Morgan Stanley, the sole remaining independent wirehouse broker-dealer, reported income from continuing operations for the third quarter ended August 31, 2008, of $1,425 million, or $1.32 per diluted share, compared with $1,474 million, or $1.38 per diluted share, in the third quarter of last year. Net revenues were $8.0 billion, 1 percent above last year’s third quarter.
Net income for the quarter was $1,425 million, or $1.32 per diluted share, compared with $1,543 million, or $1.44 per diluted share, in the third quarter of fiscal 2007. The annualized return on average common equity for the quarter was 16.5 percent, compared with 17.1 percent a year ago. Equity sales and trading net revenues of $2.7 billion included record results in prime brokerage and strong results in the proprietary trading, derivatives and cash businesses.
The results beat analysts’ expectations. Still, the stock closed down 11 percent on September 16 near 28.70, after ending September 15 at roughly 32.20. There is speculation on Wall Street that Morgan Stanley may need to sell itself to a bank or another larger financial institution, such as Merrill Lynch announced it was doing on September 15 (in a merger with Bank of America). But Morgan Stanley CFO Colm Kelleher told analysts during the company’s recent earnings call that it intended to stick with the investment-banking model.
Morgan Stanley’s financial advisors reported that they managed total client assets of $707 billion, a decline of $27 billion, or 4 percent, from last year’s third quarter as net new assets were more than offset by asset depreciation. Client assets in fee-based accounts were $186 billion, a 12 percent decrease from a year ago and represent 26 percent of total client assets.
The 8,500 global representatives at quarter-end achieved average annualized revenue per global representative of $741,000 and total client assets per global representative of $83 million. The number of global representatives has increased 2 percent from the second quarter of this year driven by strong recruiting and low turnover.
In the preceding quarter of 2008 ended May 30, the company’s advisors had annualized revenue of $810,000 per advisor.
“Despite unprecedented market conditions, Morgan Stanley’s core client franchise achieved solid revenue growth, profitability and ROE this quarter,” says John J. Mack, chairman and CEO. Our people delivered particularly strong performance across our prime brokerage, commodities, foreign exchange and equities businesses, and we saw continued growth in our international business. We have continued to actively reduce our legacy positions and carefully manage our risk, capital and liquidity. I am confident that Morgan Stanley’s strong balance sheet and product and geographic diversification leave us well-positioned to serve our clients and realize opportunities in these challenging markets.”