Morgan Stanley · NYSE:MS
Morgan Stanley — Debt Investor Presentation (March 2016)
33 slides from Morgan Stanley's debt investor presentation, Mar 16, 2016
Slide 1: Morgan Stanley 4Q15 Fixed Income Investor Update
Morgan Stanley 4Q15 Fixed Income Investor Update March 16, 2016
Slide 2: Notice
Notice The information provided herein may include certain non-GAAP financial measures. The reconciliation of such measures to the comparable GAAP figures are included in the Company’s Annual Report on Form 10-K, Definitive Proxy Statement, Quarterly Reports on Form 10-Q and the Company’s Current Re
Slide 3: Agenda
Agenda Business Update Section 1 Liability Management Section 2 Regulatory Topics Section 3 Liquidity Management Section 4 MORGAN STANLEY 4Q15 FIXED INCOME INVESTOR UPDATE | MARCH 16, 2016 3
Slide 4: Strategy: Multi-Year Transformation of Business Mix
1 Strategy: Multi-Year Transformation of Business Mix Full Year 2009 Net Revenues, ex-DVA: Full Year 2015 Net Revenues, ex-DVA: $28.7Bn (1)(2) $34.5Bn (1)(2) Investment Investment Investment Management Banking Investment Management Banking Equity Sales and Trading (ex-DVA) Wealth Wealth Equity Sales
Slide 5: Execution: Mark to Market on 2015 Strategic Plan
Execution: Mark to Market (1) on 2015 Strategic Plan Ongoing Wealth Management upside through additional 1 Achieved FY 2015 22% pre-tax margin (2) margin improvement Continued execution of U.S. Bank strategy in Wealth Management and Achieved 46% NII growth in U.S. Banks vs. 2 2014 in a flat rate env
Slide 6: Path to 10% ROE
Path to 10% ROE A Capital Sufficiency B Expense Efficiency C Wealth Management Revenue Growth D Capital Return MORGAN STANLEY 4Q15 FIXED INCOME INVESTOR UPDATE | MARCH 16, 2016 6
Slide 7: Firm Has Sufficient Capital to Support Our Business
A Firm Has Sufficient Capital to Support Our Business (1) (2) (3) (4) (5) KEY CAPITAL REQUIREMENT 1Q14 4Q15 REQUIREMENT Pro Forma Common Equity Tier 1 Ratio 11.6% 14.0% 10% in 2019 Advanced, Fully Phased-in Pro Forma Supplementary Leverage Ratio 4.2% 5.8% 5% in 2018 Fully Phased-in Continued Continu
Slide 8: Reducing Capital Allocated to Fixed Income and Commodities
Reducing Capital Allocated to Fixed Income and Commodities • We significantly exceeded our 2015 RWA year-end target of <$180Bn • We have set new targets of <$110Bn RWA and <$250Bn SLR exposure Fixed Income and Commodities (Excluding Lending) (1) 3Q15 4Q15 (2) (3) YE 2017 END STATE REDUCTION Pro Form
Slide 9: Restructuring the Fixed Income and Commodities Businesses
Restructuring the Fixed Income and Commodities Businesses ACTION PLAN ONGOING • Recently announced management changes strengthened the FIC team • Headcount reduction of 25% on strategic lines in December 2015; generates significant compensation run-rate savings in 2016 • Ongoing reduction of capital
Slide 10: Continued Compensation Expense Discipline
B Continued Compensation Expense Discipline • The 2015 ISG compensation ratio, ex DVA of 37% exceeded the target of < 39% • We intend to stay <37% in ISG and have set 2017 compensation ratio targets for Wealth Management and Investment Management Institutional Securities, ex-DVA (1) <39% 37% <37% 20
Slide 11: Next Phase of Expense Reduction: Project Streamline 2016 – 2017
Next Phase of Expense Reduction: Project Streamline 2016 – 2017 ONGOING FOCUS ON • Ongoing area of focus and execution with benefit over the medium term STRUCTURALLY SIMPLIFYING THE ORGANIZATION • Acceleration of ongoing efforts to further optimize location strategy in first half of 2016; LOCATION a
Slide 12: Expense Efficiency
