues of $1.4 billion increased from $1.2 billion a year ago
primarily driven by higher results in commodities and credit products.



Other sales and trading net losses of $101 million compared with net losses of $208 million in the prioryear quarter reflecting higher revenues on economic hedges related to the Firm’s long-term debt andcorporate loan hedging activity.

•

Investment revenues of $89 million compared with $37 million a year ago driven by higher gains on
business related investments.

•

Compensation expense of $2.0 billion increased from $1.7 billion a year ago on higher revenues. Noncompensation expenses of $1.9 billion for the current quarter increased from $1.7 billion a year ago
principally on higher volume driven expenses.1

Morgan Stanley’s average trading Value-at-Risk (VaR) measured at the 95% confidence level was $44 million
compared with $46 million from the first quarter of 2018 and $51 million in the second quarter of the prioryear.11

Wealth Management
Wealth Management reported pre-tax income from continuing operations of $1.2 billion compared with $1.1
billion in the second quarter of last year. The quarter’s pre-tax margin was 26.8%.2 Net revenues for thecurrent quarter were $4.3 billion compared with $4.2 billion a year ago.
•

Asset management revenues of $2.5 billion increased from $2.3 billion a year ago reflecting higher asset
levels and positive flows.

•

Transactional revenues12 of $691 million decreased from $766 million a year ago reflecting lower fixedincome revenues and lower gains on investments associated with certain employee deferredcompensation plans.

•

Net interest income of $1.0 billion increased 3 percent compared with the same period a year ago. WealthManagement client liabilities13 were $82 billion at quarter end compared with $77 billion in the prior year
quarter.

•

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 $812 million increased from $797 million a year ago.

2

Total client assets were $2.4 trillion14 and client assets in fee-based accounts were $1.1 trillion at the end of
the quarter. Fee-based asset flows for the quarter were $15.3 billion.
Wealth Management representatives of 15,632 produced average annualized revenue per representative of$1.1 million in the current quarter.15

Investment Management
Investment Management reported pre-tax income from continuing operations of $140 million compared with
$142 million in the second quarter of last year. Net revenues of $691 million increased from $665 million in theprior year.1•

Asset management revenues of $610 million increased from $539 million in the prior year quarter driven
by higher levels of assets under management.

•

Investment revenues of $55 million decreased from $125 million in the prior year quarter driven by lower
investment gains and carried interest in infrastructure and private equity funds.

•

Compensation expense for the current quarter of $272 million decreased from $288 million a year ago
principally due to a decrease in deferred compensation associated with carried interest. Noncompensation expenses of $279 million increased from $235 million a year ago driven by higher
brokerage and clearing expenses.1•

Total assets under management or supervision at June 30, 2018 were $474 billion compared with $435
billion a year ago.

Capital
As of June 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 15.8% and 18.1%, respectively; the fully phased-in
Supplementary Leverage Ratio was approximately 6.4%.16,17
At June 30, 2018, book value and tangible book value per common share were $40.34 and $35.19,18
respectively, based on approximately 1.7 billion shares outstanding.

Other Matters
The effective tax rate from continuing operations for the quarter of 20.6% reflects the impact of intermittent net
discrete tax benefits of $88 million primarily associated with new information pertaining to the resolution ofmulti-jurisdiction tax examinations and other matters.
During the quarter ended June 30, 2018, the Firm repurchased approximately $1.25 billion of its common
stock or approximately 24 million shares. The Board of Directors authorized a share repurchase of up to $4.7
billion of common stock beginning in the third quarter of 2018 through the end of the second quarter of 2019.3
The Board of Directors also declared a quarterly dividend to $0.30 per share (an increase from $0.25 pershare), payable on August 15, 2018 to common shareholders of record on July 31, 2018.3

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 June 30, 2018, this change in presentation resulted in an
increase to net revenues and non-compensation expenses of $108 million, of which $101 million was reported
in the Institutional Securities segment and $21 million in the Investment Management segment. In addition,
the Firm included an intersegment elimination of $(14) million related to intercompany activity. This change inpresentation did not have an impact on net income. Prior periods have not been restated pursuant to thisguidance.
2

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.
3

In the quarter ended June 30, 2018, Morgan Stanley announced the capital actions in the Firm’s 2018 Capital
Plan (“Capital Plan”). The Capital Plan includes the repurchase of up to $4.7 billion of outstanding common
stock for the four quarters beginning in the third quarter of 2018 through the end of the second quarter of 2019,
and an increase in the Firm’s quarterly common stock dividend to $0.30 per share from the current $0.25 pershare, beginning with the common dividend declared for the third quarter of 2018. The Board of Governors of
the Federal Reserve System approved Morgan Stanley’s Capital Plan with a conditional non-objection, where
the only condition was that the capital distributions not exceed the greater of distributions in the previous year,or the annualized average of distributions over the previous two years. The total amount of expected 2018
capital distributions is consistent with the $6.8 billion of actual dividends and gross share repurchases includedin the Firm’s 2017 Capital Plan.
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 and other adjustments related to the calculation of earnings per share of $170
million for the second quarter of 2018 and 2017.

6

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

7

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 average5common 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.
8

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

9

Source: Thomson Reuters – for the period of January 1, 2018 to June 30, 2018 as of July 2, 2018.

10

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

11

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.

