Morgan Stanley Fourth Quarter and Full Year 2022 Earnings Results

Morgan Stanley Reports Fourth Quarter Net Revenues of $12.7 Billion, EPS of $1.26 and ROTCE of 12.6%; Full Year Net Revenues of $53.7 Billion, EPS of $6.15 and ROTCE of 15.3%

Morgan Stanley (NYSE: MS) today reported net revenues of $12.7 billion for the fourth quarter ended December 31, 2022 compared with $14.5 billion a year ago. Net income applicable to Morgan Stanley was $2.2 billion, or $1.26 per diluted share,¹ compared with $3.7 billion, or $2.01 per diluted share,¹ for the same period a year ago. Excluding integration-related expenses, earnings per diluted share in the fourth quarter was $1.31 versus $2.08 in the prior year quarter.^1,6 The fourth quarter of 2022 was also impacted by severance costs of $133 million associated with a December employee action,² partially offset by a net discrete tax benefit of $89 million.

Full year net revenues were $53.7 billion compared with $59.8 billion in the prior year. Net income applicable to Morgan Stanley was $11.0 billion, or $6.15 per diluted share,¹ compared with $15.0 billion, or $8.03 per diluted share,¹ in the prior year. Excluding integration-related expenses, earnings per diluted share in the current year was $6.36 and $8.22 in the prior year.^1,6 Comparisons of current year results to the prior year were impacted by the acquisition of Eaton Vance Corp. (“Eaton Vance”) prospectively from the March 1, 2021 acquisition date.

James P. Gorman, Chairman and Chief Executive Officer, said, “We reported solid fourth quarter results amidst a difficult market environment. Overall, 2022 was a strong year for the Firm as our clear strategy and balanced business model enabled us to deliver an ROTCE of 16% despite the complex macro backdrop. Wealth Management provided stability with record revenues and over $310 billion in net new assets, Investment Management benefited from diversification, and within Institutional Securities our Equity and Fixed Income revenues were strong, offset by Investment Banking. Our strong capital position allowed us to repurchase $10 billion of shares this year and we distributed a healthy dividend.”

Fourth Quarter Results

Institutional Securities

Institutional Securities reported net revenues for the current quarter of $4.8 billion compared with $6.7 billion a year ago. Pre-tax income was $748 million compared with $3.0 billion a year ago.⁸

Wealth Management

Wealth Management reported record net revenues for the current quarter of $6.6 billion compared with $6.3 billion a year ago. Pre-tax income of $1.8 billion⁸ in the current quarter resulted in a pre-tax margin of 27.8% or 29.2% excluding the impact of integration-related expenses.^6,7

Investment Management

Investment Management reported net revenues of $1.5 billion compared with $1.8 billion a year ago. Pre-tax income was $214 million compared with $508 million a year ago.⁸

Full Year Results

Institutional Securities

Institutional Securities reported net revenues of $24.4 billion compared with $29.8 billion in the prior year. Pre-tax income was $6.7 billion compared with $11.8 billion in the prior year.⁸

Wealth Management

Wealth Management reported record net revenues of $24.4 billion compared with $24.2 billion in the prior year. Pre-tax income of $6.6 billion⁸ in the current year resulted in a reported pre-tax margin of 27.0% or 28.4% excluding the impact of integration-related expenses.^6,7

Investment Management

Investment Management reported net revenues of $5.4 billion compared with $6.2 billion in the prior year. Pre-tax income was $807 million compared with $1.7 billion in the prior year.⁸ The comparisons of current year results to the prior period were impacted by the acquisition of Eaton Vance completed on March 1, 2021.

Other Matters

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

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

NOTICE:

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

This earnings release may contain forward-looking statements, including the attainment of certain financial and other targets, objectives and goals. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made, which reflect management’s current estimates, projections, expectations, assumptions, interpretations or beliefs and which are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of risks and uncertainties that may affect the future results of the Firm, please see “Forward-Looking Statements” preceding Part I, Item 1, “Competition” and “Supervision and Regulation” in Part I, Item 1, “Risk Factors” in Part I, Item 1A, “Legal Proceedings” in Part I, Item 3, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 and “Quantitative and Qualitative Disclosures about Risk” in Part II, Item 7A in the Firm’s Annual Report on Form 10-K for the year ended December 31, 2021 and other items throughout the Form 10-K, the Firm’s Quarterly Reports on Form 10-Q and the Firm’s Current Reports on Form 8-K, including any amendments thereto.

