In its 3Q15 earnings release on October 19, 2015, Morgan Stanley (MS) reported a 13% fall in net revenues, including interest income. The company’s non-interest expenses fell 6% to $6.3 billion in 3Q15 compared to the prior year’s quarter. It’s non-interest expenses include compensation and benefits, occupancy and equipment, brokerage and clearing, information processing, marketing and business development, and other expenses.
Morgan Stanley’s compensation expenses fell 18% to $3.4 billion in 3Q15. This was mainly driven by lower revenues. Compensation expenses for institutional securities dropped to $1.3 billion from $1.8 billion in the prior year quarter. Expenses also went down 10% for its Wealth Management division in the quarter.
Compensation expenses have fallen due to lower trading activity, lower performance in asset management, and a decrease in the fair value of deferred compensation plan referenced investments.
Morgan Stanley reported non-compensation expenses of $2.9 billion, up 9% compared to $2.6 billion in the previous quarter. This was primarily driven by an increase in litigation reserves, which included an increase related to the settlement of the credit default swap antitrust litigation matter. The company’s effective tax rate of approximately 29% was lower than last quarter, driven by a geographic mix of earnings.
Morgan Stanley posted a pre-tax margin of 19% in 3Q15 compared to 28% in the previous quarter and 25% in the prior year quarter.
The company posted a net income margin of 9.7% in the last fiscal year. Let’s compare this to the margins of Morgan Stanley’s peers:
- Goldman Sachs (GS) – 21.1%
- JPMorgan Chase (JPM) – 23.1%
- Bank of America (BAC) – 5.7%
- Wells Fargo (WFC) – 28.0%
Together, these banks make up approximately 21% of the Vanguard Financials ETF (VFH).