Morgan Stanley (NYSE:MS) Q3 2019 Earnings Conference Call - Final Transcript

Oct 17, 2019 • 08:00 am ET

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Morgan Stanley (NYSE:MS) Q3 2019 Earnings Conference Call - Final Transcript

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Presentation
Executive
James P. Gorman

I said earlier, we passed $0.5 trillion in total assets with positive net long-term flows.

One ongoing challenge of our continued pursuit of higher ROE performance has been the amount of equity we require to hold. Despite how we've repositioned the firm to benefit from the more stable revenue streams. To address capital which of course drives ROE, our current constraint is the leverage ratio. As the Federal Reserve adjusted the capital framework, we expect the focus will transition to CET1 which should benefit us in the aggregate.

Given global competitive dynamics, the strength of the brand, the stability of the institution, there is reason to believe, we can gain share in several of our businesses. The combination of growth, stability and potential for share gains leaves me with confidence that there remains tremendous upside here. Overall, we remain cautious today as trade talks swirl and interest rate pods [Phonetic] continue to be debated. But expect us to look beyond the next few months and focus on continuing to enhance the stability of the franchise and growing the business.

Our job is to continue to manage this institution for the long term. All of that said, I don't want to take away from the strength of the quarter and I'll now turn it over to Jon to discuss the results in greater detail. Jon?

Executive
Jonathan M. Pruzan

Thank you, James and good morning. In the third quarter, firm revenues were $10 billion representing the fifth quarter with revenues over $10 billion out of the last seven and our highest third quarter in over a decade. The 2% sequential revenue decline from the prior quarter is reflective of seasonal trends. PBT was $2.7 billion and EPS was $1.27 resulting in an ROE of 11.2% and an ROTCE of 12.9%. Year-to-date, ROE and ROTCE are 11.8% and 13.5% respectively. Total non-interest expenses were $7.3 billion in the third quarter.

On a year-to-date basis, total non-interest expenses declined 1% and our efficiency ratio was 72%. As we continue to invest in technology, workplace enhancements and the integration of Solium, we remain focused on controlling more discretionary expenses, particularly marketing and business development and professional services.

Now to the businesses. Institutional Security revenues were strong, particularly in September. Despite a mixed market backdrop, revenues of $5 billion were the highest for the third quarter excluding DVA in 10 years. Non-compensation expenses were $1.9 billion for the quarter, increasing 5% sequentially on higher volume related cost driven by increased client activity. Our compensation to net revenue ratio remained at 35%. In the context of fluid markets including trade and political uncertainty, economic growth concerns and central bank responses, we remain focused on serving our clients, while actively managing our risk.

Investment banking revenues were $1.5 billion, increasing 4% sequentially. The quarter-over-quarter increase was driven by improvement in fixed income underwriting and advisory, particularly in the Americas. Notably fixed income underwriting produced record revenues as issuance activity accelerated. Advisory revenues increased 9% quarter-over-quarter to $550 million. Completed M&A industry