Morgan Stanley Third Quarter 2020 Earnings Results
Morgan Stanley Reports Net Revenues of $11.7 Billion, EPS of $1.66 and ROTCE of 15.0%
NEW YORK, October 15, 2020 – Morgan Stanley (NYSE: MS) today reported net revenues of $11.7 billion for thethird quarter ended September 30, 2020 compared with $10.0 billion a year ago. Net income applicable to Morgan
Stanley was $2.7 billion, or $1.66 per diluted share,1 compared with net income of $2.2 billion, or $1.27 per diluted
share,1 for the same period a year ago. The current quarter included intermittent net discrete tax benefits of $113
million which had an impact of $0.07 per diluted share.

James P. Gorman, Chairman and Chief Executive Officer, said, “We delivered strong quarterly earnings as markets
remained active through the summer months, and our balanced business model continued to deliver consistent, highreturns. The completion of the E*TRADE acquisition, the subsequent ratings upgrade from Moody’s, and the recently
announced acquisition of Eaton Vance significantly strengthen our Firm and position us well for future growth.”

Financial Summary2,3Highlights($ millions, except per share data)

Firm

3Q 2020

3Q 2019

Net revenues$11,657$10,032

Compensation expense$5,086$4,427

Non-compensation expenses
Pre-tax income6$3,084$2,895$3,487$2,710Net income app. to MS$2,717$2,173

Expense efficiency ratio8

70%

73%

Earnings per diluted share

$1.66

$1.27

Book value per share9$50.67$45.49Tangible book value per share10$44.81$39.73

4

Return on equity

13.2%

11.2%

Return on tangible equity4

15.0%

12.9%

Net revenues$6,062$5,023

Investment Banking$1,707$1,535

Sales and Trading$4,154$3,455

Institutional Securities

Wealth Management
Net revenues
11

Fee-based client assets ($ billions)12$4,657$4,358$1,333$1,186

Fee-based asset flows ($ billions)

$23.8

$15.5

Loans ($ billions)

$91.3

$76.6

$1,056

$764

$715

$507

$10.4

$4.2

• Firm net revenues up 16% and net income up 25%, reflecting
strength across all business segments.
• The Firm delivered ROTCE of 15.0%.4• Our balance sheet, capital and liquidity remain strong andthe Firm is well positioned to continue to invest in ourbusinesses and serve our clients.

• Common Equity Tier 1 capital standardized ratio of 17.3%.5• Institutional Securities net revenues reflect strong
performance across all businesses with higher results insales and trading and strength in equity underwriting.

• Wealth Management delivered pre-tax income of $1.1 billion6
with a reported pre-tax margin of 24.0%7 (or 25.3%7excluding the impact of a regulatory charge in the third
quarter). Results reflect strong fee-based flows andsignificant increases in bank lending and deposits.

Investment Management
Net revenues
AUM ($ billions)13
14

Long-term net flows ($ billions)Media Relations: Wesley McDade 212-761-2430• Investment Management net revenues increased by 38%
driven by record asset management fees and AUM.

Investor Relations: Sharon Yeshaya 212-761-1632

Institutional Securities
Institutional Securities reported net revenues for the current quarter of $6.1 billion compared with $5.0 billion a year
ago. Pre-tax income was $2.0 billion compared with $1.3 billion a year ago.6

Investment Banking revenues up 11% from a year ago:
• Advisory revenues decreased from a year ago due to lower
completed M&A activity and fewer large transactions.
• Equity underwriting revenues increased significantly from ayear ago on higher revenues from IPOs, follow-on offeringsand blocks as clients continued to access capital markets.

($ millions)

3Q 2020

3Q 2019

Net Revenues$6,062$5,023

Investment Banking$1,707$1,535• Fixed income underwriting revenues decreased from a year
ago due to declines in loan issuances as large event-driven
and M&A financings were muted.

