0000895421srt:MinimumMemberms:CommodityAndOtherContractsMemberus-gaap:FairValueMeasurementsRecurringMemberms:MeasurementInputCommodityVolatilityMemberus-gaap:FairValueInputsLevel3Memberus-gaap:ValuationTechniqueOptionPricingModelMember2020-12-310000895421us-gaap:IntersegmentEliminationMember2021-01-012021-06-30


Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~June 30, 2021

Commission File Number 1-11758

(Exact name of Registrant as specified in its charter)

Delaware

1585 Broadway

36-3145972

(212)

761-4000

(State or other jurisdiction of

incorporation or organization)

New York,

10036

(I.R.S. Employer Identification No.)

(Registrant’s telephone number, including area code)

(Address of principal executive offices, including zip code)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of exchange on which registered
Common Stock, $0.01 par value	MS	New York Stock Exchange
Depositary Shares, each representing 1/1,000th interest in a share of Floating Rate	MS/PA	New York Stock Exchange
Non-Cumulative Preferred Stock, Series A, $0.01 par value
Depositary Shares, each representing 1/1,000th interest in a share of Fixed-to-Floating Rate	MS/PE	New York Stock Exchange
Non-Cumulative Preferred Stock, Series E, $0.01 par value
Depositary Shares, each representing 1/1,000th interest in a share of Fixed-to-Floating Rate	MS/PF	New York Stock Exchange
Non-Cumulative Preferred Stock, Series F, $0.01 par value
Depositary Shares, each representing 1/1,000th interest in a share of Fixed-to-Floating Rate	MS/PI	New York Stock Exchange
Non-Cumulative Preferred Stock, Series I, $0.01 par value
Depositary Shares, each representing 1/1,000th interest in a share of Fixed-to-Floating Rate	MS/PK	New York Stock Exchange
Non-Cumulative Preferred Stock, Series K, $0.01 par value
Depository Shares, each representing 1/1000th interest in a share of 4.875%	MS/PL	New York Stock Exchange
Non-Cumulative Preferred Stock, Series L, $0.01 par value
Global Medium-Term Notes, Series A, Fixed Rate Step-Up Senior Notes Due 2026	MS/26C	New York Stock Exchange
of Morgan Stanley Finance LLC (and Registrant’s guarantee with respect thereto)
~~Morgan Stanley Cushing® MLP High Income Index ETNs due March 21, 2031~~	~~MLPY~~	~~NYSE Arca, Inc.~~

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~April~~July 30, 2021, there were ~~1,860,588,915~~1,824,561,070 shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding.


Table of Contents

QUARTERLY REPORT ON FORM 10-Q

For the quarter ended ~~March 31,~~June 30, 2021


Table of Contents	Table of Contents		Part	Item	Page	Table of Contents		Part	Item	Page
Financial Information	Financial Information		I		1	Financial Information		I		1
Management’s Discussion and Analysis of Financial Condition and Results of Operations	Management’s Discussion and Analysis of Financial Condition and Results of Operations		I	2	1	Management’s Discussion and Analysis of Financial Condition and Results of Operations		I	2	1
Introduction	Introduction				1	Introduction				1
Executive Summary	Executive Summary				2	Executive Summary				2
Business Segments	Business Segments				6	Business Segments				7
Institutional Securities	Institutional Securities				7	Institutional Securities				8
Wealth Management	Wealth Management				9	Wealth Management				11
Investment Management	Investment Management				11	Investment Management				14
Supplemental Financial Information	Supplemental Financial Information				13	Supplemental Financial Information				16
Accounting Development Updates	Accounting Development Updates				13	Accounting Development Updates				16
Critical Accounting Policies	Critical Accounting Policies				13	Critical Accounting Policies				16
Liquidity and Capital Resources	Liquidity and Capital Resources				13	Liquidity and Capital Resources				16
Balance Sheet	Balance Sheet				13	Balance Sheet				16
Regulatory Requirements	Regulatory Requirements				17	Regulatory Requirements				20
Quantitative and Qualitative Disclosures about Risk	Quantitative and Qualitative Disclosures about Risk		I	3	23	Quantitative and Qualitative Disclosures about Risk		I	3	26
Market Risk	Market Risk				23	Market Risk				26
Credit Risk	Credit Risk				25	Credit Risk				28
Country and Other Risks	Country and Other Risks				30	Country and Other Risks				33
Report of Independent Registered Public Accounting Firm	Report of Independent Registered Public Accounting Firm				32	Report of Independent Registered Public Accounting Firm				35
Consolidated Financial Statements and Notes	Consolidated Financial Statements and Notes		I	1	33	Consolidated Financial Statements and Notes		I	1	36
Consolidated Income Statements (Unaudited)	Consolidated Income Statements (Unaudited)				33	Consolidated Income Statements (Unaudited)				36
Consolidated Comprehensive Income Statements (Unaudited)	Consolidated Comprehensive Income Statements (Unaudited)				33	Consolidated Comprehensive Income Statements (Unaudited)				36
Consolidated Balance Sheets (Unaudited at March 31, 2021)					34
Consolidated Balance Sheets (Unaudited at June 30 , 2021)						Consolidated Balance Sheets (Unaudited at June 30 , 2021)				37
Consolidated Statements of Changes in Total Equity (Unaudited)	Consolidated Statements of Changes in Total Equity (Unaudited)				35	Consolidated Statements of Changes in Total Equity (Unaudited)				38
Consolidated Cash Flow Statements (Unaudited)	Consolidated Cash Flow Statements (Unaudited)				36	Consolidated Cash Flow Statements (Unaudited)				39
Notes to Consolidated Financial Statements (Unaudited)	Notes to Consolidated Financial Statements (Unaudited)				37	Notes to Consolidated Financial Statements (Unaudited)				40
1.	1.	Introduction and Basis of Presentation			37	1.	Introduction and Basis of Presentation			40
2.	2.	Significant Accounting Policies			38	2.	Significant Accounting Policies			41
3.	3.	Acquisitions			38	3.	Acquisitions			41
4.	4.	Cash and Cash Equivalents			39	4.	Cash and Cash Equivalents			42
5.	5.	Fair Values			39	5.	Fair Values			42
6.	6.	Fair Value Option			45	6.	Fair Value Option			48
7.	7.	Derivative Instruments and Hedging Activities			45	7.	Derivative Instruments and Hedging Activities			49
8.	8.	Investment Securities			49	8.	Investment Securities			52
9.	9.	Collateralized Transactions			50	9.	Collateralized Transactions			54
10.	10.	Loans, Lending Commitments and Related Allowance for Credit Losses			52	10.	Loans, Lending Commitments and Related Allowance for Credit Losses			56
11.	11.	Other Assets—Equity Method Investments			54	11.	Other Assets—Equity Method Investments			58
12.	12.	Deposits			54	12.	Deposits			58
13.	13.	Borrowings and Other Secured Financings			55	13.	Borrowings and Other Secured Financings			58
14.	14.	Commitments, Guarantees and Contingencies			55	14.	Commitments, Guarantees and Contingencies			59
15.	15.	Variable Interest Entities and Securitization Activities			57	15.	Variable Interest Entities and Securitization Activities			61
16.	16.	Regulatory Requirements			60	16.	Regulatory Requirements			63
17.	17.	Total Equity			62	17.	Total Equity			65
18.	18.	Interest Income and Interest Expense			63	18.	Interest Income and Interest Expense			67
19.	19.	Income Taxes			63	19.	Income Taxes			67
20.	20.	Segment, Geographic and Revenue Information			64	20.	Segment, Geographic and Revenue Information			68
Financial Data Supplement (Unaudited)	Financial Data Supplement (Unaudited)				66	Financial Data Supplement (Unaudited)				71
Glossary of Common Terms and Acronyms	Glossary of Common Terms and Acronyms				67	Glossary of Common Terms and Acronyms				72
Other Information	Other Information		II		68	Other Information		II		73
Legal Proceedings	Legal Proceedings		II	1	68	Legal Proceedings		II	1	73
Risk Factors	Risk Factors		II	1A	68	Risk Factors		II	1A	73
Unregistered Sales of Equity Securities and Use of Proceeds	Unregistered Sales of Equity Securities and Use of Proceeds		II	2	68	Unregistered Sales of Equity Securities and Use of Proceeds		II	2	73
Controls and Procedures	Controls and Procedures		I	4	68	Controls and Procedures		I	4	73
Exhibits	Exhibits		II	6	68	Exhibits		II	6	73
Signatures	Signatures				69	Signatures				74


			i


Table of Contents

Available Information

We file annual, quarterly and current reports, proxy statements and other information with the SEC. The SEC maintains a website, www.sec.gov, that contains annual, quarterly and current reports, proxy and information statements and other information that issuers file electronically with the SEC. Our electronic SEC filings are available to the public at the SEC’s website.

Our website is www.morganstanley.com. You can access our Investor Relations webpage at www.morganstanley.com/about-us-ir. We make available free of charge, on or through our Investor Relations webpage, our proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (“Exchange Act”), as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. We also make available, through our Investor Relations webpage, via a link to the SEC’s website, statements of beneficial ownership of our equity securities filed by our directors, officers, 10% or greater shareholders and others under Section 16 of the Exchange Act.

