Morgan Stanley 2010 Annual Report Download - page 55

Overview of 2010 Financial Results.
Consolidated Review. The Company recorded net income applicable to Morgan Stanley of $4,703 million in
2010, a 249% increase from $1,346 million in 2009.
Net revenues increased 35% to $31,622 million in 2010 from $23,434 million in 2009, primarily driven by the
Institutional Securities business segment and MSSB. Net revenues in 2010 included negative revenues of $873
million due to the tightening of the Company’s credit spreads on certain of the Company’s long-term and short-
term borrowings, primarily structured notes, for which the fair value option was elected, compared with negative
revenues of $5,510 million in 2009 due to the tightening of the Company’s credit spreads on such borrowings. In
addition, results for 2010 included a pre-tax gain of $668 million from the sale of the Company’s investment in
China International Capital Corporation Limited (“CICC”). Non-interest expenses increased 13% to
$25,420 million in 2010. Compensation and benefits expense increased 11% and non-compensation expenses
increased 17%, primarily due to increased compensation costs and non-compensation costs in the Global Wealth
Management Group business segment, primarily due to MSSB. The increase was also due to a charge of $272
million related to the U.K. government’s payroll tax on discretionary bonuses reflected in 2010 compensation
and benefits expense. Diluted EPS were $2.63 in 2010 compared with $(0.77) in 2009. Diluted EPS from
continuing operations were $2.44 in 2010 compared with $(0.82) in 2009.
The Company’s effective income tax rate from continuing operations was 11.9% in 2010. The effective tax rate
for 2010 includes tax benefits of $382 million related to the reversal of U.S. deferred tax liabilities associated
with prior-years’ undistributed earnings of certain non-U.S. subsidiaries that were determined to be indefinitely
reinvested abroad, $345 million associated with the remeasurement of net unrecognized tax benefits and related
interest based on new information regarding the status of federal and state examinations, and $277 million
associated with the planned repatriation of non-U.S. earnings at a cost lower than originally estimated. Excluding
the benefits noted above, the effective tax rate from continuing operations in 2010 would have been 28.0%. The
annual effective tax rate in 2010 is reflective of the geographic mix of earnings.
The Company’s effective income tax rate from continuing operations was a benefit of 34.7% in 2009. The
effective tax rate for 2009 includes a tax benefit of $331 million resulting from the cost of anticipated repatriation
of non-U.S. earnings at lower than previously estimated tax rates. Excluding this benefit, the annual effective tax
rate from continuing operations for 2009 would have been a benefit of 1.0%. The annual effective tax rate in
2009 is reflective of the geographic mix of earnings and includes tax benefits associated with the anticipated use
of domestic tax credits and the utilization of state net operating losses.
Discontinued operations for 2010 included: a loss of $1.2 billion due to a writedown and related costs associated
with the planned disposition of Revel Entertainment Group, LLC (“Revel”), a development stage enterprise and
subsidiary of the Company that is primarily associated with a development property in Atlantic City, New Jersey;
a gain of $775 million related to a legal settlement with Discover Financial Services (“DFS”); and an after-tax
gain of approximately $570 million related to the Company’s sale of Retail Asset Management, including Van
Kampen Investments, Inc. (“Van Kampen”), to Invesco.
Institutional Securities. Income from continuing operations before income taxes was $4,338 million in 2010
compared with $1,088 million in 2009. Net revenues were $16,366 million in 2010 compared with $12,853
million in 2009. Investment banking revenues decreased 4%, reflecting lower revenues from equity underwriting
and lower advisory fees from merger, acquisition and restructuring transactions, partially offset by higher
revenues from fixed income underwriting. Investment banking revenues in 2010 were also impacted by the
deconsolidation of the majority of the Company’s Japanese investment banking business as a result of the closing
of the transaction between the Company and MUFG to form a joint venture in Japan (the “MUFG Transaction”)
(see “Other Matters—Japan Securities Joint Venture” herein). Equity sales and trading revenues increased 31%
to $4,840 million in 2010 from $3,690 million in 2009. Equity sales and trading revenues reflected negative
revenue of approximately $121 million in 2010 due to the tightening of the Company’s credit spreads resulting
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