Business Wire | Oct 14, 2021 07:30AM EDT

Morgan Stanley Third Quarter 2021 Earnings Results

Oct. 14, 2021

NEW YORK--(BUSINESS WIRE)--Oct. 14, 2021--Morgan Stanley (NYSE: MS) today reported net revenues of $14.8 billion for the third quarter ended September 30, 2021 compared with $11.7 billion a year ago. Net income applicable to Morgan Stanley was $3.7 billion, or $1.98 per diluted share,1compared with net income of $2.7 billion, or $1.66 per diluted share,1 for the same period a year ago. The comparisons of current year results to prior periods were impacted by the acquisitions of E*TRADE Financial Corporation ("E*TRADE"), reported in the Wealth Management segment, and Eaton Vance Corp. ("Eaton Vance"), reported in the Investment Management segment.

James P. Gorman,Chairman and Chief Executive Officer, said, "The Firm delivered another very strong quarter, with robust revenues and improved efficiency producing an ROTCE of 20%. We had standout performance of our integrated Investment Bank and record net new assets of $135 billion in Wealth Management. Year-to-date, our successful integrations of E*TRADE and Eaton Vance have supported growth of $400 billion in net new client assets across Wealth and Investment Management, bringing our total combined client assets to $6.2 trillion."

Financial HighlightsSummary^2,3,4

Firm ($millions, except 3Q 2021 3Q 2020 per share data)



Net revenues $14,753 $11,721

Provision for $24 $111 * Firm net revenues of $14.8 billion andcredit losses net income of $3.7 billion increased more than 25% year over year reflectingCompensation $5,920 $5,086 strong performance across all businessexpense segments and regions.

Non-compensation $3,935 $3,037 expenses * The Firm delivered ROTCE of 19.6% orPre-tax income^ $4,874 $3,487 20.2% excluding the impact of10 integration-related expenses.^5,6

Net income app. $3,707 $2,717 to MS * The Firm expense efficiency ratioExpense improved to 67% or 66% excluding theefficiency ratio 67% 69% impact of integration-related expenses.^7 ^6,7

Earnings per $1.98 $1.66 diluted share * Common Equity Tier 1 capitalBook value per $54.56 $50.67 standardized ratio was 16.0%.share Tangible book $40.47 $44.81value per share

Return on equity 14.5% 13.2%

Return on tangible equity^ 19.6% 15.0%5 * Institutional Securities net revenues of $7.5 billion reflect recordInstitutional Investment Banking revenues, led bySecurities advisory, continued strong performance in Equity, and solid results in FixedNet revenues $7,495 $6,129 Income.

Investment $2,849 $1,707 Banking Equity $2,876 $2,311 Fixed Income $1,640 $1,954 Wealth Management

Net revenues $5,935 $4,654 * Wealth Management delivered a pre-tax margin of 25.8% or 27.7% excludingFee-based client integration-related expenses.^6,8assets ($ $1,752 $1,333 Results reflect record asset managementbillions)^11 revenues and continued growth in bank lending. The business added record netFee-based asset new assets of $135 billion^9flows ($ $70.6 $23.8 representing a year-to-date 10%billions)^12 annualized growth rate from beginning period assets.Net new assets $134.5 $51.8($ billions)^9

Loans ($ $121.2 $91.3 billions) Investment Management * Investment Management results reflect an increase in fee-based assetNet revenues $1,453 $1,056 management revenues on AUM of $1.5 trillion.AUM ($ billions) $1,522 $715^13

Long-term netflows ($ $(2.3) $10.4billions)^14

Institutional Securities

Institutional Securities reported net revenues for the current quarter of $7.5 billion compared with $6.1 billion a year ago. Pre-tax income was $3.0 billion compared with $2.0 billion a year ago.10

3Q 3Q ($ millions) 2021 2020

Investment Banking revenues up 67% from a Net Revenues $7,495 $6,129year ago:



* Record advisory revenues driven by higher completed M&A transactions. Investment Banking $2,849 $1,707

* Equity underwriting revenues increased Advisory $1,272 $357 from a year ago primarily from IPOs and blocks driven by more issuances and activity in a constructive market. Equity underwriting $1,010 $874

* Fixed income underwriting revenues Fixed income increased from a year ago driven by underwriting $567 $476 higher non-investment grade loan issuances on the back of increased event financing, partially offset by lower investment grade bond volumes.