You can access information about our corporate governance at www.morganstanley.com/about-us-governance, our sustainability initiatives at www.morganstanley.com/about-us/sustainability-at-morgan-stanley and our commitment to diversity and inclusion at www.morganstanley.com/about-us/diversity. Our webpages include:

•Amended and Restated Certificate of Incorporation;

•Amended and Restated Bylaws;

•Charters for our Audit Committee, Compensation, Management Development and Succession Committee, Nominating and Governance Committee, Operations and Technology Committee, and Risk Committee;

•Corporate Governance Policies;

•Policy Regarding Corporate Political Activities;

•Policy Regarding Shareholder Rights Plan;

•Equity Ownership Commitment;

•Code of Ethics and Business Conduct;

•Code of Conduct;

•Integrity Hotline Information;

•Environmental and Social Policies;

•Sustainability Report;

•Task Force on Climate-related Financial Disclosures Report; and

•Diversity and Inclusion Report.

Our Code of Ethics and Business Conduct applies to all directors, officers and employees, including our Chief Executive Officer, Chief Financial Officer and Deputy Chief Financial Officer. We will post any amendments to the Code of Ethics and Business Conduct and any waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange LLC (“NYSE”) on our website. You can request a copy of these documents, excluding exhibits, at no cost, by contacting Investor Relations, 1585 Broadway, New York, NY 10036 (212-761-4000). The information on our website is not incorporated by reference into this report.


			ii


Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

Morgan Stanley is a global financial services firm that maintains significant market positions in each of its business segments—Institutional Securities, Wealth Management and Investment Management. Morgan Stanley, through its subsidiaries and affiliates, provides a wide variety of products and services to a large and diversified group of clients and customers, including corporations, governments, financial institutions and individuals. Unless the context otherwise requires, the terms “Morgan Stanley,” “Firm,” “us,” “we” or “our” mean Morgan Stanley (the “Parent Company”) together with its consolidated subsidiaries. Disclosures reflect the effects of the acquisitions of E*TRADE Financial Corporation (“E*TRADE”) and Eaton Vance Corp. (“Eaton Vance”) prospectively from the acquisition dates, October 2, 2020 and March 1, 2021, respectively. See the “Glossary of Common Terms and Acronyms” for the definition of certain terms and acronyms used throughout this Form 10-Q.

A description of the clients and principal products and services of each of our business segments is as follows:

Institutional Securities provides a variety of products and services to corporations, governments, financial institutions and ~~high to~~ ultra-high net worth clients. Investment banking services consist of capital raising and financial advisory services, including services relating to the underwriting of debt, equity and other securities, as well as advice on mergers and acquisitions, restructurings ~~real estate~~ and project finance. Our Equity and Fixed Income businesses include sales, financing, prime brokerage, market-making, Asia wealth management services and certain business-related investments. Lending activities include originating corporate loans and commercial real estate loans, providing secured lending facilities, and extending securities-based and other financing to customers. Other activities include research.

Wealth Management provides a comprehensive array of financial services and solutions to individual investors and small to medium-sized businesses and institutions covering: financial advisor-led brokerage and investment advisory services; self-directed brokerage ~~services, including through the E*TRADE platform;~~services; financial and wealth planning services; workplace services including stock plan administration; annuity and insurance products; securities-based lending, residential real estate loans and other lending products; banking; and retirement plan services.

Investment Management provides a broad range of investment strategies and products that span geographies, asset classes, and public and private markets to a diverse group of clients across institutional and intermediary channels. Strategies and products, which are offered through a variety of investment vehicles, include equity, fixed income, alternatives and solutions, and liquidity and overlay services. Institutional clients include defined benefit/defined contribution plans, foundations, endowments, government entities, sovereign wealth funds, insurance companies, third-party fund sponsors and corporations. Individual clients are generally served through intermediaries, including affiliated and non-affiliated distributors.

Management’s Discussion and Analysis includes certain metrics that we believe to be useful to us, investors, analysts and other stakeholders by providing further transparency about, or an additional means of assessing, our financial condition and operating results. Such metrics, when used, are defined and may be different from or inconsistent with metrics used by other companies.

The results of operations in the past have been, and in the future may continue to be, materially affected by: competition; risk factors; legislative, legal and regulatory developments; and other factors. These factors also may have an adverse impact on our ability to achieve our strategic objectives. Additionally, the discussion of our results of operations herein may contain forward-looking statements. These statements, which reflect management’s beliefs and expectations, are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of the risks and uncertainties that may affect our future results, see “Forward-Looking Statements,” “Business—Competition,” “Business—Supervision and Regulation,” and “Risk Factors” in the 2020 Form 10-K, and “Liquidity and Capital Resources—Regulatory Requirements” herein.


~~March~~June 2021 Form 10-Q			1


Table of Contents
Management’s Discussion and Analysis

Executive Summary

Overview of Financial Results

Consolidated Results—Three Months Ended ~~March 31,~~June 30, 2021

•Firm Net revenues were up ~~61%~~8% and Net income applicable to Morgan Stanley was up ~~143%~~10%, with strong contributions from each of our three business segments, and resulting in an annualized ROTCE of ~~21.1%~~18.6%, or ~~21.4%~~19.0% excluding integration-related expenses (see “Selected Non-GAAP Financial Information” herein).

•Institutional Securities Net revenues of $8.6 billion increased 66% reflecting strength across businesses and geographies on continued strong client engagement and higher volumes in a constructive market environment, notwithstanding losses related to a single client event in the quarter.

•Wealth Management delivered pre-tax income of $1.6 billion with a pre-tax profit margin of 26.9%, or 27.9% excluding integration-related expenses (see “Selected Non-GAAP Financial Information” herein). Results reflect strong levels of client engagement, net new assets of $105 billion and fee-based flows of $37 billion, in addition to growth in bank lending.

•Investment Management results reflect strong asset management fees on AUM of $1.4 trillion due to strong investment performance and positive flows across all asset classes, as well as the impact of the Eaton Vance acquisition.

•The Firm expense efficiency ratio was ~~66.6%~~69%, or ~~66.1%~~68% excluding the impact of integration-related expenses (see “Selected Non-GAAP Financial Information” herein).

•At ~~March 31,~~June 30, 2021, our standardized Common Equity Tier 1 capital ratio was ~~16.7%~~16.6%.

•The Firm ~~repurchased $2.1 billion~~doubled its quarterly common stock dividend to $0.70 per share and increased its share repurchase authorization of ~~its~~ outstanding common ~~stock.~~stock up to $12 billion over the next 12 months.

~~Strategic Transactions~~

•~~On March 1, 2021, we completed the acquisition~~Institutional Securities Net revenues of ~~Eaton Vance. For further information, see “Business Segments—~~$7.1 billion reflect strong results as clients remained active across Investment ~~Management” herein.~~banking and Equity.

•Wealth Management delivered a pre-tax margin of 26.8%, or 27.8% excluding integration-related expenses (see “Selected Non-GAAP Financial Information” herein). Results reflect higher asset management fees, growth in bank lending, as well as net new assets of $71 billion and fee-based flows of $34 billion.

•Investment Management results reflect strong asset management fees on AUM of $1.5 trillion, which includes $13.5 billion of positive long-term net flows across all asset classes.

Net Revenues1

($ in millions)

1.Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.

Net Income Applicable to Morgan Stanley

($ in millions)

Earnings per Diluted Common Share1

1.Adjusted Diluted EPS for the current quarter ~~was $2.22~~and the current year period were $1.89 and $4.11, respectively (see “Selected Non-GAAP Financial Information” herein).

We reported net revenues of ~~$15.7~~$14.8 billion in the quarter ended ~~March 31,~~June 30, 2021 (“current quarter,” or ~~“1Q~~“2Q 2021”), compared with ~~$9.8~~$13.7 billion in the quarter ended ~~March 31,~~June 30, 2020 (“prior year quarter,” or ~~“1Q~~“2Q 2020”). For the current quarter, net income applicable to Morgan Stanley was ~~$4.1~~$3.5 billion, or ~~$2.19~~$1.85 per diluted common share, compared with ~~$1.7~~$3.2 billion or ~~$1.01~~$1.96 per diluted common share, in the prior year quarter.

We reported net revenues of $30.5 billion in the six months ended June 30, 2021 (“current year period,” or “YTD 2021”), compared with $23.4 billion in the period ended June 30, 2020 (“prior year period,” or “YTD 2020”). For the current period, net income applicable to Morgan Stanley was $7.6 billion, or $4.04 per diluted common share, compared with $4.9 billion or $2.96 per diluted common share, in the prior year period.


			2			~~March~~June 2021 Form 10-Q


Table of Contents
Management’s Discussion and Analysis

Non-interest Expenses1, 2

($ in millions)

1.The percentages on the bars in the chart represent the contribution of compensation and benefits expenses and non-compensation expenses to the total.

2.Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.

•Compensation and benefits expenses of ~~$6,798~~$6,423 million in the current quarter increased ~~59%~~6% from the prior year quarter, primarily as a result of increases in ~~discretionary incentive compensation and~~ the formulaic payout to Wealth Management representatives ~~both~~ driven by higher compensable revenues and incremental compensation as a result of the E*TRADE and Eaton Vance acquisitions, partially offset by a decrease in discretionary incentive compensation driven by lower net revenues in the Institutional Securities business segment.

Compensation and benefits expenses of $13,221 million in the current year period increased 28% from the prior year period, primarily as a result of an increase in the formulaic payout to Wealth Management representatives driven by higher compensable revenues, incremental compensation as a result of the E*TRADE and Eaton Vance acquisitions, higher discretionary incentive compensation driven by revenues, and higher expenses related to certain deferred compensation plans linked to investment performance and the Firm’s share ~~price, and~~price.

•Non-compensation expenses of $3,697 million in the current quarter increased 22% from the prior year quarter,

primarily due to incremental ~~compensation~~expenses as a result of the E*TRADE and Eaton Vance ~~acquisitions.~~acquisitions, as well as higher professional services expenses and higher investments in technology.