12

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

13

Wealth Management client liabilities reflect U.S. Bank Subsidiaries’ lending and broker dealer margin
activity.
14

Approximately $1 trillion in the segment of customer accounts with assets of $10 million or more.

15

The average annualized revenue per Wealth Management representative metric represents annualized net
revenues divided by average representative headcount.
16

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 June 30, 2018,
the Firm’s ratios are based on the Standardized Approach fully phased-in rules. Regulatory compliance wasdetermined 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 10-K.
17

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 $70.0 billion and a fully phased-in supplementary leverage exposure denominator of
approximately $1.10 trillion.

18

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

Jun 30, 2018

Quarter Ended
Mar 31, 2018 Jun 30, 2017

$

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

$

1,812
1,157
140
0
3,109

$

$

$

$

$

6,100
4,374
718
(115)
11,077

$

2,112
1,160
148
0
3,420

$

$

$

1,627
914
127
0
2,668

$

$

Percentage Change From:Mar 31, 2018 Jun 30, 2017

Six Months Ended
Jun 30, 2018 Jun 30, 2017

4,762
4,151
665
(75)
9,503

(6%)
(1%)
(4%)
(4%)
(4%)

20%
4%
4%
(60%)
12%

1,443
1,057
142
0
2,642

(14%)
‐‐
(5%)
‐‐
(9%)

26%
9%
(1%)
‐‐
18%

$

(10%)
(4%)
(18%)
‐‐
(9%)

47%
32%
4%
‐‐
39%

$

$

992
665
100
0
1,757

$

$

$

$

11,814
8,699
1,409
(235)
21,687

$

$

9,914
8,209
1,274
(149)
19,248

19%
6%
11%
(58%)
13%

3,173
2,030
245
2
5,450

24%
14%
18%
*
20%

40%
36%
38%
*
38%

3,924
2,317
288
0
6,529

$

$

$

3,084
1,790
231
0
5,105

$

2,206
1,312
167
2
3,687

$

$

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

$

1,457
876
104
0
2,437

Earnings (loss) applicable to Morgan Stanley common shareholders

$

2,267

$

2,575

$

1,587

(12%)

43%

$

4,842

$

3,427

41%

$
$

1.32
1.30

$
$

1.48
1.45

$
$

0.89
0.87

(11%)
(10%)

48%
49%

$
$

2.80
2.75

$
$

1.91
1.87

47%
47%

$

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

13.0%
14.9%

14.9%
17.2%

9.1%
10.4%

$
$

40.34
35.19

$
$

39.19
34.04

$
$

38.22
33.24

$

1.25
12.5%
14.3%

$

1.45
14.9%
17.2%

$

0.87
9.1%
10.5%

13.9%
16.0%

(14%)

44%

9.9%
11.4%

$
$

40.34
35.19

$
$

38.22
33.24

$

2.70
13.7%
15.7%

$

1.88
9.9%
11.4%

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.
7

44%

Consolidated Income Statement Information(unaudited, dollars in millions)

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

Jun 30, 2018

Quarter Ended
Mar 31, 2018 Jun 30, 2017

$

$

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

1,634
3,770
126
1,173
3,192
207
10,102$

Percentage Change From:Mar 31, 2018 Jun 30, 2017

1,530
2,931
163
1,027
2,902
199
8,752

10%
(13%)
17%
(11%)
‐‐
17%
(4%)

17%
12%
(10%)
1%
10%
22%
11%

Six Months Ended
Jun 30, 2018 Jun 30, 2017
$

3,427
7,063
273
2,212
6,381
450
19,806$Percentage
Change

3,075
6,166
328
2,060
5,669
428
17,726

11%
15%
(17%)
7%
13%
5%
12%

Interest income
Interest expense
Net interest
Net revenues

3,294
2,388
906
10,610

2,860
1,885
975
11,077

2,106
1,355
751
9,503

15%
27%
(7%)
(4%)

56%
76%
21%
12%

6,154
4,273
1,881
21,687

4,071
2,549
1,522
19,248

51%
68%
24%
13%

Non‐interest expenses:
Compensation and benefits

4,621

4,914

4,252

(6%)

9%

9,535

8,718

9%

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

346
609
496
179
580
670
2,880

336
627
478
140
510
652
2,743

333
525
433
155
561
602
2,609

3%
(3%)
4%
28%
14%
3%
5%

4%
16%
15%
15%
3%
11%
10%

682
1,236
974
319
1,090
1,322
5,623

660
1,034
861
291
1,088
1,146
5,080

3%
20%
13%
10%
‐‐
15%
11%

7,501

7,657

6,861

(2%)

9%

15,158

13,798

10%

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

3,420
714
2,706
(2)
2,704
36
2,668
93
2,575

2,642
846
1,796
(5)
1,791
34
1,757
170
1,587

(9%)
(10%)
(9%)
‐‐
(9%)
(17%)
(9%)
83%
(12%)

18%
(24%)
37%
60%
38%
(12%)
39%
‐‐
43%

6,529
1,354
5,175
(4)
5,171
66
5,105
263
4,842

5,450
1,661
3,789
(27)
3,762
75
3,687
260
3,427

20%
(18%)
37%
85%
37%
(12%)
38%
1%
41%

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%

31%
44%
25%
69%

28%
45%
27%
72%

30%
44%
26%
70%

28%
45%
26%
72%

20.6%

20.9%

32.0%

20.7%

30.5%

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