Equity net revenues up 24% from a year ago: Equity $2,876 $2,311

Fixed Income $1,640 $1,954 * Equity net revenues increased from a year ago reflecting higher results across products driven by strong client Other $130 $157 engagement in a favorable market environment, with particular strength in Asia.

Provision forFixed Income net revenues down 16% from a credit losses $24 $113year ago:



* Fixed Income net revenues declined versus a strong prior year quarter. Results Total Expenses $4,498 $3,968 reflect a decrease in our macro businesses in a less volatile environment and lower results in our micro businesses Compensation $2,248 $2,001 driven by tighter bid-offer and credit spreads. The decrease was partially offset by higher revenues in commodities Non-compensation $2,250 $1,967 driven by an increase in client activity.





Provision for credit losses:

* Provision for credit losses decreased from a year ago on loans held for investment as a result of an improved macroeconomic environment.

Total Expenses:

* Compensation expense increased from a year ago on higher revenues. * Non-compensation expenses increased from a year ago primarily driven by higher volume related expenses.

Wealth Management

Wealth Management reported net revenues for the current quarter of $5.9 billion compared with $4.7 billion from a year ago. Pre-tax income of $1.5 billion10 in the current quarter resulted in a reported pre-tax margin of 25.8% or 27.7% excluding the impact of integration-related expenses.6,8 The comparisons of current year results to prior periods were impacted by the acquisition of E*TRADE.

3Q 3Q ($ millions) 2021 2020

Net revenues increased 28% from a year ago: Net Revenues $5,935 $4,654

Asset management $3,628 $2,793 * Asset management revenues increased from a year ago reflecting higher asset levels driven by market appreciation and strong Transactional^15 $832 $880 positive fee-based flows in the advisor-led channel. Net interest income $1,348 $889

* Transactional revenues^15 increased 38% excluding the impact of lower Other $127 $92 mark-to-market gains on investments associated with certain employee deferred compensation plans. Results reflect Provision for incremental revenues as a result of the credit losses $0 $(2) E*TRADE acquisition and strong client activity. Total Expenses $4,405 $3,536

* Net interest income increased from a year Compensation $3,159 $2,684 ago as a result of the E*TRADE acquisition and strong bank lending growth. Non-compensation $1,246 $852



Total Expenses:

* Compensation expense increased from a year ago driven by higher compensable revenues and incremental compensation as a result of the E*TRADE acquisition6 partially offset by decreases in the fair value of certain deferred compensation plan referenced investments. * Non-compensation expenses increased from a year ago primarily driven by incremental expenses as a result of the E*TRADE acquisition.6

Investment Management

Investment Management reported net revenues of $1.5 billion compared with $1.1 billion a year ago. Pre-tax income was $370 million compared with $315 million a year ago.10 The comparisons of current year results to prior periods were impacted by the acquisition of Eaton Vance.

3Q 3Q ($ millions) 2021 2020

Net revenues increased 38% from a year ago: Net Revenues $1,453 $1,056

* Asset management and related fees Asset management increased from a year ago driven by and related fees $1,470 $795 incremental revenues as a result of the Eaton Vance acquisition and higher AUM. Performance-based income and other $(17) $261

* Performance-based income and other revenues decreased from a year ago due Total Expenses $1,083 $741 to overall lower accrued carried interest in the Asia private equity business, primarily driven by an Compensation $513 $401 underlying public investment in one of the funds. Non-compensation $570 $340



Total Expenses:

* Compensation expense increased from a year ago primarily driven by incremental compensation expenses as a result of the Eaton Vance acquisition,6 partially offset by lower compensation associated with carried interest. * Non-compensation expenses increased from a year ago primarily driven by incremental expenses as a result of the Eaton Vance acquisition.6

