Morgan Stanley Q4 Profit Surges, But Trading Revenue Declines

(RTTNews) - Investment bank Morgan Stanley (MS) on Tuesday reported a surge in profit for the fourth quarter from last year, when results included a hefty legal charge. However, the company recorded a 14 percent decline in fixed-income trading revenue, excluding items.

James Gorman, chairman and CEO said, "We delivered strong results across several of our businesses, although overall performance was affected by the choppy market conditions of the fourth quarter. We also addressed a number of items that, while affecting our results in the short term, position us well in the years ahead."

New York-based Morgan Stanley reported net earnings applicable to common shareholders for the fourth quarter of $920 million or $0.47 per share, up sharply from $36 million or $0.02 per share in the prior-year quarter.

The latest quarter's results include a net discrete tax benefit of $0.70 per share, loss of $0.40 per share related to changes in discretionary incentive compensation deferrals, loss of $0.17 per share on the initial incorporation of funding valuation adjustments or FVA into the fair value measurements, and loss of $0.12 per share related to legal expenses.

The prior-year quarter's results included legal expenses of $1.4 billion or loss of $0.45 per share and a discrete tax benefit of $0.10 per share.

In addition, the latest quarter's results include positive revenue related to changes in Morgan Stanley's debt-related credit spreads and other credit factors, known as debt valuation adjustment or DVA, of $223 million. This compares with negative revenue of $368 million a year ago.

Excluding DVA, adjusted income from continuing operations for the quarter was $903 million or $0.40 per share, compared to $336 million or $0.15 per share in the year-ago quarter. On average, 12 analysts polled by Thomson Reuters expected the company to report earnings of $0.48 per share for the quarter. Analysts' estimates typically exclude one-time items.

Net revenues for the quarter declined 1 percent to $7.76 billion from $7.85 billion in the same quarter last year. Excluding DVA, adjusted net revenues were $7.54 billion, compared to $8.21 billion in the prior-year period. Analysts were looking for revenue of $8.08 billion for the quarter.

Quarterly revenues at the institutional securities segment increased 3 percent from the year-ago quarter to $3.43 billion.

Stripping out DVA, the segment's revenues declined 14 percent to $3.2 billion, reflecting challenging market conditions in Fixed Income & Commodities sales and trading as well as the impact of implementing FVA, with continued strength in equity sales and trading as well as Investment Banking. The institutional securities segment includes investment banking as well as sales and trading results.

Advisory revenues rose 8 percent from the year-ago period to $451 million. Equity underwriting revenues declined 17 percent to $345 million, reflecting lower market volumes.

Fixed income underwriting revenues decreased 7 percent from last year to $462 million.

Fixed Income & Commodities sales and trading net revenues of $133 million declined 81 percent from last year and also included a pre-tax charge of about $466 million. Excluding this, net revenues declined 14 percent from last year to $599 million, reflecting lower revenues in credit products and commodities. This was partly offset by higher results in rates and foreign exchange and an out of period collateral optimization valuation gain of $59 million.

Investment banking revenues declined 7 percent from the year-ago period to $1.46 billion, while trading revenues decreased 4 percent to $1.45 billion.

Net revenues at Morgan Stanley's global wealth management segment rose 2 percent from the year-ago quarter to $3.80 billion, while investment management segment revenues declined 31 percent to $588 million.

Morgan Stanley declared a quarterly dividend of $0.10 per share, payable on February 13 to common shareholders of record on January 30, 2015.

For fiscal 2014, Morgan Stanley's net earnings applicable to common shareholders rose to $5.82 billion or $2.95 per share from $2.66 billion or $1.36 per share from last year. Excluding DVA, adjusted income from continuing operations was $2.75 per share, compared with $1.61 per share in the previous year.

Net revenues for the year grew 5 percent to $34.28 billion from $32.49 billion in the prior year. Excluding DVA, net revenues were $33.6 billion compared to $33.2 billion a year ago.

Street expected the company to report earnings of $2.56 per share for the year on revenues of $34.26 billion.

MS closed Monday's trading at $34.89. In Tuesday's pre-market activity, the stock is down $1.00 or 2.87 percent to $33.89.