•Non-compensation expenses of ~~$3,675~~$7,372 million in the current ~~quarter~~year period increased ~~25%~~23% from the prior year ~~quarter,~~period, primarily driven by incremental expenses as a result of the E*TRADE and Eaton Vance acquisitions, ~~in addition to~~ higher volume-related expenses, ~~and~~ higher investments in ~~technology.~~technology, as well as higher professional services expenses.

Provision for Credit Losses

The Provision for credit losses on loans and lending commitments in the current quarter was $73 million, primarily driven by one secured lending facility. The Provision for credit losses on loans and lending commitments of $239 million in the prior year quarter was primarily driven by deterioration in the expected macroeconomic environment at that time.

The Provision for credit losses on loans and lending commitments in the current year period was a net release of$25 million, ~~$98 million~~primarily ~~in the current quarter primarily driven by~~as a result of improvements in the outlook for macroeconomic conditions and the impact of paydowns on ~~Corporate~~corporate loans, including by lower-rated ~~borrowers.~~borrowers, partially offset by the provision for one secured lending facility in the current quarter. The Provision for credit losses on loans and lending commitments of ~~$407~~$646 million in the prior year ~~quarter~~period was primarily driven by deterioration in the ~~current and~~ expected macroeconomic environment at that time.

For further information on the Provision for credit losses, see “Credit Risk” herein.

Income Taxes

The ~~increase in the~~ Firm’s effective tax rate of 23.1% is lower in the current quarter iscompared with the prior year quarter primarily due to the ~~lower impact~~remeasurement of ~~net discrete~~reserves and interest related to a foreign tax ~~benefits. Net discrete tax benefits in the current quarter of $86 million and $130 million~~matter in the prior year ~~quarter were primarily related to the conversion of employee share-based awards.~~quarter.


June 2021 Form 10-Q			3


Table of Contents
Management’s Discussion and Analysis

Business Segment Results

Net Revenues by Segment1, 2

($ in millions)

Net Income Applicable to Morgan Stanley by Segment1

($ in millions)

1.The percentages on the bars in the charts represent the contribution of each business segment to the total of the applicable financial category and may not sum to 100% due to intersegment eliminations. See Note 20 to the financial statements for details of intersegment eliminations.

2.Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.

•Institutional Securities net revenues of ~~$8,577~~$7,092 million in the current quarter ~~increased 66%~~decreased 14% from the prior year quarter, primarily reflecting ~~higher~~lower Fixed income revenues ~~in equity underwriting driven by higher volumes,~~ as well as higher revenues in credit products and equity derivatives. The current quarter included a loss of $644 million related to a credit event for a single client, and $267 million of subsequent trading losses through the end of the quarter relatedmarkets normalized compared to the ~~same event.~~prior year quarter. Net revenues of $15,669 million in the current year period increased 17% from the prior year period, primarily reflecting higher underwriting and Equity business revenues.

•Wealth Management net revenues of ~~$5,959~~$6,095 million in the current quarter increased ~~47%~~30% from the prior year quarter and net revenues of $12,054 million in the current year period increased 38% from the prior year period, both primarily due to higher ~~transactional revenues reflecting gains from investments associated with certain employee deferred compensation plans, as well as higher asset~~Asset management revenues onand incremental revenues as a result of the E*TRADE acquisition.

•Investment Management net revenues of $1,702 million in the current quarter increased ~~asset levels and positive fee-based flows. Net~~92% from the prior year

~~March~~June 2021 Form 10-Q


Table of Contents
Management’s Discussion and Analysis

~~interest also increased primarily reflecting incremental revenues as a result of the E*TRADE acquisition.~~

•~~Investment Management~~quarter and net revenues of ~~$1,314~~$3,016 million in the current ~~quarter~~year period increased ~~90%~~91% from the prior year ~~quarter,~~period, both primarily due to higher Asset management and related fees, ~~driven by higher average AUM and the effect of~~including incremental revenues related to the Eaton Vance acquisition, ~~and~~as well as higher Performance-based income and other ~~revenues, driven by higher accrued carried interest.~~revenues.

Net Revenues by Region1, 2, 3

($ in millions)

1.The percentages on the bars in the charts represent the contribution of each region to the total.

2.For a discussion of how the geographic breakdown of net revenues is determined, see Note 20 to the financial statements in the 2020 Form 10-K.

3.Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.

~~Current quarter~~Americas net revenues in ~~Asia~~the current quarter increased ~~40% and EMEA increased 80%, both~~9% from the prior year quarter, primarily driven ~~primarily~~ by the ~~equity~~Wealth Management business segment. Asia net revenues increased 11% from the prior year quarter, primarily driven by the Equity business within the Institutional Securities business segment.

Americas net revenues in the current year period increased 31% from the prior year period, primarily driven by the Wealth Management business segment and ~~fixed income~~the Investment banking business within the Institutional Securities business segment. EMEA net revenues increased 29% and Asia net revenues increased 26% from the prior year period, both primarily driven by the Equity and Investment banking businesses within the Institutional Securities business segment. ~~Americas revenues increased 62%, primarily driven by the Wealth Management and the Institutional Securities business segments.~~

Selected Financial Information and Other Statistical Data


		Three Months Ended March 31,							Three Months Ended June 30,					Six Months Ended June 30,
$ in millions	$ in millions	2021			2020					$ in millions	2021			2020			2021			2020
Consolidated results	Consolidated results									Consolidated results
Net revenues1	Net revenues1	$	15,719		$	9,779				Net revenues1	$	14,759		$	13,660		$	30,478		$	23,439
Earnings applicable to Morgan Stanley common shareholders	Earnings applicable to Morgan Stanley common shareholders	$	3,982		$	1,590				Earnings applicable to Morgan Stanley common shareholders	$	3,408		$	3,047		$	7,390		$	4,637
Earnings per diluted common share	Earnings per diluted common share	$	2.19		$	1.01				Earnings per diluted common share	$	1.85		$	1.96		$	4.04		$	2.96
Consolidated financial measures	Consolidated financial measures							Consolidated financial measures
Expense efficiency ratio1, 2	Expense efficiency ratio1, 2	66.6		%	73.9		%			Expense efficiency ratio1, 2	69		%	66		%	68		%	70		%
Adjusted expense efficiency ratio1, 2, 4		66.1		%	73.9		%
Adjusted expense efficiency ratio1,2,4										Adjusted expense efficiency ratio1,2,4	68		%	66		%	67		%	70		%
ROE3	ROE3	16.9		%	8.5		%			ROE3	13.8		%	15.7		%	15.3		%	12.2		%
Adjusted ROE3, 4	Adjusted ROE3, 4	17.1		%	8.5		%			Adjusted ROE3, 4	14.1		%	15.7		%	15.6		%	12.2		%
ROTCE3, 4	ROTCE3, 4	21.1		%	9.7		%			ROTCE3, 4	18.6		%	17.8		%	19.8		%	13.9		%
Adjusted ROTCE3, 4	Adjusted ROTCE3, 4	21.4		%	9.7		%			Adjusted ROTCE3, 4	19.0		%	17.8		%	20.1		%	13.9		%
Pre-tax margin1, 5	Pre-tax margin1, 5	34.0		%	21.9		%			Pre-tax margin1, 5	31		%	32		%	33		%	28		%
Effective tax rate	Effective tax rate	22.0		%	17.1		%			Effective tax rate	23.1		%	25.7		%	22.5		%	22.8		%
Pre-tax margin by segment5	Pre-tax margin by segment5							Pre-tax margin by segment5
Institutional Securities1	Institutional Securities1	39.3		%	18.3		%			Institutional Securities1	35		%	37		%	37		%	29		%
Wealth Management1	Wealth Management1	26.9		%	26.0		%			Wealth Management1	27		%	24		%	27		%	25		%
Wealth Management, adjusted1, 4	Wealth Management, adjusted1, 4	27.9		%	26.0		%			Wealth Management, adjusted1, 4	28		%	24		%	28		%	25		%
Investment Management	Investment Management	28.2		%	20.7		%			Investment Management	25		%	24		%	27		%	23		%
Investment Management, adjusted4	Investment Management, adjusted4	29.0		%	20.7		%			Investment Management, adjusted4	27		%	24		%	28		%	23		%


in millions, except per share and employee data	in millions, except per share and employee data	At March 31, 2021			At December 31, 2020			in millions, except per share and employee data	At June 30, 2021			At December 31, 2020
Liquidity resources6	Liquidity resources6	$	353,304		$	338,623		Liquidity resources6	$	343,776		$	338,623
Loans7	Loans7	$	159,123		$	150,597		Loans7	$	166,059		$	150,597
Total assets	Total assets	$	1,158,772		$	1,115,862		Total assets	$	1,161,805		$	1,115,862
Deposits	Deposits	$	323,138		$	310,782		Deposits	$	320,358		$	310,782
Borrowings	Borrowings	$	215,826		$	217,079		Borrowings	$	224,142		$	217,079
Common shares outstanding	Common shares outstanding	1,869			1,810			Common shares outstanding	1,834			1,810
Common shareholders' equity	Common shareholders' equity	$	98,509		$	92,531		Common shareholders' equity	$	99,120		$	92,531
Tangible common shareholders’ equity4	Tangible common shareholders’ equity4	$	72,828		$	75,916		Tangible common shareholders’ equity4	$	73,593		$	75,916
Book value per common share8	Book value per common share8	$	52.71		$	51.13		Book value per common share8	$	54.04		$	51.13
Tangible book value per common share4, 8	Tangible book value per common share4, 8	$	38.97		$	41.95		Tangible book value per common share4, 8	$	40.12		$	41.95
Worldwide employees9 (in thousands)	Worldwide employees9 (in thousands)	71			68			Worldwide employees9 (in thousands)	72			68
Capital Ratios10	Capital Ratios10							Capital Ratios10
Common Equity Tier 1 capital—Standardized	Common Equity Tier 1 capital—Standardized	16.7		%	17.4		%	Common Equity Tier 1 capital—Standardized	16.6		%	17.4		%
Tier 1 capital—Standardized								Tier 1 capital—Standardized	18.3		%	19.4		%
Common Equity Tier 1 capital—Advanced	Common Equity Tier 1 capital—Advanced	17.4		%	17.7		%	Common Equity Tier 1 capital—Advanced	17.7		%	17.7		%
Tier 1 capital—Standardized		18.5		%	19.4		%
Tier 1 capital—Advanced	Tier 1 capital—Advanced	19.2		%	19.8		%	Tier 1 capital—Advanced	19.5		%	19.8		%
Tier 1 leverage								Tier 1 leverage	7.5		%	8.4		%
SLR11	SLR11	6.7		%	7.4		%	SLR11	5.9		%	7.4		%
Tier 1 leverage		7.5		%	8.4		%

1.Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.

