Morgan Stanley Enjoys $1.3 Billion Tax Benefit

By Mani
Updated on

Morgan Stanley (NYSE:MS) said it would book a $1.3 billion tax benefit during the fourth quarter, as it converted its wealth business to a corporation from a partnership.

In its 10-Q filing, Morgan Stanley (NYSE:MS) also disclosed that it has enhanced other expenses for the quarter nine months ended September 30, 2014 by $30 million after additional wealth-management clients came forward to rescind trades they’d made.

Change in Morgan Stanley’s tax status

In a regulatory filing Tuesday, the Wall Street firm said that it had converted Morgan Stanley Smith Barney from a partnership to a corporation. This switch facilitated the firm to release a deferred tax liability for which it had previously accounted. The firm indicated that in accordance with U.S. GAAP, this net tax benefit of approximately $1.3 billion will be recognized in income from continuing operations on the consolidated statements of income for the three month period and full year ending December 31, 2014.

After a lengthy transition process, Morgan Stanley (NYSE:MS) bought out Citigroup Inc. (NYSE:C)’s stake in the wealth management joint venture the two banks created, acquiring the last 35% of the business last year.

The Wall Street firm said in a letter to fund companies that it would swallow some losses incurred by customers who bought mutual funds after the bank didn’t make prospectuses accessible online. On Tuesday, Morgan Stanley (NYSE:MS) said the previously estimated $20 million of expenses related to the offer, and had to increase that by $30 million when more customers accepted in October.

Potential legal claims

As reported by us, last month Morgan Stanley (NYSE:MS) unveiled the earning results for its third quarter posting earnings from continuing operations of 84 cents per share on $8.9 billion revenue.

The latest addition of $30 million to its third-quarter expenses has trimmed 1 cent from its per-share earnings.

Morgan Stanley (NYSE:MS) also disclosed Tuesday that it is responding to potential legal claims from government entities, including the U.S. Department of Justice and several state attorneys general over mortgage securities. The matters pertain to investigations over its due diligence on loans it purchased for securitization, its communications with ratings agencies, disclosures to investors and its handling of servicing and foreclosure-related issues.

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