Morgan Stanley 2014 Annual Report Download - page 84

Asset Management.
Asset Management, Distribution and Administration Fees. Asset management, distribution and administration
fees increased 7% from 2012 to $7,571 million in 2013, primarily due to higher fee-based revenues, partially
offset by lower revenues from referral fees from the bank deposit program. The referral fees for deposits placed
with Citi-affiliated depository institutions declined to $240 million in 2013 from $383 million in 2012. Lower
revenues from the bank deposit program and the decrease in referral fees were both due to the ongoing transfer of
deposits to the Company from Citi.
Balances in the bank deposit program were $134 billion at December 31, 2013 from $131 billion at
December 31, 2012, which included deposits held by the Company’s U.S. Subsidiary Banks of $104 billion at
December 31, 2013 and $72 billion at December 31, 2012.
Client assets in fee-based accounts increased to $697 billion and represented 37% of total client assets at
December 31, 2013 compared with $554 billion and 33% at December 31, 2012, respectively. Total client asset
balances increased to $1,909 billion at December 31, 2013 from $1,696 billion at December 31, 2012, primarily
due to the impact of market conditions and higher fee-based client asset flows. Effective from the quarter ended
March 31, 2013, client assets also include certain additional non-custodied assets as a result of the completion of
the Wealth Management JV platform conversion. Fee-based client asset flows for 2013 were $51.9 billion
compared with $26.9 billion in 2012.
Net Interest.
Net interest increased 20% from 2012 to $1,875 million in 2013, primarily due to higher lending balances and
growth in loans and lending commitments in PLA securities-based lending products. In addition, interest expense
declined in 2013 due to the Company’s redemption of all the Class A Preferred Interests owned by Citi and its
affiliates, in connection with the Company’s acquisition of 100% ownership of the Wealth Management
JV effective at the end of the second quarter of 2013. Total client liability balances increased to $39 billion at
December 31, 2013 from $31 billion at December 31, 2012. See “Other Matters—U.S. Subsidiary Banks’
Lending Activities” herein and “Quantitative and Qualitative Disclosures about Market Risk—Credit Risk” in
Item 7A.
Other.
Other revenues increased 25% from 2012 to $390 million in 2013, primarily due to a gain on sale of the U.K.
operation of the Global Stock Plan Services business and realized gains on AFS securities.
Non-interest Expenses.
Non-interest expenses increased 1% in 2013 from 2012. Compensation and benefits expenses increased 6% in
2013 from 2012, primarily due to a higher formulaic payout to Wealth Management representatives linked to
higher net revenues. Non-compensation expenses decreased 9% in 2013 from 2012, primarily driven by the
absence of platform integration costs and non-recurring technology write-offs, partially offset by an impairment
expense related to certain intangible assets (management contracts) associated with alternative investments funds
in 2013 (see Note 9 to the Company’s consolidated financial statements in Item 8).
Income Tax Items.
In 2014, the Company recognized in Provision for (benefit from) income taxes a discrete tax benefit of
$1,390 million, attributable to its Wealth Management business segment, due to the release of a deferred tax
liability as a result of an internal restructuring to simplify the Company’s legal entity organization. For a further
discussion of the discrete tax benefit, see “Other Matters —Income Tax Matters” herein.
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