2.The expense efficiency ratio represents total non-interest expenses as a percentage of net revenues.

3.ROE and ROTCE represent earnings applicable to Morgan Stanley common shareholders as a percentage of average common equity and average tangible common equity, respectively.

4.Represents a non-GAAP financial measure. See “Selected Non-GAAP Financial Information” herein.

5.Pre-tax margin represents income before income taxes as a percentage of net revenues.

6.For a discussion of Liquidity resources, see “Liquidity and Capital Resources—Liquidity Risk Management Framework—Liquidity Resources” herein.

7.Amounts include loans held for investment, ~~(net~~net of ~~allowance)~~ACL, and loans held for sale but exclude loans at fair value, which are included in Trading assets in the balance sheets (see Note 10 to the financial statements).

8.Book value per common share and tangible book value per common share equal common shareholders’ equity and tangible common shareholders’ equity, respectively, divided by common shares outstanding.

9.As of ~~March 31,~~June 30, 2021, the number of employees includes Eaton Vance.

10.For a discussion of our capital ratios, see “Liquidity and Capital Resources—Regulatory Requirements” herein.

11.At ~~March 31, 2021 and at~~ December 31, 2020, our SLR reflects the impact of a Federal Reserve interim final rule that was in effect until March 31, 2021. For further information, see “Liquidity and Capital Resources—Regulatory Requirements—Regulatory Developments and Other Matters” herein.

~~March~~June 2021 Form 10-Q


Table of Contents
Management’s Discussion and Analysis

Coronavirus Disease (“COVID-19”) Pandemic

~~The~~Since its onset, the COVID-19 pandemic ~~and related voluntary and government-imposed social and business restrictions have~~has had ~~and will likely continue to have,~~ a significant impact on global economic conditions and the environment in which we operate our ~~businesses.~~businesses and it may continue to do so in the future. Though many of our employees have been working from home for some time, we are preparing for our employees to return to work in our offices on a more regular basis, and an increasing number of employees are returning to our offices in certain locations. The Firm continues to be fully operational, with ~~approximately 90%~~the majority of employees in both the Americas and globally working from home ~~as of March 31, 2021.~~

~~Though we are unable to estimate~~during the ~~extent~~current quarter. Recognizing that local conditions vary for our offices around the world and that the trajectory of the ~~impact, the economic or other effects of the ongoing COVID-19 pandemic~~virus continues to be uncertain, we may ~~have adverse impacts on~~adjust our ~~future operating results.~~ plans for employees returning to our offices as deemed necessary.

Refer to “Risk Factors” and “Forward-Looking Statements” in the 2020 Form 10-K for more ~~information.~~information on the potential effects of the ongoing COVID-19 pandemic on our future operating results.

Selected Non-GAAP Financial Information

We prepare our financial statements using U.S. GAAP. From time to time, we may disclose certain “non-GAAP financial measures” in this document or in the course of our earnings releases, earnings and other conference calls, financial presentations, definitive proxy statement and otherwise. A “non-GAAP financial measure” excludes, or includes, amounts from the most directly comparable measure calculated and presented in accordance with U.S. GAAP. We consider the non-GAAP financial measures we disclose to be useful to us, investors, analysts and other stakeholders by providing further transparency about, or an alternate means of assessing or comparing our financial condition, operating results and 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 U.S. GAAP financial measure and the non-GAAP financial measure.

The principal non-GAAP financial measures presented in this document are set forth in the following tables.

Reconciliations from U.S. GAAP to Non-GAAP Consolidated Financial Measures


		Three Months Ended March 31,						Three Months Ended June 30,					Six Months Ended June 30,
$ in millions, except per share data	$ in millions, except per share data		2021			2020			$ in millions, except per share data	2021			2020			2021			2020
Earnings applicable to Morgan Stanley common shareholders	Earnings applicable to Morgan Stanley common shareholders		$	3,982		$	1,590		Earnings applicable to Morgan Stanley common shareholders	$	3,408		$	3,047		$	7,390		$	4,637
Impact of adjustments:	Impact of adjustments:								Impact of adjustments:
Integration-related expenses	Integration-related expenses		75			—			Integration-related expenses	90			—			165			—
Related tax benefit	Related tax benefit		(17)			—			Related tax benefit	(21)			—			(38)			—
Adjusted earnings applicable to Morgan Stanley common shareholders—non-GAAP1	Adjusted earnings applicable to Morgan Stanley common shareholders—non-GAAP1		$	4,040		$	1,590		Adjusted earnings applicable to Morgan Stanley common shareholders—non-GAAP1	$	3,477		$	3,047		$	7,517		$	4,637
Earnings per diluted common share	Earnings per diluted common share		$	2.19		$	1.01		Earnings per diluted common share	$	1.85		$	1.96		$	4.04		$	2.96
Impact of adjustments	Impact of adjustments		0.03			—			Impact of adjustments	0.04			—			0.07			—
Adjusted earnings per diluted common share—non-GAAP1	Adjusted earnings per diluted common share—non-GAAP1		$	2.22		$	1.01		Adjusted earnings per diluted common share—non-GAAP1	$	1.89		$	1.96		$	4.11		$	2.96
Expense efficiency ratio2	Expense efficiency ratio2		66.6		%	73.9		%	Expense efficiency ratio2	69		%	66		%	68		%	70		%
Impact of adjustments	Impact of adjustments		(0.5)		%	—		%	Impact of adjustments	(1)		%	—		%	(1)		%	—		%
Adjusted expense efficiency ratio—non-GAAP1, 2	Adjusted expense efficiency ratio—non-GAAP1, 2		66.1		%	73.9		%	Adjusted expense efficiency ratio—non-GAAP1, 2	68		%	66		%	67		%	70		%
Wealth Management Pre-tax margin2	Wealth Management Pre-tax margin2		26.9		%	26.0		%	Wealth Management Pre-tax margin2	27		%	24		%	27		%	25		%
Impact of adjustments	Impact of adjustments		1.0		%	—		%	Impact of adjustments	1		%	—		%	1		%	—		%
Adjusted Wealth Management pre-tax margin—non-GAAP1, 2	Adjusted Wealth Management pre-tax margin—non-GAAP1, 2		27.9		%	26.0		%	Adjusted Wealth Management pre-tax margin—non-GAAP1, 2	28		%	24		%	28		%	25		%
Investment Management Pre-tax margin	Investment Management Pre-tax margin		28.2		%	20.7		%	Investment Management Pre-tax margin	25		%	24		%	27		%	23		%
Impact of adjustments	Impact of adjustments		0.8		%	—		%	Impact of adjustments	2		%	—		%	1		%	—		%
Adjusted Investment Management pre-tax margin—non-GAAP1	Adjusted Investment Management pre-tax margin—non-GAAP1		29.0		%	20.7		%	Adjusted Investment Management pre-tax margin—non-GAAP1	27		%	24		%	28		%	23		%


$ in millions	$ in millions	At March 31, 2021		At December 31, 2020		$ in millions	At June 30, 2021		At December 31, 2020
Tangible equity	Tangible equity					Tangible equity
Common shareholders' equity	Common shareholders' equity	$	98,509	$	92,531	Common shareholders' equity	$	99,120	$	92,531
Less: Goodwill and net intangible assets	Less: Goodwill and net intangible assets	(25,681)		(16,615)		Less: Goodwill and net intangible assets	(25,527)		(16,615)
Tangible common shareholders' equity—non-GAAP	Tangible common shareholders' equity—non-GAAP	$	72,828	$	75,916	Tangible common shareholders' equity—non-GAAP	$	73,593	$	75,916


			Average Monthly Balance						Average Monthly Balance
		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
$ in millions	$ in millions		2021		2020			$ in millions	2021		2020		2021		2020
Tangible equity	Tangible equity							Tangible equity
Common shareholders' equity	Common shareholders' equity		$	94,343	$	74,724		Common shareholders' equity	$	98,824	$	77,598	$	96,309	$	75,992
Less: Goodwill and net intangible assets	Less: Goodwill and net intangible assets		(18,849)		(9,200)			Less: Goodwill and net intangible assets	(25,611)		(9,268)		(21,738)		(9,246)
Tangible common shareholders' equity—non-GAAP	Tangible common shareholders' equity—non-GAAP		$	75,494	$	65,524		Tangible common shareholders' equity—non-GAAP	$	73,213	$	68,330	$	74,571	$	66,746


