This is a summary of the second quarter fiscal 2008 earnings call conducted by Morgan Stanley Inc. (MS) on June 18, 2008
Management:
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Chief Financial Officer, Co-Head of Strategic Planning: Colm Kelleher
Key investors issues:
- Revenues declined by 38% to $6.5 billion.
- Net income was $1.0 3 billion, or 95 cents a share, a decrease of 60% from the prior year.
- The Board of Directors declared a 27 cents a share quarterly dividend per common share.
Half Year Highlights:
- Income from continuing operations was $2.6 billion or $2.40 a share, a 45% decrease from $4.7 billion or $4.41 a share a year ago.
- Net revenues decreased 28% to $14.8 billion.
- Non-interest expenses decreased 17% to $11.2 billion.
Second Quarter Highlights:
Income from continuing operations was $1. 03 billion or 95 cents per diluted share, down 57% from $2.36 billion or $2.24 per diluted share as the operating environment remained depressed.
- Net revenues were $6.5 billion, 38% below last year''s second quarter.
- Non-interest expenses of $5.1 billion, including severance expense of approximately $245 million related to staff reductions, decreased 28% from a year ago.
- The annualized return on average common equity from continuing operations was 12.3%, compared with 29.4% in the prior year.
As of May 31, 2008, the Company has not repurchased any shares of its common stock this fiscal year.
- The Company also announced that its Board of Directors declared a quarterly dividend of $252.78 per share of Series A Floating Rate Non-Cumulative Preferred Stock to be paid on July 15, 2008 to preferred shareholders of record on June 30, 2008.
- Total capital was $210.1 billion, including $45.0 billion of common equity, preferred equity and junior subordinated debt issued to capital trusts.
- Book value per common share was $30.11, based on 1.1 billion shares outstanding.
Segments Highlights:
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Institutional Securities: net revenues of $3.6 billion, fell 51% compared with net revenues of $7.4 billion a year ago, as advisory revenues were $367 million, a 49% decrease from last year''s second quarter.
- Underwriting revenues of $508 million decreased 48% and equity underwriting revenues were $298 million, a 40% decrease from the prior year.
- Fixed income underwriting revenues decreased 57% to $210 million from last year''s second quarter.
- Fixed income sales and trading net revenues were $414 million, 85% below $2.7 billion in 2007, driven by lower net revenues in Interest Rate, Credit & Currency (IRCC), net losses in mortgage proprietary trading and a decline in commodities.
- Equity sales and trading net revenues were $2.1 billion, a decrease of 11% due to lower net revenues in proprietary trading.
Other sales and trading net losses of $519 million resulted from loans largely related to acquisition financing to non-investment grade companies, as losses on hedges were partly offset by mark to market gains.
- Investment losses were $257 million compared with gains of $396 million in the second quarter of last year, reflecting losses on various investments.
- The Company''s average trading VAR measured at the 95% confidence level was $99 million compared with $81 million in the second quarter of fiscal 2007.
- At quarter-end, the Company''s trading VaR was $99 million, and the aggregate trading and non-trading VaR was $118 million.
- Non-interest expenses were $2.9 billion, a decrease of 34 percent from the second quarter of last year
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Global Wealth Management Group: pre-tax income was $989 million, compared with $264 million in the second quarter of last year.
- Excluding the sale of MSWM S.V., net revenues were $1.7 billion, up 4% from a year ago.
- Non-interest expenses were $1.4 billion, an increase of 5% from a year ago.
- Total client assets were $739 billion, an $11 billion increase from last year''s second quarter, with client assets in fee-based accounts of $194 billion, an 8% decrease from a year ago and represent 26% of total client assets.
-The 8,350 global representatives at quarter-end achieved average annualized revenue per global representative of $810,000 and total client assets per global representative of $89 million.
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Asset Management: pre-tax loss of $227 million, compared with pre-tax income of $303 million in last year''s second quarter as net revenues decreased 68% percent to $488 million.
- Trading results primarily reflect losses of $86 million related to securities issued by structured investment vehicles held on balance sheet by Asset Management.
- Non-interest expenses decreased 41% to $715 million from a year ago.
- Asset Management recorded net customer inflows of $15.5 billion, compared with $9.3 billion a year ago.
- Core net flows were $13.8 billion, compared with $5.6 billion a year ago, primarily driven by fixed income money market products.
Net flows in merchant banking of $1.7 billion were down from $3.7 billion a year ago, as lower real estate flows were partly offset by higher flows in infrastructure.
- Assets under management or supervision at May 31, 2008 were a record $605 billion, up $45 billion, or 8% from a year ago, driven by increases in both the core and merchant banking businesses.
- The percent of the Company''s long-term fund assets performing in the top half of the Lipper rankings was 35% over one year.