Advisory

$357

$550

Equity underwriting

$874

$401

Sales and Trading net revenues up 20% from a year ago:

Fixed income underwriting

$476

$584

Sales and Trading$4,154$3,455Equity$2,262$1,991

Fixed Income$1,924$1,430

Other

$(32)

$34

Investments and Other

$201

$33

Investments

$87

$(18)

Other

$114

$51

Total Expenses$4,014$3,716Compensation$2,001$1,768Non-compensation$2,013$1,948• Equity sales and trading net revenues increased from a year
ago reflecting strong performance across products on
continued client engagement, with notable strength in Asia.
• Fixed Income sales and trading net revenues increased from ayear ago driven by strong performance across businesses andgeographies with particular strength in credit products
benefitting from an active primary market.
• Other sales and trading net revenues decreased from a year
ago due to losses on economic hedges associated withcertain of the Firm’s borrowings and corporate lending activity,
partially offset by gains on investments associated with certain
employee deferred compensation plans (DCP).
Investments and Other:• Investments revenues in the current quarter include gains oncertain business-related investments compared with losses in
the prior year quarter.
• Other revenues increased from a year ago primarily due togains on loans held for sale related to corporate lending
activity as credit spreads tightened in the quarter, partially
offset by an increase in the provision for credit losses for loans
held for investment.

Total Expenses:• Compensation expenses increased from a year ago on higher revenues.
• Non-compensation expenses increased from a year ago driven by higher volume related expenses and an increasein the provision for credit losses for unfunded lending commitments, partially offset by lower spending on businesstravel and entertainment.

2

Wealth Management
Wealth Management reported net revenues for the current quarter of $4.7 billion compared with $4.4 billion from a year
ago. Excluding the impact of DCP, net revenues increased slightly from a year ago. Pre-tax income of $1.1 billion6 inthe current quarter resulted in a reported pre-tax margin of 24.0%7 or 25.3%7 excluding the impact of a regulatory
charge.
Net revenues:• Asset management revenues increased from a year ago
reflecting higher asset levels and strong fee-based flows.
• Transactional revenues15 increased 5% excluding the impact
of mark-to-market gains on investments associated with
employee deferred cash-based compensation plans, onseasonally strong third quarter results.
• Net interest income decreased from a year ago reflecting theimpact of lower average rates and higher mortgage securities
prepayment amortization expense, partially offset by growthin bank lending and increases in bank deposits.
Total Expenses:• Compensation expense increased from a year ago primarily
driven by increases in the fair value of deferred cash-based
compensation plan referenced investments and increases incompensable revenues.

($ millions)

3Q 2020

3Q 2019

Net Revenues$4,657$4,358Asset management$2,793$2,639Transactional15

$880

$595

Net interest$889$1,043

Other

$95

$81

Total Expenses$3,537$3,120Compensation$2,684$2,340$853$780

Non-compensation• Non-compensation expenses increased from a year ago
primarily due to a $60 million regulatory charge in the third
quarter and expenses associated with the acquisition of
E*TRADE, partially offset by lower spending on businesstravel and entertainment.

Investment Management
Investment Management reported net revenues of $1.1 billion compared with $764 million a year ago. Pre-tax income
was $315 million compared with $165 million a year ago.6
3Q 2020

3Q 2019$1,056$764

Asset management

$795

$664

• Investments revenues increased significantly from a year ago
on higher accrued carried interest and investment gains
primarily in Asia private equity.

Investments

$258

$105

$3

$(5)

Total Expenses:

Total Expenses

$741

$599

• Compensation expense increased from a year ago on higher
asset management revenues and an increase in carriedinterest.

Compensation

$401

$319

Non-compensation

$340

$280

Net revenues increased 38% from a year ago:($ millions)• Asset management revenues increased 20% from a year ago
driven by record AUM on strong investment performance andpositive long-term net flows.