		Three Months Ended March 31,						Three Months Ended June 30,					Six Months Ended June 30,
$ in billions	$ in billions		2021			2020			$ in billions	2021			2020			2021			2020
Average common equity	Average common equity								Average common equity
Unadjusted—GAAP	Unadjusted—GAAP		$	94.3		$	74.7		Unadjusted—GAAP	$	98.8		$	77.6		$	96.3		$	76.0
Adjusted1—Non-GAAP	Adjusted1—Non-GAAP		94.4			74.7			Adjusted1—Non-GAAP	98.8			77.6			96.4			76.0
ROE3	ROE3								ROE3
Unadjusted—GAAP	Unadjusted—GAAP		16.9		%	8.5		%	Unadjusted—GAAP	13.8		%	15.7		%	15.3		%	12.2		%
Adjusted1—Non-GAAP	Adjusted1—Non-GAAP		17.1		%	8.5		%	Adjusted1—Non-GAAP	14.1		%	15.7		%	15.6		%	12.2		%
Average tangible common equity—Non-GAAP	Average tangible common equity—Non-GAAP		Average tangible common equity—Non-GAAP
Unadjusted	Unadjusted		$	75.5		$	65.5		Unadjusted	$	73.2		$	68.3		$	74.6		$	66.7
Adjusted1	Adjusted1		75.5			65.5			Adjusted1	73.2			68.3			74.6			66.7
ROTCE3—Non-GAAP	ROTCE3—Non-GAAP								ROTCE3—Non-GAAP
Unadjusted	Unadjusted		21.1		%	9.7		%	Unadjusted	18.6		%	17.8		%	19.8		%	13.9		%
Adjusted1	Adjusted1		21.4		%	9.7		%	Adjusted1	19.0		%	17.8		%	20.1		%	13.9		%

~~March~~June 2021 Form 10-Q


Table of Contents
Management’s Discussion and Analysis

Non-GAAP Financial Measures by Business Segment


		Three Months Ended March 31,						Three Months Ended June 30,					Six Months Ended June 30,
$ in billions	$ in billions		2021			2020			$ in billions	2021			2020			2021			2020
Average common equity4	Average common equity4					Average common equity4
Institutional Securities	Institutional Securities		$	43.5		$	42.8		Institutional Securities	$	43.5		$	42.8		$	43.5		$	42.8
Wealth Management	Wealth Management		28.5			18.2			Wealth Management	28.6			18.2			28.6			18.2
Investment Management	Investment Management		4.4			2.6			Investment Management	10.7			2.6			7.1			2.6
ROE5	ROE5								ROE5
Institutional Securities	Institutional Securities		23.0		%	6.3		%	Institutional Securities	17		%	19		%	20		%	13		%
Wealth Management	Wealth Management		16.9		%	18.5		%	Wealth Management	17		%	18		%	17		%	18		%
Investment Management	Investment Management		24.8		%	11.7		%	Investment Management	13		%	23		%	17		%	18		%
Average tangible common equity4	Average tangible common equity4					Average tangible common equity4
Institutional Securities	Institutional Securities		$	42.9		$	42.3		Institutional Securities	$	42.9		$	42.3		$	42.9		$	42.3
Wealth Management	Wealth Management		13.4			10.4			Wealth Management	13.4			10.4			13.4			10.4
Investment Management	Investment Management		1.2			1.7			Investment Management	1.0			1.7			1.0			1.7
ROTCE5	ROTCE5								ROTCE5
Institutional Securities	Institutional Securities		23.3		%	6.4		%	Institutional Securities	17		%	20		%	20		%	13		%
Wealth Management	Wealth Management		36.0		%	32.3		%	Wealth Management	37		%	32		%	36		%	32		%
Investment Management	Investment Management		88.2		%	18.1		%	Investment Management	172		%	36		%	117		%	27		%

1.Adjusted amounts exclude the effect of costs related to the ~~integration~~integrations of E*TRADE and Eaton Vance, net of tax as appropriate. The pre-tax adjustments in the current quarter were as follows: Wealth ~~Management –~~ Management—Compensation expenses of ~~$30~~$9 million and Non-compensation expenses of ~~$34 million,~~$51 million; Investment ~~Management –~~ Management—Compensation expenses of $3$16 million and Non-compensation expenses of $8$14 million. The pre-tax adjustments in the current year period were as follows: Wealth Management—Compensation expenses of $39 million and Non-compensation expenses of $85 million; Investment Management— Compensation expenses of $19 million and Non-compensation expenses of $22 million.

2.Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.

3.ROE and ROTCE represent earnings applicable to Morgan Stanley common shareholders as a percentage of average common equity and average tangible common equity, respectively. When excluding integration-related costs, both the numerator and average denominator are adjusted.

4.Average common equity and average tangible common equity for each business segment is determined using our Required Capital framework (see "Liquidity and Capital Resources—Regulatory Requirements—Attribution of Average Common Equity According to the Required Capital Framework” herein). The sums of the segments' Average common equity and Average tangible common equity do not equal the Consolidated measures due to Parent equity.

5.The calculation of ROE and ROTCE by segment uses net income applicable to Morgan Stanley by segment less preferred dividends allocated to each segment as a percentage of average common equity and average tangible common equity, respectively, allocated to each segment.

Return on Tangible Common Equity Target

In January 2021, we established a 2-year ROTCE Target of 14% to 16%, excluding integration-related expenses.

Our ROTCE Target is a forward-looking statement that was based on a normal market environment and may be materially affected by many factors, including, among other things: ~~mergers and acquisitions;~~ macroeconomic and market ~~conditions;~~conditions, which may be impacted by the future course of COVID-19; legislative, accounting, tax and regulatory developments; industry trading and investment banking volumes; equity market levels; interest rate environment; outsized legal expenses or penalties; the ability to control expenses; capital levels; and ~~capital levels.~~mergers and acquisitions.

~~Given the economic impact of the COVID-19 pandemic, it is uncertain if the ROTCE Target will be met within the originally stated time frame.~~ See ~~“Coronavirus Disease (COVID–19) Pandemic” herein and~~ “Risk Factors” in the 2020 Form 10-K for further information on market and economic conditions and their potential effects on our ~~financial~~future operating results.

For further information on non-GAAP measures (ROTCE excluding integration-related expenses), see “Selected Non-GAAP Financial Information” herein.

Business Segments

Substantially all of our operating revenues and operating expenses are directly attributable to our business segments. Certain revenues and expenses have been allocated to each business segment, generally in proportion to its respective net revenues, non-interest expenses or other relevant measures. See Note 20 to the financial statements for segment net revenues by income statement line item and information on intersegment transactions.

For an overview of the components of our business segments, net revenues, compensation expense and income taxes, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments” in the 2020 Form 10-K.

As part of our effort to continually improve the transparency and comparability of our external financial reporting, several updates to our financial presentation were implemented in the first quarter of 2021. Prior period amounts have been reclassified to conform to the current presentation.

Provision for credit losses

The Provision for credit losses for loans and lending commitments is ~~now~~ presented as a separate line in the income statements. Previously, the provision for credit losses for loans was included in Other revenues and the provision for credit losses for lending commitments was included in Other expense.

Other revenues

Gains and losses on economic derivative hedges associated with certain held-for-sale and held-for-investment corporate loans, which were previously reported in Trading revenues, are ~~now~~ reported within Other revenues in the income statements. ~~The new~~This presentation better aligns with the recognition of mark-to-market gains and losses on held-for-sale loans which continue to be reported in Other revenues.

Institutional Securities

Equity—Financing, Equity—Execution services and Fixed income ~~now~~ include certain Investments and Other revenues to the extent directly attributable to those businesses. The remaining Investments and Other revenues not included in those businesses’ results are reported in Other. Other also includes revenues previously reported as Other Sales and Trading.

Investment Management

We have renamed the previously disclosed revenue line Asset management to Asset management and related fees and have combined the remaining revenue lines into a new category named Performance-based income and other.

~~March~~June 2021 Form 10-Q


Table of Contents
Management’s Discussion and Analysis

Institutional Securities

Income Statement Information


	Three Months Ended June 30,
$ in millions	2021		2020		% Change
Revenues
Advisory	$	664	$	462	44	%
Equity	1,072		882		22	%
Fixed income	640		707		(9)	%
Total Underwriting	1,712		1,589		8	%
Total Investment banking	2,376		2,051		16	%
Equity1	2,827		2,627		8	%
Fixed income1	1,682		3,041		(45)	%
Other1	207		480		(57)	%
Net revenues	$	7,092	$	8,199	(14)	%
Provision for credit losses1	70		217		(68)	%
Compensation and benefits	2,433		2,952		(18)	%
Non-compensation expenses1	2,091		2,037		3	%
Total non-interest expenses1	4,524		4,989		(9)	%
Income before provision for income taxes	2,498		2,993		(17)	%
Provision for income taxes	574		790		(27)	%
Net income	1,924		2,203		(13)	%
Net income applicable to noncontrolling interests	20		17		18	%
Net income applicable to Morgan Stanley	$	1,904	$	2,186	(13)	%


		Three Months Ended March 31,							Six Months Ended June 30,
$ in millions	$ in millions	2021		2020		% Change		$ in millions	2021		2020		% Change
Revenues	Revenues							Revenues
Advisory	Advisory	$	480	$	362	33	%	Advisory	$	1,144	$	824	39	%
Equity	Equity	1,502		336		N/M		Equity	2,574		1,218		111	%
Fixed income	Fixed income	631		446		41	%	Fixed income	1,271		1,153		10	%
Total Underwriting	Total Underwriting	2,133		782		173	%	Total Underwriting	3,845		2,371		62	%
Total Investment Banking		2,613		1,144		128	%

