Morgan Stanley (NYSE:MS) Q2 2019 Earnings Conference Call - Final Transcript

Jul 18, 2019 • 08:30 am ET

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Morgan Stanley (NYSE:MS) Q2 2019 Earnings Conference Call - Final Transcript

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Presentation
Executive
James P. Gorman

Reserve and returning higher levels of capital in future years. All-in-all, we produced a solid quarter in a difficult environment topped with a strong CCAR result.

With that, I'll now turn it over to Jon to discuss the quarter in greater details.

Executive
Jonathan Pruzan

Thank you and good morning. In the second quarter, Firm revenues were $10.2 billion, essentially unchanged from the prior quarter. PBT was $2.9 billion and EPS was $1.23. Returns were in line with our target ranges with an ROE of 11.2% and an ROTCE of 12.8%. Given the global growth outlook is uncertain, we remain focused on expenses. Total non-interest expenses were $7.3 billion. On a year-to-date basis, total non-interest expenses declined 3% and our expense efficiency ratio was 71%. Focus on our more controllable sources of spend, particularly marketing and business development and professional services, continues to help self fund our ongoing investments, including at the technology, workplace enhancements and the integration of Solium.

Now to the businesses. Institutional Securities generated revenues of $5.1 billion in the second quarter, a 2% sequential decrease. Stronger performance in the Americas, particularly investment banking was offset by relative softness in Asia. Non-comp expenses were $1.9 billion for the quarter, a 4% increase from the prior quarter, and compensation expenses were $1.8 billion, resulting in a compensation to net revenue ratio of 35%. In investment banking, we generated revenues of $1.5 billion, up 28% sequentially, with advisory, equity and debt underwriting, all improving versus the first quarter. Despite lower completed M&A industry volumes, advisory revenues increased 25% quarter-over-quarter to $506 million. Underwriting results were resilient, considering the mixed backdrop.

Equity underwriting was very strong, recovering from a challenging first quarter. Revenues were $546 million, up 61% sequentially. Equity volumes picked up across all regions. IPO issuance rebounded strongly as the U.S. market normalized following the government shutdown. We also witnessed a healthy pickup in follow on activity. Fixed income underwriting revenues increased 3% sequentially to $420 million, despite lower industry issuance volumes and investment grade bonds and leverage loans.

Overall, advisory and underwriting pipelines remained healthy. CEOs remain engaged, focusing on potential M&A across the size spectrum as an investment for future growth. Geographically, while activity in the U.S. remained strong, M&A activity in the Asia-Pacific region is down notably compared to last year, driven by reduced cross-border volume. As we look ahead, macroeconomic uncertainty and geopolitical events can impact the conversion from pipelines to realized, but for now, the environment continues to support activity generally.

In equity sales and trading, we retake our leadership position and expect to be number one globally. Revenues were $2.1 billion, increasing 6% quarter-over-quarter. Across products, activity peaked mid-quarter before subsiding in June. Prime brokerage revenues rose sequentially, consistent with the seasonal patterns in Europe. Client balances grew versus one quarter, client conviction remained subdued. Cash revenues improved quarter-over-quarter, driven by the Americas and derivative revenues were essentially flat.

Fixed income sales and trading revenues were $1.1 billion in the second quarter. This represents a