Net Revenues

Other• Non-compensation expenses increased from a year ago driven
by higher brokerage and clearing costs.
3

Other Matters• The Board of Directors declared a $0.35 quarterly
dividend per share, payable on November 13, 2020 tocommon shareholders of record on October 30, 2020.
• On September 30, 2020, the Federal Reserve extended
its requirement to suspend share repurchases throughthe end of the fourth quarter of 2020.
• The effective tax rate for the quarter was 21.1%. The
current quarter includes intermittent net discrete tax
benefits of $113 million, primarily associated with theremeasurement of reserves and related interest inconnection with closures of audits in certain tax
jurisdictions.

3Q 2020

3Q 2019

Common Equity Tier 1 capital5

17.3%

16.3%

Tier 1 capital5

19.4%

18.5%

Common Equity Tier 1 capital5

16.9%

16.6%

Tier 1 capital5

19.0%

18.8%

Tier 1 leverage17

8.3%

8.2%

Supplementary leverage ratio18

7.4%

6.3%

Repurchases ($ millions)NA$1,500

Number of Shares (millions)NA

36

Average Price

NA$41.92

Period End Shares (millions)

1,576

1,624

Tax Rate

21.1%

18.2%

Capital16Standardized Approach

Advanced Approach

Leverage-based capital• The Firm’s provision for credit losses on loans andlending commitments was $111 million for the third
quarter of 2020, compared with $51 million for the third
quarter of 2019 and $239 million for the second quarterof 2020. The allowance for credit losses on loans andlending commitments was $1.3 billion as of September
30, 2020, an increase of approximately 8% over theprevious quarter.

Common Stock Repurchases

4Morgan Stanley is a leading global financial services firm providing a wide range of investment banking, securities, wealthmanagement and investment management services. With offices in more than 41 countries, the Firm’s employees serve clientsworldwide 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 andsegment trends, is included in the Financial Supplement. Both the earnings release and the Financial Supplement are available
online in the Investor Relations section at www.morganstanley.com.

NOTICE:The information provided herein and in the financial supplement may include certain non-GAAP financial measures. The definitionof such measures or reconciliation of such metrics to the comparable U.S. GAAP figures are included in this earnings release andthe Financial Supplement, both of which are available on www.morganstanley.com.
This earnings release contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27Aof the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In this context,
forward-looking statements often address expected future business and financial performance and financial condition, and often
contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “target,” similar expressions, andvariations or negatives of these words. Forward-looking statements by their nature address matters that are, to different degrees,
uncertain, such as statements about the consummation of the proposed transaction and the anticipated benefits thereof. All suchforward-looking statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materiallyfrom those expressed in such forward-looking statements. Important risk factors that may cause such a difference include, but are
not limited to, (i) the completion of the proposed transaction on anticipated terms and timing, including obtaining required regulatory
approvals, anticipated tax treatment, unforeseen liabilities, future capital expenditures, revenues, expenses, earnings, synergies,
economic performance, indebtedness, financial condition, losses, future prospects, business and management strategies for the
management, expansion and growth of the combined company’s operations and other conditions to the completion of theacquisition, including the possibility that any of the anticipated benefits of the proposed transaction with Eaton Vance will not berealized or will not be realized within the expected time period, (ii) the ability of Morgan Stanley and Eaton Vance to integrate thebusiness successfully and to achieve anticipated synergies, risks and costs, (iii) potential litigation relating to the proposedtransaction that could be instituted against Morgan Stanley, Eaton Vance or their respective directors, (iv) the risk that disruptions
from the proposed transaction will harm Morgan Stanley’s and Eaton Vance’s business, including current plans and operations, (v)the ability of Morgan Stanley or Eaton Vance to retain and hire key personnel, (vi) potential adverse reactions or changes tobusiness relationships resulting from the announcement or completion of the acquisition, (vii) continued availability of capital andfinancing and rating agency actions, (viii) legislative, regulatory and economic developments, (ix) potential business uncertainty,
including changes to existing business relationships, during the pendency of the acquisition that could affect Morgan Stanley’s
and/or Eaton Vance’s financial performance, (x) certain restrictions during the pendency of the acquisition that may impact Morgan
Stanley’s or Eaton Vance’s ability to pursue certain business opportunities or strategic transactions, (xi) unpredictability and severityof catastrophic events, including, but not limited to, acts of terrorism or outbreak of war or hostilities, as well as Morgan Stanley’s orEaton Vance’s management’s response to any of the aforementioned factors, (xii) dilution caused by Morgan Stanley’s issuance ofadditional shares of its common stock in connection with the proposed transaction, (xiii) the possibility that the transaction may be
more expensive to complete than anticipated, including as a result of unexpected factors or events, (xiv) those risks described in
Item 1A of Morgan Stanley’s most recently filed Annual Report on Form 10-K and subsequent reports on Forms 10-Q and 8-K, (xv)
those risks described in Item 1A of Eaton Vance’s most recently filed Annual Report on Form 10-K and subsequent reports on
Forms 10-Q and 8-K and (xvi) those risks that will be described in the registration statement on Form S-4 available from the sourcesindicated above. These risks, as well as other risks associated with the proposed acquisition, will be more fully discussed in theregistration statement on Form S-4 that will be filed with the SEC in connection with the proposed acquisition. While the list offactors presented here is, and the list of factors to be presented in the registration statement on Form S-4 will be, considered
representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors
may present significant additional obstacles to the realization of forward-looking statements. Consequences of material differencesin results as compared with those anticipated in the forward-looking statements could include, among other things, businessdisruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material
adverse effect on Morgan Stanley’s or Eaton Vance’s consolidated financial condition, results of operations, credit rating or liquidity.
Neither Morgan Stanley nor Eaton Vance assumes any obligation to publicly provide revisions or updates to any forward-looking
statements, whether as a result of new information, future developments or otherwise, should circumstances change, except asotherwise required by securities and other applicable laws.