Total Investment banking								Total Investment banking	4,989		3,195		56	%
Equity1	Equity1	2,875		2,449		17	%	Equity1	5,702		5,076		12	%
Fixed Income1		2,966		2,062		44	%
Fixed income1								Fixed income1	4,648		5,103		(9)	%
Other1	Other1	123		(477)		126	%	Other1	330		3		N/M
Net revenues1	Net revenues1	$	8,577	$	5,178	66	%	Net revenues1	$	15,669	$	13,377	17	%
Provision for credit losses1	Provision for credit losses1	(93)		388		(124)	%	Provision for credit losses1	(23)		605		(104)	%
Compensation and benefits	Compensation and benefits	3,114		1,814		72	%	Compensation and benefits	5,547		4,766		16	%
Non-compensation expenses1	Non-compensation expenses1	2,185		2,026		8	%	Non-compensation expenses1	4,276		4,063		5	%
Total non-interest expenses1	Total non-interest expenses1	5,299		3,840		38	%	Total non-interest expenses1	9,823		8,829		11	%
Income before provision for income taxes	Income before provision for income taxes	3,371		950		N/M		Income before provision for income taxes	5,869		3,943		49	%
Provision for income taxes	Provision for income taxes	736		151		N/M		Provision for income taxes	1,310		941		39	%
Net income	Net income	2,635		799		N/M		Net income	4,559		3,002		52	%
Net income applicable to noncontrolling interests	Net income applicable to noncontrolling interests	34		42		(19)	%	Net income applicable to noncontrolling interests	54		59		(8)	%
Net income applicable to Morgan Stanley	Net income applicable to Morgan Stanley	$	2,601	$	757	N/M		Net income applicable to Morgan Stanley	$	4,505	$	2,943	53	%

1.Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for additional information.

Investment Banking ~~Revenues~~

Investment Banking Volumes


		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
$ in billions	$ in billions		2021		2020			$ in billions	2021		2020		2021		2020
Completed mergers and acquisitions1	Completed mergers and acquisitions1		$	225	$	119		Completed mergers and acquisitions1	$	141	$	433	$	370	$	552
Equity and equity-related offerings2, 3	Equity and equity-related offerings2, 3		36		14			Equity and equity-related offerings2, 3	31		36		68		49
Fixed income offerings2, 4	Fixed income offerings2, 4		102		94			Fixed income offerings2, 4	100		121		204		214

Source: Refinitiv data as of ~~April~~July 1, 2021. Transaction volumes may not be indicative of net revenues in a given period. In addition, transaction volumes for prior periods may vary from amounts previously reported due to the subsequent withdrawal, change in value or change in timing of certain transactions.

1.Includes transactions of $100 million or more. Based on full credit to each of the advisors in a transaction.

2.Based on full credit for single book managers and equal credit for joint book managers.

3.Includes Rule 144A issuances and registered public offerings of common stock, convertible securities and rights offerings.

4.Includes Rule 144A and publicly registered issuances, non-convertible preferred stock, mortgage-backed and asset-backed securities, and taxable municipal debt. Excludes leveraged loans and self-led issuances.

~~Investment Banking Revenues~~Provision for Credit Losses

~~Revenues of $2,613 million~~The Provision for credit losses on loans and lending commitments in the current quarter ~~increased 128%~~was $73 million, primarily driven by one secured lending facility. The Provision for credit losses on loans and lending commitments of $239 million in the prior year quarter was primarily driven by deterioration in the expected macroeconomic environment at that time.

The Provision for credit losses on loans and lending commitments in the current year period was a net release of $25 million, primarily as a result of improvements in the outlook for macroeconomic conditions and the impact of paydowns on corporate loans, including by lower-rated borrowers, partially offset by the provision for one secured lending facility in the current quarter. The Provision for credit losses on loans and lending commitments of $646 million in the prior year period was primarily driven by deterioration in the expected macroeconomic environment at that time.

For further information on the Provision for credit losses, see “Credit Risk” herein.

Income Taxes

The Firm’s effective tax rate of 23.1% is lower in the current quarter compared with the prior year quarter primarily ~~reflecting an increase in equity underwriting revenues.~~

•~~Advisory revenues increased primarily as a result of higher volumes of completed M&A activity.~~

•~~Equity underwriting revenues increased on higher volumes, primarily in initial public offerings, secondary block share trades and follow-on offerings.~~

•~~Fixed income underwriting revenues increased primarily in non-investment grade bond issuances on higher volumes, as well as in non-investment grade loans issuances.~~

~~See “Investment Banking Volumes” herein.~~

~~Equity, Fixed Income and Other Net Revenues~~

~~Equity and Fixed Income Net Revenues~~

Three Months Ended
March 31, 2021

Net Interest2
All Other3

$ in millions Trading
Fees1
Total
Financing $ 645 $ 130 $ 182 $ 3 $ 960
Execution services 1,114 800 (62) 63 1,915
Total Equity $ 1,759 $ 930 $ 120 $ 66 $ 2,875
Total Fixed Income $ 2,313 $ 81 $ 439 $ 133 $ 2,966

Three Months Ended
March 31, 20204

Net Interest2
All Other3

$ in millions Trading
Fees1
Total
Financing $ 1,034 $ 101 $ (37) $ 5 $ 1,103
Execution services 579 783 (38) 22 1,346
Total Equity $ 1,613 $ 884 $ (75) $ 27 $ 2,449
Total Fixed Income $ 1,773 $ 102 $ 328 $ (141) $ 2,062

1.~~Includes Commissions and fees and Asset management revenues.~~

2.~~Includes funding costs, which are allocated~~due to the ~~businesses based on funding usage.~~

3.~~Includes Investments~~remeasurement of reserves and ~~Other revenues.~~

4.~~Certain prior period amounts have been reclassified~~interest related to ~~conform to the current period presentation. See “Business Segments” herein and Note 1 to the financial statements for additional information.~~

~~Equity~~

~~Net revenues of $2,875 million~~a foreign tax matter in ~~the current quarter increased 17% compared with~~ the prior year ~~quarter, reflecting an increase in execution services, partially offset by a decrease in financing.~~

•~~Financing revenues decreased, primarily driven by a loss of $644 million, related to a credit event for a single client, partially offset by higher average client balances and higher client activity.~~

•Execution services revenues increased, primarily in derivatives due to the impact of market conditions on inventory held to facilitate client activity and higher client activity. Partially offsetting this increase was $267 million of trading losses related to the same credit event.quarter.


~~March~~June 2021 Form 10-Q			73


Table of Contents
Management’s Discussion and Analysis

Business Segment Results

Net Revenues by Segment1, 2

($ in millions)

Net Income Applicable to Morgan Stanley by Segment1

($ in millions)

2.Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.

•Institutional Securities net revenues of $7,092 million in the current quarter decreased 14% from the prior year quarter, primarily reflecting lower Fixed ~~Income~~

income revenues as markets normalized compared to the prior year quarter. Net revenues of ~~$2,966~~$15,669 million in the current year period increased 17% from the prior year period, primarily reflecting higher underwriting and Equity business revenues.

•Wealth Management net revenues of $6,095 million in the current quarter increased ~~44% compared with~~30% from the prior year quarter and net revenues of $12,054 million in the current year period increased 38% from the prior year period, both primarily due to higher Asset management revenues and incremental revenues as a result of the E*TRADE acquisition.

•Investment Management net revenues of $1,702 million in the current quarter increased 92% from the prior year


			4			June 2021 Form 10-Q


Table of Contents
Management’s Discussion and Analysis

quarter and net revenues of $3,016 million in the current year period increased 91% from the prior year period, both primarily due to higher Asset management and related fees, including incremental revenues related to the Eaton Vance acquisition, as well as higher Performance-based income and other revenues.

Net Revenues by Region1, 2, 3

($ in millions)

1.The percentages on the bars in the charts represent the contribution of each region to the total.

2.For a discussion of how the geographic breakdown of net revenues is determined, see Note 20 to the financial statements in the 2020 Form 10-K.

3.Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.

Americas net revenues in the current quarter increased 9% from the prior year quarter, primarily driven by ~~credit products.~~

•~~Global macro products revenues decreased in both foreign exchange and rates products primarily due to~~ the ~~effect of tighter bid-offer spreads compared with the prior year quarter, partially offset by the impact of market conditions on inventory held to facilitate client activity.~~

•~~Credit products~~Wealth Management business segment. Asia net revenues increased primarily due to the impact of market conditions on inventory held to facilitate client activity in securitized products, corporate credit products and municipal securities. In addition, higher client activity in securitized products was partially offset by the effect of tighter bid-offer spreads in corporate credit products compared with the prior year quarter.

•~~Commodities products and other fixed income revenues increased primarily driven by higher counterparty credit risk management results.~~

~~Other Net Revenues~~

Net revenues of $123 million in the current quarter increased 126% compared with the prior year quarter primarily due to lower mark-to-market losses on corporate loans held for sale, net of related economic hedges, and gains11% from ~~investments associated with certain employee deferred compensation plans compared with losses in the prior year quarter.~~

~~Net Interest~~

~~Net interest revenues of $638 million in the current quarter are included within Equity, Fixed Income, and Other, and increased 38% compared with~~ the prior year quarter, primarily driven by ~~lower~~the Equity business within the Institutional Securities business segment.

Americas net revenues in the current year period increased 31% from the prior year period, primarily driven by the Wealth Management business segment and the Investment banking business within the Institutional Securities business segment. EMEA net revenues increased 29% and Asia net revenues increased 26% from the prior year period, both primarily driven by the Equity and Investment banking businesses within the Institutional Securities business segment.

