The Firm declared a $0.05 quarterly dividend per common share, payable on May 15, 2013 to common shareholders of record on April 30, 2013.
1 Represents the change in the fair value of certain of Morgan Stanley’s long-term and short-term borrowings resulting from fluctuations in its credit spreads and other credit factors (commonly referred to as “DVA”).
2 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. For these purposes, “GAAP” refers to generally accepted accounting principles in the United States. The Securities and Exchange Commission (SEC) defines a “non-GAAP financial measure” as a numerical measure of historical or future financial performance, financial positions, 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 GAAP. Non-GAAP financial measures disclosed by Morgan Stanley are provided as additional information to investors in order to provide them with greater transparency about, or an alternative method for assessing our financial condition and operating results. These measures are not in accordance with, or a substitute for 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 present the most directly comparable financial measure calculated and presented in accordance with GAAP, along with a reconciliation of the differences between the non-GAAP financial measure we reference and such comparable GAAP financial measure.
3 Income (loss) per diluted share amounts, excluding DVA, are non-GAAP financial measures that the Firm considers useful for investors to allow better comparability of period to period operating performance. Such exclusions are provided to differentiate revenues associated with Morgan Stanley borrowings, regardless of whether the impact is either positive, or negative, that result solely from fluctuations in credit spreads and other credit factors. The reconciliation of income (loss) per diluted share from continuing operations applicable to Morgan Stanley common shareholders and average diluted shares from a non-GAAP to GAAP basis is as follows (shares and DVA are presented in millions):
| | 1Q 2013 | 1Q 2012 |
| Income (loss) per diluted share applicable to MS – Non-GAAP | $0.61 | $0.71 |
| DVA impact | $(0.11) | $(0.76) |
| Income (loss) per diluted share applicable to MS – GAAP | $0.50 | $(0.05) |
| | | |
| Average diluted shares – Non-GAAP | 1,940 | 1,903 |
| DVA impact | 0 | (26) |
| Average diluted shares – GAAP | 1,940 | 1,877 |
4 Pre-tax margin is a non-GAAP financial measure that the Firm considers useful for investors to assess operating performance. Pre-tax margin represents income (loss) from continuing operations before taxes, divided by net revenues.
5 On January 1, 2013, the International Wealth Management business was transferred from the Global Wealth Management Group to the Equity Division within Institutional Securities. Accordingly, all results and statistical data have been recast for all periods to reflect the International Wealth Management business as part of the Institutional Securities business segment.
6 Beginning January 1, 2013, the Firm enhanced its definition of fee based asset flows. Fee based asset flows have been recast for all periods to include dividends, interest and client fees, and to exclude cash management related activity. The change reflects a better representation of asset flows in fee based accounts.
7 Source: Thomson Reuters – for the period of January 1, 2013 to March 31, 2013 as of April 2, 2013.
8 Includes preferred dividends and other adjustments related to the calculation of earnings per share for the first quarter of 2013 and 2012 of approximately $26 million and $25 million, respectively. Refer to page 3 of Morgan Stanley’s Financial Supplement accompanying this release for the calculation of earnings per share.
9 Income (loss) applicable to Morgan Stanley, excluding DVA, is a non-GAAP financial measure that the Firm considers useful for investors to allow for better comparability of period-to-period operating performance. The reconciliation of income (loss) from continuing operations applicable to Morgan Stanley from a non-GAAP to GAAP basis is as follows (amounts are presented in millions):
| | 1Q 2013 | 4Q 2012 | 1Q 2012 |
| Income (loss) applicable to MS – Non-GAAP | $1,204 | $981 | $1,375 |
| DVA after-tax impact | $(201) | $(321) | $(1,454) |
| Income (loss) applicable to MS – GAAP | $1,003 | $660 | $(79) |
10 Compensation in the current quarter included severance expense of $132 million associated with the Firm’s reduction in force in January 2013 which was reflected in the business segments’ results as follows: Institutional Securities: $113 million, Global Wealth Management Group: $15 million and Asset Management: $4 million. The first quarter of 2012 included severance expense of $138 million associated with the Firm’s reduction in force in January 2012 which was reflected in the business segments’ results as follows: Institutional Securities: $108 million, Global Wealth Management Group: $25 million and Asset Management: $5 million.
11 Noncontrolling interests reported in the Institutional Securities business segment primarily represents allocation to Morgan Stanley MUFG Securities Co., Ltd. Noncontrolling interests also have been recast for all periods to reflect the International Wealth Management transfer to Institutional Securities.