5

1

Includes preferred dividends related to the calculation of earnings per share of $120 million and $113 million for the third
quarter of 2020 and 2019, respectively.

2

The Firm prepares its Consolidated Financial Statements using accounting principles generally accepted in the UnitedStates (U.S. GAAP). From time to time, Morgan Stanley may disclose certain “non-GAAP financial measures” in the courseof its earnings releases, earnings conference calls, financial presentations and otherwise. The Securities and Exchange
Commission defines a “non-GAAP financial measure” as a numerical measure of historical or future financial performance,
financial positions, or cash flows that is subject to adjustments that effectively exclude, or include amounts from the mostdirectly comparable measure calculated and presented in accordance with U.S. GAAP. Non-GAAP financial measures
disclosed by Morgan Stanley are provided as additional information to analysts, investors and other stakeholders in order toprovide them with greater transparency about, or an alternative method for assessing our financial condition, operating
results, or prospective 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 other companies. 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 such comparable U.S. GAAP financial measure.

3

Our earnings releases, earnings conference calls, financial presentations and other communications may also include
certain metrics which we believe to be useful to us, investors, analysts and other stakeholders by providing furthertransparency about, or an additional means of assessing, our financial condition and operating results.
4

The return on average tangible common equity and tangible common equity are non-GAAP financial measures that the
Firm considers useful for analysts, investors and other stakeholders to allow better comparability of period-to-period
operating performance and capital adequacy. The calculation of return on average common equity and return on averagetangible common equity represents annualized earnings applicable to Morgan Stanley common shareholders as apercentage of average common equity and average tangible common equity, respectively. Tangible common equity
represents common equity less goodwill and intangible assets net of certain allowable servicing rights deduction.

5

The Firm’s risk-based capital ratios for purposes of determining regulatory compliance are the lower of the capital ratios
computed under the (i) standardized approaches for calculating credit risk and market risk risk-weighted assets (“RWAs”)(the “Standardized Approach”); and (ii) applicable advanced approaches for calculating credit risk, market risk andoperational risk RWAs (the “Advanced Approach”). At September 30, 2020 the Firm’s ratios are based on the Advanced
Approach, while at September 30, 2019, they were based on the Standardized Approach. For information on the calculationof regulatory capital and ratios for prior periods, please refer to “Liquidity and Capital Resources – Regulatory Requirements”
in the Firm’s 2019 Form 10-K.