Selected Financial Information and Other Statistical Data


	Three Months Ended June 30,						Six Months Ended June 30,
$ in millions	2021			2020			2021			2020
Consolidated results
Net revenues1	$	14,759		$	13,660		$	30,478		$	23,439
Earnings applicable to Morgan Stanley common shareholders	$	3,408		$	3,047		$	7,390		$	4,637
Earnings per diluted common share	$	1.85		$	1.96		$	4.04		$	2.96
Consolidated financial measures
Expense efficiency ratio1, 2	69		%	66		%	68		%	70		%
Adjusted expense efficiency ratio1,2,4	68		%	66		%	67		%	70		%
ROE3	13.8		%	15.7		%	15.3		%	12.2		%
Adjusted ROE3, 4	14.1		%	15.7		%	15.6		%	12.2		%
ROTCE3, 4	18.6		%	17.8		%	19.8		%	13.9		%
Adjusted ROTCE3, 4	19.0		%	17.8		%	20.1		%	13.9		%
Pre-tax margin1, 5	31		%	32		%	33		%	28		%
Effective tax rate	23.1		%	25.7		%	22.5		%	22.8		%
Pre-tax margin by segment5
Institutional Securities1	35		%	37		%	37		%	29		%
Wealth Management1	27		%	24		%	27		%	25		%
Wealth Management, adjusted1, 4	28		%	24		%	28		%	25		%
Investment Management	25		%	24		%	27		%	23		%
Investment Management, adjusted4	27		%	24		%	28		%	23		%


in millions, except per share and employee data	At June 30, 2021			At December 31, 2020
Liquidity resources6	$	343,776		$	338,623
Loans7	$	166,059		$	150,597
Total assets	$	1,161,805		$	1,115,862
Deposits	$	320,358		$	310,782
Borrowings	$	224,142		$	217,079
Common shares outstanding	1,834			1,810
Common shareholders' equity	$	99,120		$	92,531
Tangible common shareholders’ equity4	$	73,593		$	75,916
Book value per common share8	$	54.04		$	51.13
Tangible book value per common share4, 8	$	40.12		$	41.95
Worldwide employees9 (in thousands)	72			68
Capital Ratios10
Common Equity Tier 1 capital—Standardized	16.6		%	17.4		%
Tier 1 capital—Standardized	18.3		%	19.4		%
Common Equity Tier 1 capital—Advanced	17.7		%	17.7		%
Tier 1 capital—Advanced	19.5		%	19.8		%
Tier 1 leverage	7.5		%	8.4		%
SLR11	5.9		%	7.4		%

1.Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.

2.The expense efficiency ratio represents total non-interest expenses as a percentage of net revenues.

3.ROE and ROTCE represent earnings applicable to Morgan Stanley common shareholders as a percentage of average common equity and average tangible common equity, respectively.

4.Represents a non-GAAP financial measure. See “Selected Non-GAAP Financial Information” herein.

5.Pre-tax margin represents income before income taxes as a percentage of net revenues.

6.For a discussion of Liquidity resources, see “Liquidity and Capital Resources—Liquidity Risk Management Framework—Liquidity Resources” herein.

7.Amounts include loans held for investment, net of ACL, and loans held for sale but exclude loans at fair value, which are included in Trading assets in the balance sheets (see Note 10 to the financial statements).

9.As of June 30, 2021, the number of employees includes Eaton Vance.

10.For a discussion of our capital ratios, see “Liquidity and Capital Resources—Regulatory Requirements” herein.

11.At December 31, 2020, our SLR reflects the impact of a Federal Reserve interim final rule that was in effect until March 31, 2021. For further information, see “Liquidity and Capital Resources—Regulatory Requirements—Regulatory Developments and Other Matters” herein.


June 2021 Form 10-Q			5


Table of Contents
Management’s Discussion and Analysis

Coronavirus Disease (“COVID-19”) Pandemic

Since its onset, the COVID-19 pandemic has had a significant impact on global economic conditions and the environment in which we operate our businesses and it may continue to do so in the future. Though many of our employees have been working from home for some time, we are preparing for our employees to return to work in our offices on a more regular basis, and an increasing number of employees are returning to our offices in certain locations. The Firm continues to be fully operational, with the majority of employees in both the Americas and globally working from home during the current quarter. Recognizing that local conditions vary for our offices around the world and that the trajectory of the virus continues to be uncertain, we may adjust our plans for employees returning to our offices as deemed necessary.

Refer to “Risk Factors” and “Forward-Looking Statements” in the 2020 Form 10-K for more information on the potential effects of the ongoing COVID-19 pandemic on our future operating results.

Selected Non-GAAP Financial Information

The principal non-GAAP financial measures presented in this document are set forth in the following tables.

Reconciliations from U.S. GAAP to Non-GAAP Consolidated Financial Measures


	Three Months Ended June 30,						Six Months Ended June 30,
$ in millions, except per share data	2021			2020			2021			2020
Earnings applicable to Morgan Stanley common shareholders	$	3,408		$	3,047		$	7,390		$	4,637
Impact of adjustments:
Integration-related expenses	90			—			165			—
Related tax benefit	(21)			—			(38)			—
Adjusted earnings applicable to Morgan Stanley common shareholders—non-GAAP1	$	3,477		$	3,047		$	7,517		$	4,637
Earnings per diluted common share	$	1.85		$	1.96		$	4.04		$	2.96
Impact of adjustments	0.04			—			0.07			—
Adjusted earnings per diluted common share—non-GAAP1	$	1.89		$	1.96		$	4.11		$	2.96
Expense efficiency ratio2	69		%	66		%	68		%	70		%
Impact of adjustments	(1)		%	—		%	(1)		%	—		%
Adjusted expense efficiency ratio—non-GAAP1, 2	68		%	66		%	67		%	70		%
Wealth Management Pre-tax margin2	27		%	24		%	27		%	25		%
Impact of adjustments	1		%	—		%	1		%	—		%
Adjusted Wealth Management pre-tax margin—non-GAAP1, 2	28		%	24		%	28		%	25		%
Investment Management Pre-tax margin	25		%	24		%	27		%	23		%
Impact of adjustments	2		%	—		%	1		%	—		%
Adjusted Investment Management pre-tax margin—non-GAAP1	27		%	24		%	28		%	23		%


$ in millions	At June 30, 2021		At December 31, 2020
Tangible equity
Common shareholders' equity	$	99,120	$	92,531
Less: Goodwill and net intangible assets	(25,527)		(16,615)
Tangible common shareholders' equity—non-GAAP	$	73,593	$	75,916


	Average Monthly Balance
	Three Months Ended June 30,				Six Months Ended June 30,
$ in millions	2021		2020		2021		2020
Tangible equity
Common shareholders' equity	$	98,824	$	77,598	$	96,309	$	75,992
Less: Goodwill and net intangible assets	(25,611)		(9,268)		(21,738)		(9,246)
Tangible common shareholders' equity—non-GAAP	$	73,213	$	68,330	$	74,571	$	66,746


	Three Months Ended June 30,						Six Months Ended June 30,
$ in billions	2021			2020			2021			2020
Average common equity
Unadjusted—GAAP	$	98.8		$	77.6		$	96.3		$	76.0
Adjusted1—Non-GAAP	98.8			77.6			96.4			76.0
ROE3
Unadjusted—GAAP	13.8		%	15.7		%	15.3		%	12.2		%
Adjusted1—Non-GAAP	14.1		%	15.7		%	15.6		%	12.2		%
Average tangible common equity—Non-GAAP
Unadjusted	$	73.2		$	68.3		$	74.6		$	66.7
Adjusted1	73.2			68.3			74.6			66.7
ROTCE3—Non-GAAP
Unadjusted	18.6		%	17.8		%	19.8		%	13.9		%
Adjusted1	19.0		%	17.8		%	20.1		%	13.9		%


			6			June 2021 Form 10-Q


Table of Contents
Management’s Discussion and Analysis

Non-GAAP Financial Measures by Business Segment


	Three Months Ended June 30,						Six Months Ended June 30,
$ in billions	2021			2020			2021			2020
Average common equity4
Institutional Securities	$	43.5		$	42.8		$	43.5		$	42.8
Wealth Management	28.6			18.2			28.6			18.2
Investment Management	10.7			2.6			7.1			2.6
ROE5
Institutional Securities	17		%	19		%	20		%	13		%
Wealth Management	17		%	18		%	17		%	18		%
Investment Management	13		%	23		%	17		%	18		%
Average tangible common equity4
Institutional Securities	$	42.9		$	42.3		$	42.9		$	42.3
Wealth Management	13.4			10.4			13.4			10.4
Investment Management	1.0			1.7			1.0			1.7
ROTCE5
Institutional Securities	17		%	20		%	20		%	13		%
Wealth Management	37		%	32		%	36		%	32		%
Investment Management	172		%	36		%	117		%	27		%

1.Adjusted amounts exclude the effect of costs related to the integrations of E*TRADE and Eaton Vance, net of tax as appropriate. The pre-tax adjustments in the current quarter were as follows: Wealth Management—Compensation expenses of $9 million and Non-compensation expenses of $51 million; Investment Management—Compensation expenses of $16 million and Non-compensation expenses of $14 million. The pre-tax adjustments in the current year period were as follows: Wealth Management—Compensation expenses of $39 million and Non-compensation expenses of $85 million; Investment Management— Compensation expenses of $19 million and Non-compensation expenses of $22 million.

2.Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.

Return on Tangible Common Equity Target

In January 2021, we established a 2-year ROTCE Target of 14% to 16%, excluding integration-related expenses.