Other Matters

3Q 3Q 2021 2020

Capital^16

Standardized Approach

CET1 capital^ 16.0% 17.4% 17,20

Tier 1 capital 17.6% 19.5% ^17 * The Firm repurchased $3.6 billion of its outstanding common stock during the quarter Advanced as part of its Share Repurchase Program. Approach

CET1 capital^ 17.1% 16.9% 17 * The Board of Directors declared a $0.70 quarterly dividend per share, payable on Tier 1 capital 18.9% 19.0% November 15, 2021 to common shareholders of ^17 record on October 29, 2021. Leverage-based capital

* The Firm intends to early adopt the Tier 1 7.3% 8.3% standardized approach for counterparty leverage^18 credit risk (SA-CCR) under Basel III in the fourth quarter. In the absence of further SLR^19 5.7% 7.4% mitigation, our risk-weighted assets (RWAs) under the Standardized Approach could Common Stock Repurchases increase by $35 - $45 billion and decrease our Standardized CET1 capital ratio by Repurchases ($ $3,557 N/A approximately 120 basis points.^20 millions)

Number of Shares 36 N/A (millions)

Average Price $99.44 N/A

Period End Shares 1,799 1,576 (millions)

Tax Rate 23.6% 21.1%



Morgan Stanley is a leading global financial services firm providing a wide range of investment banking, securities, wealth management and investment management services. With offices in more than 41 countries, the Firm's employees serve clients worldwide including corporations, governments, institutions and individuals. For further information about Morgan Stanley, please visit www.morganstanley.com.

A financial summary follows. Financial, statistical and business-related information, as well as information regarding business and segment trends, is included in the financial supplement. Both the earnings release and the financial supplement are available online in the Investor Relations section at www.morganstanley.com.

NOTICE:

The information provided herein and in the financial supplement, including information provided on the Firm's earnings conference calls, may include certain non-GAAP financial measures. The definition of such measures or reconciliation of such measures to the comparable U.S. GAAP figures are included in this earnings release and the financial supplement, both of which are available on www.morganstanley.com.

This earnings release may contain forward-looking statements, including the attainment of certain financial and other targets, objectives and goals. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made, which reflect management's current estimates, projections, expectations, assumptions, interpretations or beliefs and which are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of risks and uncertainties that may affect the future results of the Firm, please see "Forward-Looking Statements" preceding Part I, Item 1, "Competition" and "Supervision and Regulation" in Part I, Item 1, "Risk Factors" in Part I, Item 1A, "Legal Proceedings" in Part I, Item 3, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 and "Quantitative and Qualitative Disclosures about Risk" in Part II, Item 7A in the Firm's Annual Report on Form 10-K for the year ended December 31, 2020 and other items throughout the Form 10-K, the Firm's Quarterly Reports on Form 10-Q and the Firm's Current Reports on Form 8-K, including any amendments thereto.

1 Includes preferred dividends related to the calculation of earnings per share of $123 million and $120 million for the third quarter of 2021 and 2020, respectively.

2 The Firm prepares its Consolidated Financial Statements using accounting principles generally accepted in the United States (U.S. GAAP). From time to time, Morgan Stanley may disclose certain "non-GAAP financial measures" in the course of its earnings releases, earnings conference calls, financial presentations and otherwise. The Securities and Exchange Commission defines a "non-GAAP financial measure" as a numerical measure of historical or future financial performance, financial position, or cash flows that is subject to adjustments that effectively exclude, or include amounts from the most directly comparable measure calculated and presented in accordance with U.S. GAAP. Non-GAAP financial measures disclosed by Morgan Stanley are provided as additional information to analysts, investors and other stakeholders in order to provide them with greater transparency about, or an alternative method for assessing our financial condition, operating results, or capital adequacy. These measures are not in accordance with, or a substitute for U.S. GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies. Whenever we refer to a non-GAAP financial measure, we will also generally define it or present the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP, along with a reconciliation of the differences between the non-GAAP financial measure we reference and such comparable U.S. GAAP financial measure.

3 Our earnings releases, earnings conference calls, financial presentations and other communications may also include certain metrics which we believe to be useful to us, analysts, investors, and other stakeholders by providing further transparency about, or an additional means of assessing, our financial condition and operating results.

