By Max Clarke
Morgan Stanley (NYSE: MS) today reported income of $4.5 billion, or $2.44 per diluted share,1 from continuing operations applicable to Morgan Stanley for the year ended December 31, 2010 compared with income of $1.3 billion, or a loss of $0.82 per diluted share, a year ago.
Net revenues were $31.6 billion for the year compared with $23.4 billion a year ago. Net revenues in the current year included negative revenue of $873 million, or $0.30 per diluted share, related to Morgan Stanley's debt-related credit spreads (DVA)2,3 compared with negative revenue from DVA of $5.5 billion in the prior year. Comparisons of current year results with the prior year were affected by the results of Morgan Stanley Smith Barney joint venture (MSSB),4 which closed on May 31, 2009. The results for the year also included approximately $1.0 billion, or $0.65 per diluted share, associated with discrete tax gains.
Compensation expenses of $16.0 billion increased from $14.4 billion a year ago. The increase primarily reflected higher compensation costs related to MSSB4 and a charge of $272 million related to the U.K. government's payroll tax on 2009 discretionary bonuses.5 The Firm's compensation to net revenue ratio for the current year was 51% compared with 62% a year ago. These ratios were adversely affected by DVA, which reduced net revenues in both periods. Non-compensation expenses of $9.4 billion increased from $8.0 billion a year ago primarily due to the inclusion of MSSB.4
Income from continuing operations applicable to Morgan Stanley for the current quarter was $867 million, or $0.43 per diluted share,1 compared with income of $460 million, or $0.18 per diluted share, for the same period a year ago. Net revenues were $7.8 billion for the current quarter compared with $6.8 billion a year ago. Net revenues in the current quarter included negative revenue of $945 million, or $0.36 per diluted share, related to DVA6 compared with negative revenue from DVA of $589 million in the prior year's fourth quarter. In addition, results for the current quarter included a pre-tax gain of $668 million, or $0.17 per diluted share, from the sale of the Firm's investment in China International Capital Corporation Limited (CICC).
Compensation expenses were $4.1 billion compared with $3.8 billion in last year's fourth quarter. The Firm's compensation to net revenue ratio for the current quarter was 52% compared with 55% a year ago. These ratios were adversely affected by DVA, which reduced net revenues in both periods. Non-compensation expenses of $2.6 billion increased 6% from a year ago.
For the year, the net income applicable to Morgan Stanley, including discontinued operations, was $2.63 per diluted share, compared with a net loss of $0.77 per diluted share in 2009.7 For the current quarter, net income applicable to Morgan Stanley, including discontinued operations, was $0.41 per diluted share, compared with net income of $0.29 per diluted share a year ago.
Full Year Business Highlights
* The Firm delivered strong Investment Banking results across our advisory and underwriting businesses in 2010, with net revenues of $4.3 billion for the year. The Firm ranked #1 in global IPOs, #1 in global Equity and #2 in global announced and completed M&A8 - advising on eight of the top 10 announced transactions of 2010. Equity capital markets achieved the highest market share in a decade.
* Equity sales and trading results reflected solid customer flows in the cash and derivatives businesses and improved results in prime brokerage. Fixed income results reflected the difficult environment while we continue to make progress building out our Interest Rate, Credit & Currency (IRCC) business.
* Global Wealth Management Group delivered improved performance this year - with net revenues of $12.6 billion. Despite a challenging retail environment for much of the year, net new client assets were $22.9 billion, including $14.1 billion in the fourth quarter. Turnover of top revenue-producing global representatives for the year was near historic lows.
* Asset Management delivered significantly improved performance this year - with net revenues of $2.7 billion and improved profitability. Asset Management also has continued to deliver solid investment performance, with over 70% of its long-term strategies outperforming their respective benchmarks on a 3, 5 and 10-year basis (as of December 2010).
* The Firm continued to build its international business this year - including the launch of its Japanese joint venture. The Firm also completed the sale of its investment in CICC, which allowed the Firm to proceed with a new joint venture with China Fortune Securities Co., Ltd.
James P. Gorman, President and Chief Executive Officer, said, "Morgan Stanley delivered improved performance across most of our businesses during the fourth quarter, and the strength of our premier client franchise was evidenced by participation in virtually every major transaction that helped raise capital for governments and leading corporations across the globe. Despite this year's challenging markets, we delivered strong results in Investment Banking enhancing our leadership positions in M&A, global equity and IPOs based on the strength of our banking, capital markets and equities teams. While we made progress in building out our Fixed income business through investments in both people and technology, there is more to be done to drive revenue and market share growth. In Global Wealth Management, the strong performance we delivered in the fourth quarter - and the strong net new asset growth we achieved during 2010 - are the clearest signs yet of the important progress we have made in integrating Morgan Stanley Smith Barney. Our Asset Management business also delivered significantly improved performance this year, as we refocused the business around our core strengths, hired key talent and addressed legacy issues.
"Throughout 2010, we continued driving forward a wide range of important strategic initiatives - from the launch of our Japanese joint venture with Mitsubishi and the sale of our CICC stake to the planned separation of our Process Driven Trading business and the sale of our Invesco shares. I am pleased with the progress we made this year, but there is a great deal of work to do across Morgan Stanley's global franchise as we look to deliver first-class service to our clients and long-term value to our shareholders and employees," Gorman added.