Expense Efficiency • The 2015 Firm expense efficiency ratio of 77% exceeded the target of 79% • Through the FIC restructuring, a renewed Firmwide expense reduction plan, and continued compensation discipline, we will drive our efficiency ratio to 74%, in a flat revenue environment Firm Expense Effic
Slide 13: Continued High Quality Lending in Wealth Management
C Continued High Quality Lending in Wealth Management Percentage of Wealth Management Clients With a Wealth Management Lending in U.S. Banks (1) Loan at Morgan Stanley (2) 15% 80 15% 12% ~$70Bn 9% 70 10% ~$60Bn 60 5% $49Bn 0% 50 4 2013 2014 2015 40 $38Bn 3 21 3.0% 30 16 2.0% 2.0% 1.6% 20 1.3% 10 25
Slide 14: Wealth Management Margin Potential Driven By Revenue Growth and Expense Discipline
Wealth Management Margin Potential Driven By Revenue Growth and Expense Discipline FY 2015 PRE-TAX MARGIN (1) 22% 1.1 Net Interest Income Growth • Wealth Management ~$20Bn lending growth through YE 2017 will drive NII ~0.75% – 1.75% upside in U.S. Banks • Deposits in Bank Deposit Program (BDP) of $1
Slide 15: Continued Return of Capital to Shareholders
D Continued Return of Capital to Shareholders • Our goal is to continue to increase our dividends and buybacks over time, subject to regulatory approval Morgan Stanley’s Capital Returns (1) $0.60 In 2012 and 2013, the Firm acquired the remaining 14% and 35% interest of the Wealth Management JV, resp
Slide 16: Path to a Return on Equity of 10% and Higher
Path to a Return on Equity of 10% and Higher Target Return on Equity Key Drivers • $1Bn+ compensation and non- TANGIBLE compensation savings, assuming flat 9% – 11% EXPENSE revenue environment (not including any TARGETS one-time outsized litigation expense or penalties) 7% • Wealth Management margin
Slide 17: Liability Management: Centralized Structure and Strong Governance
2 Liability Management: Centralized Structure and Strong Governance • Liability management framework supported by strong, centralized governance, ensuring funding durability and providing stability in all environments PRIMARY SOURCES OF FUNDING % OF FUNDING SINCE 3Q13 Weighted average maturity of ~6
Slide 18: Unsecured Borrowings: Key Source of Funding Across a Variety of Products
Unsecured Borrowings: Key Source of Funding Across a Variety of Products • In 2015, we issued ~$34Bn of unsecured debt, which includes: – ~$32Bn of senior unsecured debt – $2Bn of subordinated debt • Issued $1.5Bn of perpetual preferred in 1Q15 Unsecured Debt Issuance ($Bn) 14 12 10 8 6 4 2 0 1Q15 2
Slide 19: Deposits Grounded in Deep Client Relationships
Deposits Grounded in Deep Client Relationships Further growth in deposits will be aligned with the lending strategy and Firm priorities • Our deposit base has increased significantly since 2011 through onboarding deposits from our former Wealth Management joint venture partner • With the completion
Slide 20: Deposits Have Grown Steadily Over the Last 5 Years
Deposits Have Grown Steadily Over the Last 5 Years Due to Transfers from Former JV Partner and Organic Growth Morgan Stanley’s Bank Deposit Program (BDP) Balances (1) (2) ($Bn) 180 150 ~$132 120 90 ~$70 60 ~$55 30 0 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
Slide 21: Deposit Strategy Supported By Three Core Principles
Deposit Strategy Supported By Three Core Principles • Key near-term focus is to optimize existing deposit levels to support loan growth • Durability • Component of full-service wealth manager 1 Strategic Value • Liquidity Coverage Core Principles to Ratio (LCR) Value • Contingent Funding Plan Evalua
Slide 22: Our Existing Deposits Are A Stable Source of Funding
Our Existing Deposits Are A Stable Source of Funding MORGAN STANLEY’S BANK DEPOSIT PROGRAM • BDP is the primary sweep for clients’ excess cash – effectively working capital in client accounts • A key product offering to our Wealth Management customers, our deposits are sticky and stable Total BDP Ba