6

Pre-tax income represents income before taxes.

7

Pre-tax margin represents income before taxes divided by net revenues. Pre-tax margin excluding the regulatory charge isa non-GAAP financial measure that the Firm considers useful for analysts, investors and other stakeholders to allow better
comparability of period-to-period operating performance and capital adequacy. Pre-tax margin excluding the regulatory
charge represents income before taxes less the charge divided by net revenues.

8

The Firm expense efficiency ratio represents total non-interest expenses as a percentage of net revenues.

9Book value per common share represents common equity divided by period end common shares outstanding.

10

Tangible book value per common share is a non-GAAP financial measure that the Firm considers useful for analysts,
investors and other stakeholders to allow better comparability of period-to-period operating performance and capital
adequacy. The calculation of tangible book value per common share represents tangible common equity divided by period
end common shares outstanding. Tangible common equity, also a non-GAAP financial measure, represents common equity
less goodwill and intangible assets net of allowable mortgage servicing rights deduction.

11

Wealth Management fee-based client assets represent the amount of assets in client accounts where the basis of payment
for services is a fee calculated on those assets.

6

12

Wealth Management fee-based asset flows include net new fee-based assets, net account transfers, dividends, interest,and client fees and exclude institutional cash management related activity.
13

AUM is defined as assets under management.

14Long-term net flows include the Equity, Fixed Income and Alternative/Other asset classes and exclude the Liquidity asset
class.
15

Transactional revenues include investment banking, trading, and commissions and fee revenues. Transactional revenues
excluding the impact of mark-to-market gains on investments associated with employee deferred cash-based compensationplans is a non-GAAP financial measure that the Firm considers useful for analysts, investors and other stakeholders to allow
better comparability of period-to-period operating performance and capital adequacy.
16

Capital ratios are estimates as of the press release date, October 15, 2020.

17

The Tier 1 leverage ratio is a non-risk based capital requirement that measures the Firm’s leverage. Tier 1 leverage ratio
utilizes Tier 1 capital as the numerator and average adjusted assets as the denominator.
18

The Firm must maintain a Tier 1 supplementary leverage ratio (SLR) of 5% inclusive of a capital buffer of at least 2% inorder to avoid limitations on capital distributions, including dividends and stock repurchases, and discretionary bonus
payments to executive officers. The Firm’s SLR utilizes a Tier 1 capital numerator of approximately $79.8 billion and $72.9
billion, and supplementary leverage exposure denominator of approximately $1.08 trillion and $1.16 trillion, for the third
quarter of 2020 and 2019, respectively. Based on a Federal Reserve interim final rule in effect until March 31, 2021, our SLR
and supplementary leverage exposure as of September 30, 2020 reflect the exclusion of U.S. Treasury securities anddeposits at Federal Reserve Banks. The exclusion of these assets had the effect of improving our SLR by 0.9% as of
September 30, 2020.

7

Morgan Stanley
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, 2020

Quarter Ended
Jun 30, 2020 Sep 30, 2019$$

Interest income
Interest expense
Net interest
Net revenues
Non‐interest expenses:
Compensation and benefits
Non‐compensation expenses:
Brokerage, clearing and exchange fees
Information processing and communications
Professional services
Occupancy and equipment
Marketing and business development
Other
Total non‐compensation expenses
Total non‐interest expenses
Income before provision for income taxes
Provision for income taxes
Net income
Net income applicable to nonredeemable noncontrolling interests
Net income applicable to Morgan Stanley
Preferred stock dividend
Earnings applicable to Morgan Stanley common shareholders

$

$

1,826
3,092
346
1,037
3,664
206
10,171

2,142
4,683
275
1,102
3,265
347
11,814$

Percentage Change From:Jun 30, 2020 Sep 30, 2019

1,635
2,608
87
990
3,363
131
8,814

(15%)
(34%)
26%
(6%)
12%
(41%)
(14%)

