Oct 18 - Third-quarter 2012 (3Q'12) operating profitability for Morgan
Stanley improved as expected after a difficult 2Q'12, according to Fitch
Ratings. Morgan Stanley continues to manage liquidity and funding conservatively
and posted further growth in estimated Basel III capital. The latest results
have no rating implications.
Revenues (ex. DVA) rebounded from a subdued 2Q'12 reflecting better market
conditions including: general spread tightening in fixed income markets, higher
equity markets, and low absolute interest rates. These conditions resulted in a
sharp rebound in the institutional securities segment (ex. DVA) including
stronger fixed income market revenues and a high volume of bond issuance.
Morgan Stanley recorded continued margin expansion in its global wealth
management (GWM) segment. The pre-tax operating margin has been gradually
improving in recent quarters and reached 13% versus 12% in 2Q'12. Morgan Stanley
will likely meet its margin expansion targets for 2013 as operating efficiencies
continue to be achieved. The firm took a previously disclosed $193 million
charge (after-tax) related to further integration of the Morgan Stanley Smith
Barney (MSSB) joint venture. Morgan Stanley raised its stake in MSSB to 65%
from 51% in 3Q'12 for $1.9 billion in cash. Please see 'MSSB Deal Positive for
Morgan Stanley; Less So for Citi' dated Sept. 11, 2012.
Morgan Stanley continues to manage liquidity conservatively and remains focused
on building capital, particularly in view of pending Basel III requirements.
Morgan Stanley's global liquidity reserve stood at $170 billion at quarter end,
in line with 1Q'12 and year-end 2011 levels. Reliance on short-term unsecured
funding is minimal and Morgan Stanley has greatly increased the weighted average
maturity (WAM) of its secured funding over the course of the year.
VaR declined in 3Q'12 in view of management's continued focus on more liquid and
less volatile trading products as well as a cautious approach towards risk
generally. This decrease likely also reflects lower market volatility versus
The Tier I common ratio (under Basel I) improved further to 13.7% compared with
12.7% at year-end 2011. This ratio continues to compare favorably to the average
of the large U.S. trading/diversified banks. Under Basel III, Morgan Stanley's
Tier I common ratio is estimated by management to be over 9%, moderately above
average among major U.S. competitors.