4 The provision for credit losses for loans and lending commitments is now presented as a separate line in the consolidated income statements.

5 Return on average tangible common equity and return on average tangible common equity excluding integration-related expenses are non-GAAP financial measures that the Firm considers useful for analysts, investors and other stakeholders to allow comparability of period-to-period operating performance and capital adequacy. The calculation of return on average tangible common equity represents full year or annualized net income applicable to Morgan Stanley less preferred dividends as a percentage of average tangible common equity. Tangible common equity, also a non-GAAP financial measure, represents common equity less goodwill and intangible assets net of allowable mortgage servicing rights deduction. The calculation of return on average tangible common equity excluding integration-related expenses is adjusted in both the numerator and the denominator to exclude the integration-related expenses associated with the acquisitions of E*TRADE and Eaton Vance.

6 The Firm's third quarter results include $145 million of integration-related expenses on a pre-tax basis ($111 million after-tax) as a result of the E*TRADE and Eaton Vance acquisitions. The integration-related expenses include $19 million in compensation expense and $126 million in non-compensation expense. Wealth Management and Investment Management integration-related expenses include $9 million and $10 million in compensation expense, respectively, and $104 million and $22 million in non-compensation expense, respectively.

7 The Firm expense efficiency ratio of 66.8% represents total non-interest expenses as a percentage of net revenues. The Firm expense efficiency ratio excluding integration-related expenses of 65.8% represents total non-interest expenses adjusted for integration-related expenses as a percentage of net revenues. The Firm expense efficiency ratio excluding integration-related expenses is a non-GAAP financial measure that the Firm considers useful for analysts, investors and other stakeholders to allow comparability of period-to-period operating performance.

8 Pre-tax margin represents income before taxes divided by net revenues. Wealth Management pre-tax margin excluding the integration-related expenses represents income before taxes less those expenses divided by net revenues. Wealth Management pre-tax margin excluding integration-related expenses is a non-GAAP financial measure that the Firm considers useful for analysts, investors and other stakeholders to allow comparability of period-to-period operating performance.

9 Wealth Management net new assets represent client inflows, including dividends and interest, and asset acquisitions, less client outflows, and exclude activity from business combinations/divestitures and the impact of fees and commissions. The current quarter ended September 30, 2021 includes $43 billion of fee-based assets acquired in an asset acquisition.

10 Pre-tax income represents income before taxes.

11 Wealth Management fee-based client assets represent the amount of assets in client accounts where the basis of payment for services is a fee calculated on those assets.

12 Wealth Management fee-based asset flows include net new fee-based assets (including asset acquisitions), net account transfers, dividends, interest, and client fees, and exclude institutional cash management related activity. The current quarter ended September 30, 2021 includes $43 billion of fee-based assets acquired in an asset acquisition.

13 AUM is defined as assets under management.

14 Long-term net flows include the Equity, Fixed Income and Alternative and Solutions asset classes and excludes the Liquidity and Overlay Services asset class.

15 Transactional revenues include investment banking, trading, and commissions and fee revenues. Transactional revenues excluding the impact of mark-to-market gains on investments associated with employee deferred cash-based compensation plans is a non-GAAP financial measure that the Firm considers useful for analysts, investors and other stakeholders to allow better comparability of period-to-period operating performance and capital adequacy.

16 Capital ratios are estimates as of the press release date, October 14, 2021.

17 CET1 capital is defined as Common Equity Tier 1 capital. The Firm's risk-based capital ratios are computed under each of the (i) standardized approaches for calculating credit risk and market risk risk?weighted assets (RWAs) (the "Standardized Approach") and (ii) applicable advanced approaches for calculating credit risk, market risk and operational risk RWAs (the "Advanced Approach"). For information on the calculation of regulatory capital and ratios, and associated regulatory requirements, please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Regulatory Requirements" in the Firm's Annual Report on Form 10-K for the year ended December 31, 2020 (2020 Form 10-K).

18 The Tier 1 leverage ratio is a leverage-based capital requirement that measures the Firm's leverage. Tier 1 leverage ratio utilizes Tier 1 capital as the numerator and average adjusted assets as the denominator.