Our ROTCE Target is a forward-looking statement that was based on a normal market environment and may be materially affected by many factors, including, among other things: macroeconomic and market conditions, which may be impacted by the future course of COVID-19; legislative, accounting, tax and regulatory developments; industry trading and investment banking volumes; equity market levels; interest rate environment; outsized legal expenses or penalties; the ability to control expenses; capital levels; and mergers and acquisitions.

See “Risk Factors” in the 2020 Form 10-K for further information on market and economic conditions and their potential effects on our future operating results.

For further information on non-GAAP measures (ROTCE excluding integration-related expenses), see “Selected Non-GAAP Financial Information” herein.

Business Segments

Provision for credit losses

The Provision for credit losses for loans and lending commitments is presented as a separate line in the income statements. Previously, the provision for credit losses for loans was included in Other revenues and the provision for credit losses for lending commitments was included in Other expense.

Other revenues

Gains and losses on economic derivative hedges associated with ~~maintaining liquidity as well as higher~~certain held-for-sale and held-for-investment corporate loans, which were previously reported in Trading revenues, are reported within Other revenues in ~~corporate lending~~the income statements. This presentation better aligns with the recognition of mark-to-market gains and ~~secured lending facilities.~~losses on held-for-sale loans which continue to be reported in Other revenues.

Institutional Securities

Equity—Financing, Equity—Execution services and Fixed income include certain Investments and Other revenues to the extent directly attributable to those businesses. The remaining Investments and Other revenues not included in those businesses’ results are reported in Other. Other also includes revenues previously reported as Other Sales and Trading.

Investment Management


June 2021 Form 10-Q			7


Table of Contents
Management’s Discussion and Analysis

Institutional Securities

Income Statement Information


	Three Months Ended June 30,
$ in millions	2021		2020		% Change
Revenues
Advisory	$	664	$	462	44	%
Equity	1,072		882		22	%
Fixed income	640		707		(9)	%
Total Underwriting	1,712		1,589		8	%
Total Investment banking	2,376		2,051		16	%
Equity1	2,827		2,627		8	%
Fixed income1	1,682		3,041		(45)	%
Other1	207		480		(57)	%
Net revenues	$	7,092	$	8,199	(14)	%
Provision for credit losses1	70		217		(68)	%
Compensation and benefits	2,433		2,952		(18)	%
Non-compensation expenses1	2,091		2,037		3	%
Total non-interest expenses1	4,524		4,989		(9)	%
Income before provision for income taxes	2,498		2,993		(17)	%
Provision for income taxes	574		790		(27)	%
Net income	1,924		2,203		(13)	%
Net income applicable to noncontrolling interests	20		17		18	%
Net income applicable to Morgan Stanley	$	1,904	$	2,186	(13)	%


	Six Months Ended June 30,
$ in millions	2021		2020		% Change
Revenues
Advisory	$	1,144	$	824	39	%
Equity	2,574		1,218		111	%
Fixed income	1,271		1,153		10	%
Total Underwriting	3,845		2,371		62	%
Total Investment banking	4,989		3,195		56	%
Equity1	5,702		5,076		12	%
Fixed income1	4,648		5,103		(9)	%
Other1	330		3		N/M
Net revenues1	$	15,669	$	13,377	17	%
Provision for credit losses1	(23)		605		(104)	%
Compensation and benefits	5,547		4,766		16	%
Non-compensation expenses1	4,276		4,063		5	%
Total non-interest expenses1	9,823		8,829		11	%
Income before provision for income taxes	5,869		3,943		49	%
Provision for income taxes	1,310		941		39	%
Net income	4,559		3,002		52	%
Net income applicable to noncontrolling interests	54		59		(8)	%
Net income applicable to Morgan Stanley	$	4,505	$	2,943	53	%

1.Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for additional information.

Investment Banking

Investment Banking Volumes


	Three Months Ended June 30,				Six Months Ended June 30,
$ in billions	2021		2020		2021		2020
Completed mergers and acquisitions1	$	141	$	433	$	370	$	552
Equity and equity-related offerings2, 3	31		36		68		49
Fixed income offerings2, 4	100		121		204		214

Source: Refinitiv data as of July 1, 2021. Transaction volumes may not be indicative of net revenues in a given period. In addition, transaction volumes for prior periods may vary from amounts previously reported due to the subsequent withdrawal, change in value or change in timing of certain transactions.

1.Includes transactions of $100 million or more. Based on full credit to each of the advisors in a transaction.

2.Based on full credit for single book managers and equal credit for joint book managers.

3.Includes Rule 144A issuances and registered public offerings of common stock, convertible securities and rights offerings.

Provision for Credit Losses

The Provision for credit losses on loans and lending commitments in the current year period was a net release of ~~$93~~$25 million, ~~in the current quarter~~ primarily ~~driven by~~as a result of improvements in the outlook for macroeconomic conditions and the impact of paydowns on ~~Corporate~~corporate loans, including by lower-rated ~~borrowers.~~borrowers, partially offset by the provision for one secured lending facility in the current quarter. The Provision for credit losses on loans and lending commitments of ~~$388~~$646 million in the prior year ~~quarter~~period was primarily driven by deterioration in the ~~current and~~ expected macroeconomic environment at that time.

For further information on the Provision for credit losses, see “Credit Risk” herein.

Income Taxes

The Firm’s effective tax rate of 23.1% is lower in the current quarter compared with the prior year quarter primarily due to the remeasurement of reserves and interest related to a foreign tax matter in the prior year quarter.


June 2021 Form 10-Q			3


Table of Contents
Management’s Discussion and Analysis

Business Segment Results

Net Revenues by Segment1, 2

($ in millions)

~~Non-interest Expenses~~Net Income Applicable to Morgan Stanley by Segment1

~~Non-interest expenses~~($ in millions)

1.The percentages on the bars in the charts represent the contribution of ~~$5,299~~each business segment to the total of the applicable financial category and may not sum to 100% due to intersegment eliminations. See Note 20 to the financial statements for details of intersegment eliminations.

2.Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.

•Institutional Securities net revenues of $7,092 million in the current quarter decreased 14% from the prior year quarter, primarily reflecting lower Fixed income revenues as markets normalized compared to the prior year quarter. Net revenues of $15,669 million in the current year period increased 17% from the prior year period, primarily reflecting higher underwriting and Equity business revenues.

•Wealth Management net revenues of $6,095 million in the current quarter increased 30% from the prior year quarter and net revenues of $12,054 million in the current year period increased 38% from the prior year period, both primarily due to higher Asset management revenues and incremental revenues as a result of the E*TRADE acquisition.

•Investment Management net revenues of $1,702 million in the current quarter increased 92% from the prior year


			4			June 2021 Form 10-Q


Table of Contents
Management’s Discussion and Analysis

Net Revenues by Region1, 2, 3

($ in millions)

1.The percentages on the bars in the charts represent the contribution of each region to the total.

2.For a discussion of how the geographic breakdown of net revenues is determined, see Note 20 to the financial statements in the 2020 Form 10-K.

3.Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.

Americas net revenues in the current quarter increased 9% from the prior year quarter, primarily driven by the Wealth Management business segment. Asia net revenues increased 11% from the prior year quarter, primarily driven by the Equity business within the Institutional Securities business segment.

Selected Financial Information and Other Statistical Data


	Three Months Ended June 30,						Six Months Ended June 30,
$ in millions	2021			2020			2021			2020
Consolidated results
Net revenues1	$	14,759		$	13,660		$	30,478		$	23,439
Earnings applicable to Morgan Stanley common shareholders	$	3,408		$	3,047		$	7,390		$	4,637
Earnings per diluted common share	$	1.85		$	1.96		$	4.04		$	2.96
Consolidated financial measures
Expense efficiency ratio1, 2	69		%	66		%	68		%	70		%
Adjusted expense efficiency ratio1,2,4	68		%	66		%	67		%	70		%
ROE3	13.8		%	15.7		%	15.3		%	12.2		%
Adjusted ROE3, 4	14.1		%	15.7		%	15.6		%	12.2		%
ROTCE3, 4	18.6		%	17.8		%	19.8		%	13.9		%
Adjusted ROTCE3, 4	19.0		%	17.8		%	20.1		%	13.9		%
Pre-tax margin1, 5	31		%	32		%	33		%	28		%
Effective tax rate	23.1		%	25.7		%	22.5		%	22.8		%
Pre-tax margin by segment5
Institutional Securities1	35		%	37		%	37		%	29		%
Wealth Management1	27		%	24		%	27		%	25		%
Wealth Management, adjusted1, 4	28		%	24		%	28		%	25		%
Investment Management	25		%	24		%	27		%	23		%
Investment Management, adjusted4	27		%	24		%	28		%	23		%


in millions, except per share and employee data	At June 30, 2021			At December 31, 2020
Liquidity resources6	$	343,776		$	338,623
Loans7	$	166,059		$	150,597
Total assets	$	1,161,805		$	1,115,862
Deposits	$	320,358		$	310,782
Borrowings	$	224,142		$	217,079
Common shares outstanding	1,834			1,810
Common shareholders' equity	$	99,120		$	92,531
Tangible common shareholders’ equity4	$	73,593		$	75,916
Book value per common share8	$	54.04		$	51.13
Tangible book value per common share4, 8	$	40.12		$	41.95
Worldwide employees9 (in thousands)	72			68
Capital Ratios10
Common Equity Tier 1 capital—Standardized	16.6		%	17.4		%
Tier 1 capital—Standardized	18.3		%	19.4		%
Common Equity Tier 1 capital—Advanced	17.7		%	17.7		%
Tier 1 capital—Advanced	19.5		%	19.8		%
Tier 1 leverage	7.5		%	8.4		%
SLR11	5.9		%	7.4		%