12%
19%
*
5%
9%
57%
15%

Nine Months Ended
Sep 30, 2020 Sep 30, 2019$

5,239
10,831659
3,499
10,346(458)
30,116$Percentage
Change

4,467
8,781
801
2,935
9,632
685
27,301

17%
23%
(18%)
19%
7%
*
10%

2,056
570
1,486
11,657

2,358
758
1,600
13,414

4,350
3,132
1,218
10,032

(13%)
(25%)
(7%)
(13%)

(53%)
(82%)
22%
16%

7,917
3,475
4,442
34,55813,1469,885
3,261
30,562

(40%)
(65%)
36%
13%

5,086

6,035

4,427

(16%)

15%

15,404

13,609

13%

697
616
542
373
78
778
3,084

716
589
535
365
63
756
3,024

637
557
531
353
157
660
2,895

(3%)
5%
1%
2%
24%
3%
2%

9%
11%
2%
6%
(50%)
18%
7%

2,153
1,768
1,526
1,103
273
2,343
9,166

1,860
1,627
1,582
1,053
460
1,803
8,385

16%
9%
(4%)
5%
(41%)
30%
9%

8,170

9,059

7,322

(10%)

12%

24,57021,994

12%

3,487
736
2,751
34
2,717
120
2,597

4,355
1,119
3,236
40
3,196
149
3,047

2,710
492
2,218
45
2,173
113
2,060

(20%)
(34%)
(15%)
(15%)
(15%)
(19%)
(15%)

29%
50%
24%
(24%)
25%
6%
26%

9,988
2,221
7,767
156
7,611
377
7,234

8,568
1,636
6,932
129
6,803
376
6,427

17%
36%
12%
21%
12%
‐‐
13%

$

$

$

$

$

$

$

$

The End Notes are an integral part of this presentation. Refer to the Financial Supplement on pages 12 ‐ 17 for Definition of U.S. GAAP to Non‐GAAP Measures, Definitions of Performance Metrics and Terms,
Supplemental Quantitative Details and Calculations and Legal Notice for additional information.

8

Morgan Stanley
Consolidated Financial Metrics, Ratios and Statistical Data
(unaudited)
Sep 30, 2020

Quarter Ended
Jun 30, 2020 Sep 30, 2019

$
$

$
$

Percentage Change From:Jun 30, 2020 Sep 30, 2019

Nine Months Ended
Sep 30, 2020 Sep 30, 2019

Percentage
ChangeFinancial 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

1.68
1.66
13.2%
15.0%

1.98
1.96

$
$

15.7%
17.8%

1.28
1.27

(15%)
(15%)

31%
31%

$
$

11.2%
12.9%

$
$

50.67
44.81

$
$

49.57
43.68

$
$

45.49
39.73

$

1.59
12.6%
14.3%

$

2.04
16.4%
18.6%

$

1.21
10.7%
12.3%

4.68
4.62

$
$

12.6%
14.3%

(22%)

31%

3.94
3.89

19%
19%

11.8%
13.5%

$
$

50.67
44.81

$
$

45.49
39.73

$

4.62
12.5%
14.2%

$

3.77
11.5%
13.1%

23%

Financial Ratios:
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

30%
44%
26%
70%
21.1%

32%
45%
23%
68%
25.7%

27%
44%
29%
73%
18.2%

Period end common shares outstanding (millions)Average common shares outstanding (millions)
Basic
Diluted

1,576

1,576

1,624

‐‐

(3%)

1,542
1,566

1,541
1,557

1,604
1,627

‐‐
1%

(4%)
(4%)

Worldwide employees

63,051

61,59660,532

2%

4%

29%
45%
27%
71%
22.2%

28%
45%
27%
72%
19.1%

1,546
1,565

1,632
1,653

Statistical Data:

The End Notes are an integral part of this presentation. Refer to the Financial Supplement on pages 12 ‐ 17 for Definition of U.S. GAAP to Non‐GAAP Measures, Definitions of Performance Metrics and Terms,
Supplemental Quantitative Details and Calculations and Legal Notice for additional information.

9

(5%)
(5%)