19 The Firm's supplementary leverage ratio (SLR) utilizes a Tier 1 capital numerator of approximately $83.5 billion and $79.9 billion, and supplementary leverage exposure denominator of approximately $1.46 trillion and $1.08 trillion, for the third quarter of 2021 and 2020, respectively. Based on a Federal Reserve interim final rule that was in effect until March 31, 2021, our SLR and supplementary leverage exposure as of September 30, 2020 reflects the exclusion of U.S. Treasury securities and deposits at Federal Reserve Banks. The exclusion of these assets had the effect of increasing our SLR by 0.9% as of September 30, 2020.

20 The Firm intends to early adopt the standardized approach for counterparty credit risk (SA-CCR) under Basel III in the fourth quarter. SA-CCR replaces the current exposure method used to measure derivatives counterparty exposure on the Standardized Approach risk-weighted assets (RWAs) and Supplementary Leverage Ratio exposure calculations in the regulatory capital framework. In the absence of further mitigation, our RWAs under the Standardized Approach could increase by $35 - $45 billion and decrease our Standardized CET1 capital ratio by approximately 120 basis points. This preliminary impact is subject to risks and uncertainties as well as the portfolio composition as of the adoption date that may cause the actual impact to differ materially and should not be taken as a projection of what our capital ratios and RWAs will be in future periods.

ConsolidatedIncome StatementInformation(unaudited,dollars inmillions) Quarter Ended Percentage Nine Months Ended Percentage Change From: Sep 30, Jun 30, Sep 30, Jun Sep Sep 30, Sep 30, 2021 2021 2020 30, 30, 2021 2020 Change 2021 2020Revenues:Investment $ 3,013 $ 2,560 $ 1,826 18 % 65 % $ 8,413 $ 5,239 61 %bankingTrading 2,861 3,330 3,150 (14 %) (9 %) 10,416 10,754 (3 %)

Investments 45 381 346 (88 %) (87 %) 744 659 13 %

Commissions and 1,280 1,308 1,037 (2 %) 23 % 4,214 3,499 20 %feesAsset management 5,201 4,973 3,664 5 % 42 % 14,572 10,346 41 %

Other 290 342 212 (15 %) 37 % 916 221 *

Total 12,690 12,894 10,235 (2 %) 24 % 39,275 30,718 28 %non-interestrevenues Interest income 2,351 2,212 2,056 6 % 14 % 7,000 7,917 (12 %)

Interest expense 288 347 570 (17 %) (49 %) 1,044 3,475 (70 %)

Net interest 2,063 1,865 1,486 11 % 39 % 5,956 4,442 34 %

Net revenues 14,753 14,759 11,721 -- 26 % 45,231 35,160 29 %

Provision for 24 73 111 (67 %) (78 %) (1 ) 757 *credit losses Non-interestexpenses:Compensation and 5,920 6,423 5,086 (8 %) 16 % 19,141 15,404 24 %benefits Non-compensationexpenses:Brokerage, 825 795 697 4 % 18 % 2,530 2,153 18 %clearing andexchange feesInformation 788 765 616 3 % 28 % 2,286 1,768 29 %processing andcommunicationsProfessional 734 746 542 (2 %) 35 % 2,104 1,526 38 %servicesOccupancy and 427 414 373 3 % 14 % 1,246 1,103 13 %equipmentMarketing and 146 146 78 -- 87 % 438 273 60 %businessdevelopmentOther 1,015 831 731 22 % 39 % 2,703 2,188 24 %

Total 3,935 3,697 3,037 6 % 30 % 11,307 9,011 25 %non-compensationexpenses Total 9,855 10,120 8,123 (3 %) 21 % 30,448 24,415 25 %non-interestexpenses Income before 4,874 4,566 3,487 7 % 40 % 14,784 9,988 48 %provision forincome taxesProvision for 1,150 1,054 736 9 % 56 % 3,380 2,221 52 %income taxesNet income $ 3,724 $ 3,512 $ 2,751 6 % 35 % $ 11,404 $ 7,767 47 %

