Morgan Stanley 2015 Annual Report Download - page 51

(13) The calculation of return on average tangible common equity equals net income applicable to Morgan Stanley less
preferred dividends as a percentage of average tangible common equity. To determine the return on average tangible
common equity, excluding DVA, and excluding DVA and net discrete tax benefits, both the numerator and the
denominator were adjusted to exclude the impact of DVA and the impact of net discrete tax benefits. The impact of
DVA was 0.8%, 0.9% and (0.8)% in 2015, 2014 and 2013, respectively. The impact of net discrete tax benefits was
0.9%, 3.9% and 0.8% in 2015, 2014 and 2013, respectively.
(14) Tangible book value per common share equals tangible common equity of $58,098 million at December 31, 2015 and
$55,138 million at December 31, 2014 divided by common shares outstanding of 1,920 million at December 31, 2015
and 1,951 million at December 31, 2014.
Return on Equity Target.
The Company is aiming to improve its returns to shareholders, and has established a target of achieving a 9% to 11% return
on average common equity excluding DVA (“Return on Equity”) by 2017, subject to the successful execution of its strategic
objectives.
The Company plans to progress toward achieving its Return on Equity target through the following key elements of its
strategy:
• Revenue and profitability growth:
• Wealth Management pre-tax margin improvement to approximately 23% to 25% through net interest income
growth via continued high quality lending, expense efficiency and business growth;
• Continued strength in Investment Banking and Equity Sales and Trading results;
• Steady performance in Investment Management;
• Expense efficiency:
• Achieve an expense efficiency target ratio excluding DVA of 74%, assuming a flat revenue environment (not
including any outsized litigation expense or penalties);
• Sufficient capital:
• Continuing to right-size the Fixed Income and Commodities Sales and Trading business from an operational
and capital standpoint; and
• Increasing capital returns to shareholders, subject to regulatory approval.
The Company’s Return on Equity target and its related strategies, goals and targets are forward-looking statements that may
be materially affected by many factors including, among other things: macroeconomic and market conditions; legislative and
regulatory developments; industry trading and investment banking volumes; equity market levels; interest rate environment;
legal expenses; capital levels; and discrete tax items. Given the uncertainties surrounding these and other factors, there are
significant risks that the Company’s Return on Equity target and its related strategies and targets may not be realized. Actual
results may differ from goals and targets, and the differences may be material and adverse. Accordingly, the Company
cautions that undue reliance should not be placed on any of these forward-looking statements. See “Forward-Looking
Statements” immediately preceding Part I, Item 1, and “Risk Factors” in Part I, Item 1A, for additional information regarding
these forward-looking statements.
Return on Equity, excluding DVA, and pre-tax margin are non-GAAP financial measures that the Company considers to be
useful measures to the Company’s investors to assess operating performance. The Company’s expense efficiency ratio,
excluding DVA, represents total non-interest expenses as a percentage of net revenues, excluding DVA. For 2015, the
Company’s expense efficiency ratio was 77%, which was calculated as non-interest expenses of $26,660 million divided by
net revenues of $34,537 million, which excludes the positive impact of $618 million from DVA. The expense efficiency
ratio, excluding DVA, is a non-GAAP financial measure that the Company considers useful for investors to assess operating
performance.
Global Market and Economic Conditions.
During the first half of 2015, global growth was supported by a rebound in the U.S. and firmer growth in the euro zone and
the United Kingdom (“U.K.”) economies, partially offset by sluggishness in major emerging market economies. During the
second half of 2015, global growth slowed as a result of the continued sluggishness of emerging market economies, declines
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