12 Sales and trading net revenues, including Fixed Income & Commodities (FIC) and Equity sales and trading net revenues excluding DVA, are non-GAAP financial measures that the Firm considers useful for investors to allow better comparability of period-to-period operating performance. The reconciliation of sales and trading, including FIC and Equity sales and trading net revenues from a non-GAAP to GAAP basis is as follows (amounts are presented in millions):
| | 1Q 2013 | 1Q 2012 |
| Sales & Trading – Non-GAAP | $3,182 | $4,260 |
| DVA impact | $(317) | $(1,978) |
| Sales & Trading – GAAP | $2,865 | $2,282 |
| | | |
| FIC Sales & Trading – Non-GAAP | $1,515 | $2,590 |
| DVA impact | $(238) | $(1,597) |
| FIC Sales & Trading – GAAP | $1,277 | $993 |
| | | |
| Equity Sales & Trading – Non-GAAP | $1,594 | $1,956 |
| DVA impact | $(79) | $(381) |
| Equity Sales & Trading – GAAP | $1,515 | $1,575 |
13 VaR represents the loss amount that one would not expect to exceed, on average, more than five times every one hundred trading days in the Firm's trading positions if the portfolio were held constant for a one-day period. Further discussion of the calculation of VaR and the limitations of the Firm's VaR methodology is disclosed in Part II, Item 7A “Quantitative and Qualitative Disclosures about Market Risk” included in Morgan Stanley’s Annual Report on Form 10-K for the year ended December 31, 2012. Refer to page 7 of Morgan Stanley’s Financial Supplement accompanying this release for the VaR disclosure.
14 During the quarter ended September 30, 2012, Morgan Stanley completed the purchase of an additional 14% stake in the wealth management joint venture from Citi, increasing the Firm’s interest from 51% to 65%. Prior to September 17, 2012, Citi’s results related to its 49% interest were reported in net income (loss) applicable to nonredeemable noncontrolling interests on page 9 of Morgan Stanley’s Financial Supplement accompanying this release. Due to the terms of the revised agreement with Citi, subsequent to the purchase of the additional 14% stake, Citi’s results related to the 35% interest are reported in net income (loss) applicable to redeemable noncontrolling interests on page 9 of Morgan Stanley’s Financial Supplement accompanying this release.
15 Transactional revenues include investment banking, trading and commissions and fee revenues.
16 Effective for the quarter ended March 31, 2013, client assets also include certain additional non-custodied assets as a result of the completion of the Morgan Stanley Smith Barney platform conversion.
17 Results for the first quarter of 2013 and 2012 included pre-tax income of $50 million and $65 million, respectively, related to investments held by certain consolidated real estate funds. The limited partnership interests in these funds are reported in net income (loss) applicable to noncontrolling interests on page 11 of Morgan Stanley’s Financial Supplement accompanying this release.
18 Results for the current quarter included gains of $52 million compared with gains of $67 million in the prior year quarter related to investments held by certain consolidated real estate funds.
19 The Firm calculates its Tier 1 capital ratio and risk-weighted assets (“RWAs”) in accordance with the capital adequacy standards for financial holding companies adopted by the Federal Reserve Board. These standards are based upon a framework described in the International Convergence of Capital Measurement and Capital Standards, July 1988, as amended, also referred to as Basel I. On January 1, 2013, the U.S. banking regulators’ rules to implement the Basel Committee’s market risk capital framework, commonly referred to as “Basel 2.5”, became effective, which increases capital requirements for securitizations and correlation trading within the Firm's trading book, as well as incorporating add-ons for stressed VaR and incremental risk requirement. The Firm’s Tier 1 capital ratio and RWAs for the current quarter were calculated under this revised framework. The Firm’s Tier 1 capital and RWAs for prior quarters have not been recalculated under this revised framework. In accordance with the Federal Reserve Board’s definition, Tier 1 common capital is defined as Tier 1 capital less non-common elements in Tier 1 capital, including perpetual preferred stock and related surplus, minority interest in subsidiaries, trust preferred securities and mandatory convertible preferred securities. These computations are preliminary estimates as of April 18, 2013 (the date of this release) and could be subject to revision in Morgan Stanley’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013.
20 Tangible common equity and tangible book value per common share are non-GAAP financial measures that the Firm considers to be useful measures of capital adequacy. Tangible common equity equals common equity less goodwill and intangible assets net of allowable mortgage servicing rights deduction and includes only the Firm’s share of the wealth management joint venture’s goodwill and intangible assets. Tangible book value per common share equals tangible common equity divided by period end common shares outstanding.
21 The American Taxpayer Relief Act of 2012 (the “Act”) was enacted on January 2, 2013. Among other things, the Act extends with retroactive effect to January 1, 2012 a provision of U.S. tax law that defers the imposition of tax on certain active financial services income of certain foreign subsidiaries earned outside of the U.S. until such income is repatriated to the United States as a dividend. Accordingly, the Firm recorded a benefit of approximately $81 million attributable to the Act’s retroactive extension of these provisions as part of income taxes from continuing operations in the quarter ending March 31, 2013. In addition, the Firm recorded a net discrete benefit of approximately $61 million related to the remeasurement of reserves and related interest due to new information regarding the status of certain tax authority examinations.
