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2011 Q1 Earnings: Morgan Stanley Wealth Unit Grows Sales 11%

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Morgan Stanley reported adjusted net income on Thursday of $966 million, or $0.50 per share, compared with income of $1.8 billion, or $1.03 per share, for the same period a year ago. These results beat analysts’ estimates, though net revenues of $7.6 billion for the first quarter – down 16% from the same period a year ago – fell short of expectations by about $250 million.

According to the company, results for the current quarter included a pre-tax loss of $655 million related to the firm’s 40% stake in the Japanese securities joint venture Mitsubishi UFJ Morgan Stanley Securities Co. The current quarter also included a net tax benefit of $447 million, or $0.30 per share.

"We continued to strengthen our client franchise and delivered solid results across many of our businesses,” said President and CEO James Gorman (left) in a press release. “Our premier investment banking franchise remains a clear industry leader … We also made gains in key areas of focus – [with] positive flows across wealth management and asset management.”

The loss at the company’s joint venture with MUFG “is disappointing,” he explained, though the company remains “strongly committed to the Japanese market and our strategic partners at MUFG. Further, this loss does not impact the progress we are making in pursuing our own strategic priorities. I am confident that Morgan Stanley is well-positioned to seize the opportunities presented by today’s market environment and deliver long-term value to our clients, shareholders and employees."

Wealth Management

Morgan Stanley’s Global Wealth Management Group reported pre-tax income from continuing operations of $348 million, up 25% from $278 million in the first quarter of last year, but down 11% from $390 million in the prior quarter.

The quarter’s pre-tax margin was 10%, the company says. And income after the non-controlling interest allocation to Citigroup Inc., $74 million, and before taxes was $274 million.

Taking into account these adjustments, net income for the unit in the first quarter was $183 million, a jump of 85% from last year and 10% from the previous quarter.

Net revenues were $3.4 billion, up 11% from $3.1 billion a year ago and up 3% from $3.3 billion in the previous quarter, thanks to higher commissions and asset management revenues, the company explained in a press release.

Compensation expenses of $2.1 billion increased 8% from a year ago. The compensation to net revenue ratio for the current quarter was 62% compared with 64% a year ago. Non-compensation expenses of $964 million increased from $855 million a year ago.

Total client assets were $1.7 trillion at quarter-end. Client assets in fee-based accounts were $501 billion, representing 29% of total client assets.

Net new assets for the quarter were $11.4 billion, and net new flows in fee-based accounts were $17.8 billion.

The 17,800 global representatives at quarter-end achieved average annualized revenue per global representative of $767,000 and total client assets per global representative of $97 million.

The current Morgan Stanley Smith Barney FA headcount is down about 2%, or by 340 reps, from last year and fell roughly 1%, or by 243 reps, from the prior quarter.

In March, Morgan Stanley said it was laying off several hundred lower-producing advisors.

For more information on earnings in the financial sector read AdvisorOne’s 2011 Q1 Earnings Calendar.


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