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

Jul 18, 2019 • 08:30 am ET


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


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Jonathan Pruzan

Total expenses were essentially unchanged compared to the first quarter. Lower compensation expenses driven by movements in our deferred compensation plans were partially offset by seasonally higher non-compensation expenses as well as Solium expenses in the costs related to ongoing integration. We closed the Solium acquisition on May 1st and have been pleased with the progress. We'll be investing in our workplace offering for the next 18 to 24 months. This business is on very strong footing, and over the medium term, the margin will improve as revenues rise.

Investment Management produced very strong results. Revenues of $839 million were the highest for the segment in over five years improving 4% sequentially. This was primarily driven by strength in investments. The business saw strong net flows and we continue to see positive momentum in capital raising.

Investment revenues of $247 million were driven by continued strong performance across our private funds, including in our private equity Asia, real estate and infrastructure businesses. Total AUM of $497 billion increased 4% versus 1Q with long-term AUM of $334 billion also increasing 4%. Market-related growth and positive net flows across all of our asset classes drove the higher long-term AUM. Asset management fees of $612 million were essentially flat for the first quarter. The higher management fees on the back of rising average AUM over the quarter were offset by the seasonality of performance fees. As we have mentioned before, most of any year's performance fees will be recognized in the first and fourth quarters. Total expenses were up modestly to the first quarter on the back of higher revenues.

Turning to the balance sheet, total spot assets rose to $892 million as we continue to support our clients. Derivatives and lending activity within sales and trading also drove an increase in our RWAs, resulting in a decrease in our common equity Tier 1 ratio of -- to 16.3%. During the second quarter, we repurchased approximately $1.2 billion of common stock or 26 million shares at $44.53 and the Board declared a $0.35 dividend per share. Our tax rate in the second quarter was 22.6%. We continue to expect our full year tax rate will be similar to the 2018 tax rate, excluding intermittent discrete items.

Looking ahead, investment banking pipelines remain healthy. Wealth Management fee-based revenue should benefit from higher asset levels and Investment Management remains focused on growth and delivering in key -- increased value to clients. The third quarter is off to a strong start, but we are cognizant of the typical summer slowdown and that conviction remains lackluster compared to this time last year. The uncertainties around global growth have risen, which may impact confidence and activity levels. That said, we remain committed to our strategic objectives and expect to perform well if markets remain open and functioning.

With that, we will now open the line to questions.