Net incomeapplicable to 17 1 34 * (50 %) 66 156 (58 %)nonredeemablenoncontrollinginterestsNet income 3,707 3,511 2,717 6 % 36 % 11,338 7,611 49 %applicable toMorgan StanleyPreferred stock 123 103 120 19 % 3 % 364 377 (3 %)dividendEarningsapplicable to $ 3,584 $ 3,408 $ 2,597 5 % 38 % $ 10,974 $ 7,234 52 %Morgan Stanleycommonshareholders The End Notes are an integral part of this presentation. Refer to the FinancialSupplement on pages 12 - 17 for Definition of U.S. GAAP to Non-GAAP Measures,Definitions of Performance Metrics and Terms, Supplemental Quantitative Detailsand Calculations, and Legal Notice for additional information. ConsolidatedFinancial Metrics,Ratios andStatistical Data(unaudited) Percentage Quarter Ended Change Nine Months Ended Percentage From: Sep 30, Jun 30, Sep 30, Jun Sep Sep 30, Sep 30, 2021 2021 2020 30, 30, 2021 2020 Change 2021 2020 Financial Metrics: Earnings per basic $ 2.01 $ 1.88 $ 1.68 7 % 20 % $ 6.11 $ 4.68 31 %shareEarnings per $ 1.98 $ 1.85 $ 1.66 7 % 19 % $ 6.02 $ 4.62 30 %diluted share Return on average 14.5 % 13.8 % 13.2 % 15.1 % 12.6 %common equityReturn on average 19.6 % 18.6 % 15.0 % 19.7 % 14.3 %tangible commonequity Book value per $ 54.56 $ 54.04 $ 50.67 $ 54.56 $ 50.67 common shareTangible book value $ 40.47 $ 40.12 $ 44.81 $ 40.47 $ 44.81 per common share Excludingintegration-relatedexpensesAdjusted earnings $ 2.04 $ 1.89 $ 1.66 8 % 23 % $ 6.15 $ 4.62 33 %per diluted shareAdjusted return on 15.0 % 14.1 % 13.2 % 15.4 % 12.6 %average commonequityAdjusted return on 20.2 % 19.0 % 15.0 % 20.2 % 14.3 %average tangiblecommon equity Financial Ratios: Pre-tax profit 33 % 31 % 30 % 33 % 28 %marginCompensation and 40 % 44 % 43 % 42 % 44 %benefits as a % ofnet revenuesNon-compensation 27 % 25 % 26 % 25 % 26 %expenses as a % ofnet revenuesFirm expense 67 % 69 % 69 % 67 % 69 %efficiency ratioFirm expenseefficiency ratio 66 % 68 % 69 % 67 % 69 %excludingintegration-relatedexpensesEffective tax rate 23.6 % 23.1 % 21.1 % 22.9 % 22.2 %

Statistical Data: Period end common 1,799 1,834 1,576 (2 %) 14 %shares outstanding(millions)Average commonshares outstanding(millions)Basic 1,781 1,814 1,542 (2 %) 15 % 1,797 1,546 16 %

Diluted 1,812 1,841 1,566 (2 %) 16 % 1,824 1,565 17 %

Worldwide employees 73,620 71,826 63,051 2 % 17 %

Notes:- For the quarters ended September 30, 2021 and June 30, 2021, Firm resultsinclude pre-tax integration-related expenses of $145 million and $90 million($111 million and $69 million after-tax) respectively, reported in the WealthManagement and Investment Management business segments. The nine months endedSeptember 30, 2021 results include pre-tax integration-related expenses of $310million ($238 million after-tax).- The End Notes are an integral part of this presentation. Refer to theFinancial Supplement on pages 12 - 17 for Definition of U.S. GAAP to Non-GAAPMeasures, Definitions of Performance Metrics and Terms, SupplementalQuantitative Details and Calculations, and Legal Notice for additionalinformation. View source version on businesswire.com: https://www.businesswire.com/news/home/20211014005584/en/

CONTACT: Media Relations: Wesley McDade 212-761-2430 Investor Relations: Leslie Bazos 212-761-5352