Slide 23: Liquidity Value of Morgan Stanley's Existing Deposit Levels Can Increase
Liquidity Value of Morgan Stanley’s Existing Deposit Levels Can Increase • Opportunities to increase liquidity value of deposit levels Firmwide Deposits ($Bn) (1) BDP Deposits: $149Bn (1) Pro Forma LCR (1),(2),(3) Total Deposits: $156Bn LCR 100% Runoff $7Bn Uninsured Deposits 1% LCR Runoff Value 27%
Slide 24: Ongoing Optimization and Growth of Deposits
Ongoing Optimization and Growth of Deposits OPPORTUNITY TIMEFRAME DESCRIPTION DRIVERS Expected • Optimization of existing client • Regulatory change from end of cash management products • Deposit insurance Maximize liquidity 2015 – 2016 value of deposits Over time • Primarily through BDP; • Client a
Slide 25: Four Pillars of Secured Funding Ensure Durability and Stability
Four Pillars of Secured Funding Ensure Durability and Stability 1 Significant Weighted Average Maturity • Enhances durability 2 Maturity Limit Structure • Reduces roll-over risk 3 Investor Limit Structure • Minimizes concentration with any single investor, in aggregate and in any given month 4 Spare
Slide 26: Underlying Principles of the Four Pillars of Secured Funding
Underlying Principles of the Four Pillars of Secured Funding 1 SIGNIFICANT WEIGHTED AVERAGE MATURITY (WAM) 2 MATURITY LIMIT STRUCTURE • Criteria-based model sources appropriate term funding • Target less than 15% of non-Super Green(2) liabilities maturing consistent with liquidity profile of underly
Slide 27: Strict Governance Framework Ensures Appropriate Term Consistent with Asset Fundability
Strict Governance Framework Ensures Appropriate Term Consistent with Asset Fundability • Rules-based criteria determine asset fundability • Highly Liquid (Governments, FUNDABILITY CRITERIA Agencies, Open Market Operations and Central Clearing Counterparty • Eligible for financing through Open Market
Slide 28: Strong Liquidity and Leverage Ratios
3 Strong Liquidity and Leverage Ratios (1) Pro Forma Liquidity Coverage Ratio (2) • The Company is compliant with the U.S. LCR requirements Pro Forma Fully Phased-In U.S. Supplementary Leverage Ratio (3) (%) 6.0% 5.8% 5.5% 5.5% 5.3% 5.1% 2018 Requirement: 5% 5.0% 4.7% 4.5% 4.0% 4Q14 1Q15 2Q15 3Q15 4
Slide 29: Common Equity Tier 1 Ratios Above 2019 Fully Phased-in GSIB Surcharge Requirement
Common Equity Tier 1 Ratios Above 2019 Fully Phased-in GSIB Surcharge Requirement 4Q15 Pro Forma Fully Phased-In Common Equity Tier 1 Ratio (1),(2) GSIB Buffers (3) (%) (%) 16.0% 14.8% (3) 14.0% JPMORGAN CHASE 3.5% 14.0% 12.0% CITIGROUP 3.5% 10.0% 10.0% BANK OF AMERICA 3.0% BUFFERS: 8.0% • GSIB Surc
Slide 30: Significant Global Liquidity Position
4 Significant Global Liquidity Position Period End Liquidity Composition of the Liquidity Reserve at 4Q15 ($Bn) TYPE OF INVESTMENT ($Bn) $250 CASH / CASH EQUIVALENTS 50 $202 $203 $200 $193 UNENCUMBERED LIQUID SECURITIES 153 $182 $182 $171 TOTAL 203 $150 $63 $89 $94 $71 $88 $68 Detailed Breakdown of
Slide 31: Appendix
Morgan Stanley Appendix
Slide 32: Extending Maturity Profile of Unsecured Borrowings
Extending Maturity Profile of Unsecured Borrowings Total Short-Term and Long-Term Maturities (1),(2),(3) ($Bn) $40 $34 4Q15 Weighted Average $30 Maturity: 6.1 years $24 $23 $22 $19 $19 $18 $20 $18 $17 $10 $9 $8 $9 $8 $7 $7 $6 $3 $0 1. As of December 31, 2015. 2. Total short-term and long-term maturi
Slide 33: Morgan Stanley 4Q15 Fixed Income Investor Update
Morgan Stanley 4Q15 Fixed Income Investor Update March 16, 2016
Morgan Stanley — Debt Investor Presentation (March 2016) on 6ix