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Morgan Stanley’s Q3 Losses Driven by Volatility in Global Markets

commercial-falling-money [1]Investment banking firm Morgan Stanley [2]’s net revenues for the third quarter of 2015 were down by more than $1 billion from Q3 2014, according to the firm’s Q3 2015 earnings statement [3] released Monday.

Morgan Stanley reported net revenues of $7.8 billion for the quarter ending September 30, 2015, compared to net revenues of $8.9 billion from the same reporting period a year earlier. Net income applicable to Morgan Stanley for Q3 was also down from a year ago, from $1.7 billion at the end of Q3 2014 ($0.83 per diluted share) to $1.0 billion at the end of Q3 2015 ($0.48 per diluted share).

Excluding the debt valuation adjustment (DVA), Morgan Stanley’s net revenues for Q3 totaled $7.3 billion, which is down from $8.7 billion in the prior year quarter. Net income applicable to Morgan Stanley excluding DVA for Q3 was $740 million ($0.34 per diluted share), compared to $1.3 billion ($0.64 per diluted share) in Q3 2014.

“The volatility in global markets in the third quarter led to a difficult environment, impacting in particular our Fixed Income business and our Asia Merchant Banking business,” said James P. Gorman, Chairman and CEO of Morgan Stanley. “The firm benefited from the stability of the Wealth Management business, our ongoing leadership in Equities and the continued strength of our Investment Banking franchise. Our business model provides a steady foundation for the firm as we navigate these challenging markets and focus intensely on addressing areas of underperformance.”

10-19 Morgan Stanley graph [4]The lower revenues were the primary driver for a decrease in compensation expense for Morgan Stanley year-over-year in Q3, from $4.2 billion in Q3 2014 down to $3.4 billion at the end of Q3 2015. One area that experienced an increase was non-compensation expenses, which jumped from $2.5 billion at the end of Q3 2014 to $2.9 billion at the end of Q3 2015, reflecting an increase of approximately $250 million in litigation reserves. Those reserves included an increase in the reserve related to the settlement of a credit default swap antitrust litigation matter.

The annualized return on average common equity was 5.6 percent for Q3 2015, or 3.9 percent excluding DVA.