Morgan Stanley 2014 Annual Report Download - page 68

higher non-compensation expenses, reflecting increased legal expenses related to certain legacy residential
mortgage matters, and higher compensation expense (see “Other Matters—Legal” herein and “Contingencies—
Legal” in Note 13 to the Company’s financial statements in Item 8 and “Business Segments—Compensation
Expense—Discretionary Incentive Compensation” herein).
Wealth Management. Income from continuing operations before taxes was $2,985 million in 2014 compared with
$2,604 million in 2013. Net revenues were $14,888 million in 2014 compared with $14,143 million in 2013.
Transactional revenues, consisting of Investment banking, Trading, and Commissions and fees, decreased 10%
from 2013 to $3,875 million in 2014. Investment banking revenues decreased 14% from 2013 to $791 million in
2014, primarily due to lower levels of underwriting activity in closed-end funds partially offset by higher revenues
from structured products. Trading revenues decreased 18% from 2013 to $957 million in 2014, primarily due to
lower gains related to investments associated with certain employee deferred compensation plans and lower
revenues from fixed income products. Commissions and fees revenues decreased 4% from 2013 to $2,127 million
in 2014, primarily due to lower equity, insurance and mutual fund activity. Asset management, distribution and
administration fees increased 10% from 2013 to $8,345 million in 2014, primarily due to higher fee-based revenues
partially offset by lower revenues from referral fees from the bank deposit program. Net interest increased 25%
from 2013 to $2,339 million in 2014, primarily due to higher lending balances and growth in loans and lending
commitments in Portfolio Loan Account (“PLA”) securities-based lending products. Non-interest expenses
increased 3% from $11,539 million in 2013 to $11,903 million in 2014 primarily due to higher compensation
expenses, which were partially offset by lower non-compensation expenses. Total client asset balances were $2,025
billion and total client liability balances were $51 billion at December 31, 2014. Balances in the bank deposit
program were $137 billion at December 31, 2014, which included deposits held by Company-affiliated Federal
Deposit Insurance Corporation (“FDIC”) insured depository institutions of $128 billion at December 31, 2014.
Client assets in fee-based accounts were $785 billion, or 39% of total client assets, at December 31, 2014. Fee-based
client asset flows for 2014 were $58.8 billion compared with $51.9 billion in 2013.
Investment Management. Income from continuing operations before taxes was $664 million in 2014 compared
with $1,008 million in 2013. Net revenues were $2,712 million in 2014 compared with $3,059 million in 2013.
The decrease in net revenues was primarily related to lower net investment gains and the non-recurrence of an
additional allocation of fund income to the Company as general partner, in 2013 upon exceeding cumulative fund
performance thresholds (“carried interest”) in the Company’s Merchant Banking and Real Estate Investing
businesses and lower gains from investments in the Company’s deferred compensation and co-investment plans.
Results also reflected lower revenues from the prior year on investments in the Real Estate Investing business
driven by the deconsolidation in the second quarter of 2014 of certain legal entities associated with a real estate
fund sponsored by the Company. Non-interest expenses of $2,048 million in 2014 were essentially unchanged
from 2013.
Business Segments.
Substantially all of the Company’s operating revenues and operating expenses are directly attributable to its
business segments. Certain revenues and expenses have been allocated to each business segment, generally in
proportion to its respective net revenues, non-interest expenses or other relevant measures.
As a result of treating certain intersegment transactions as transactions with external parties, the Company
includes an Intersegment Eliminations category to reconcile the business segment results to the Company’s
consolidated results. Intersegment Eliminations also reflect the effect of fees paid by the Company’s Institutional
Securities business segment to the Company’s Wealth Management business segment related to the bank deposit
program.
Net Revenues.
Trading. Trading revenues include revenues from customers’ purchases and sales of financial instruments in
which the Company acts as a market maker as well as gains and losses on the Company’s related positions.
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