¹ Includes preferred dividends related to the calculation of earnings per share for the fourth quarter of 2022 and 2021 of approximately $123 million and $104 million, respectively. Includes preferred dividends related to the calculation of earnings per share for the years ended 2022 and 2021 of approximately $489 million and $468 million, respectively.

² The Firm recorded severance costs of $133 million in the fourth quarter of 2022, associated with a December employee action, which was reported in the business segments’ results as follows: Institutional Securities $88 million, Wealth Management $30 million and Investment Management $15 million.

³ The Firm prepares its Consolidated Financial Statements using accounting principles generally accepted in the United States (U.S. GAAP). From time to time, Morgan Stanley may disclose certain “non-GAAP financial measures” in the course of its earnings releases, earnings conference calls, financial presentations and otherwise. The Securities and Exchange Commission defines a “non-GAAP financial measure” as a numerical measure of historical or future financial performance, financial position, or cash flows that is subject to adjustments that effectively exclude, or include amounts from the most directly comparable measure calculated and presented in accordance with U.S. GAAP. Non-GAAP financial measures disclosed by Morgan Stanley are provided as additional information to analysts, investors and other stakeholders in order to provide them with greater transparency about, or an alternative method for assessing our financial condition, operating results, or capital adequacy. These measures are not in accordance with, or a substitute for U.S. GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies. Whenever we refer to a non-GAAP financial measure, we will also generally define it or present the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP, along with a reconciliation of the differences between the non-GAAP financial measure we reference and such comparable U.S. GAAP financial measure.

⁴ Our earnings releases, earnings conference calls, financial presentations and other communications may also include certain metrics which we believe to be useful to us, analysts, investors, and other stakeholders by providing further transparency about, or an additional means of assessing, our financial condition and operating results.

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

⁶ The Firm’s and business segment’s fourth quarter and full year results for 2022 and 2021 include integration-related expenses as a result of the E*TRADE and Eaton Vance acquisitions reported in the Wealth Management segment and Investment Management segment, respectively. The amounts are presented as follows (in millions):

⁷ Pre-tax margin represents income before taxes divided by net revenues. Wealth Management pre-tax margin excluding the integration-related expenses represents income before taxes less those expenses divided by net revenues. Wealth Management pre-tax margin excluding integration-related expenses is a non-GAAP financial measure that the Firm considers useful for analysts, investors and other stakeholders to allow comparability of period-to-period operating performance.

⁸ Pre-tax income represents income before provision for income taxes.

⁹ The Firm’s full year expense efficiency ratio of 73.2% represents total non-interest expenses as a percentage of net revenues. The Firm expense efficiency ratio excluding integration-related expenses of 72.4% represents total non-interest expenses adjusted for integration-related expenses as a percentage of net revenues. The Firm expense efficiency ratio excluding integration-related expenses is a non-GAAP financial measure that the Firm considers useful for analysts, investors and other stakeholders to allow comparability of period-to-period operating performance.

¹⁰ Wealth Management fee-based client assets represent the amount of assets in client accounts where the basis of payment for services is a fee calculated on those assets.

¹¹ Wealth Management fee-based asset flows include net new fee-based assets (including asset acquisitions), net account transfers, dividends, interest, and client fees, and exclude institutional cash management related activity.

¹² Wealth Management net new assets represent client inflows, including dividends and interest, and asset acquisitions, less client outflows, and exclude activity from business combinations/divestitures and the impact of fees and commissions.

¹³ AUM is defined as assets under management or supervision.

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

¹⁵ Transactional revenues include investment banking, trading, and commissions and fee revenues.

¹⁶ Capital ratios are estimates as of the press release date, January 17, 2023.

¹⁷ CET1 capital is defined as Common Equity Tier 1 capital. The Firm’s risk-based capital ratios are computed under each of the (i) standardized approaches for calculating credit risk and market risk risk‐weighted assets (RWAs) (the “Standardized Approach”) and (ii) applicable advanced approaches for calculating credit risk, market risk and operational risk RWAs (the “Advanced Approach”). For information on the calculation of regulatory capital and ratios, and associated regulatory requirements, please refer to "Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Regulatory Requirements" in the Firm’s Annual Report on Form 10-K for the year ended December 31, 2021 and in the Firm’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022.

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

¹⁹ The Firm’s supplementary leverage ratio (SLR) utilizes a Tier 1 capital numerator of approximately $77.2 billion and $83.3 billion, and supplementary leverage exposure denominator of approximately $1.40 trillion and $1.48 trillion, for the fourth quarter of 2022 and 2021, respectively.

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