EX-99.1 3 dex991.txt PRESS RELEASE OF THE REGISTRANT DATED MARCH 20, 2003 EXHIBIT 99.1 Contact: Investor Relations Media Relations William Pike Raymond O'Rourke 212-761-0008 212-761-4262 MORGAN STANLEY REPORTS FIRST QUARTER NET INCOME OF $905 MILLION; RETURN ON EQUITY OF 16% NEW YORK, March 20, 2003 -- Morgan Stanley (NYSE: MWD) today reported net income of $905 million for the quarter ended February 28, 2003 -- an increase of 7 percent from the first quarter of 2002 and 24 percent from the fourth quarter of 2002. Diluted earnings per share were $0.82 -- compared to $0.76 a year ago and $0.67 in the fourth quarter. First quarter net revenues (total revenues less interest expense and the provision for loan losses) were $5.5 billion -- 4 percent ahead of first quarter 2002 and 29 percent ahead of fourth quarter 2002. The annualized return on average common equity was 16 percent. Philip J. Purcell, Chairman & CEO, and Robert G. Scott, President, said in a joint statement, "We are pleased with our performance, including our return on equity of 16 percent. This was accomplished in an exceedingly challenging environment characterized by a slumping global economy, declining consumer confidence, and a market consumed by the prospect of war in Iraq. Fixed income markets were the exception, leading to record results in our fixed income business. In addition, Discover had another strong quarter. Our focus on clients has resulted in market share gains in a number of key businesses." INSTITUTIONAL SECURITIES Institutional Securities posted net income of $618 million, 17 percent above last year's first quarter. The increase was driven by record revenues in the Company's fixed income business, offsetting the revenue impact of challenging market conditions on the Company's M&A advisory and equity underwriting businesses. . Fixed income sales and trading net revenues of nearly $1.7 billion were up 48 percent from first quarter 2002. The increase in revenues was broadly based, with strong performances throughout the Company's commodities, credit products, and interest-rate and currency groups. Higher commodities revenues were driven by higher prices and volatilities across major energy markets, while the revenue increases in credit and interest rate products reflected heavier customer volumes and a more favorable trading environment. . Equity sales and trading net revenues rose 5 percent from a year ago to $977 million, primarily as a result of higher market volatility partially offset by declines in customer volumes and lower commissions. . Advisory revenues were $166 million, down 43 percent from last year, due to declining levels of global M&A activity. Industry-wide, global completed M&A transaction volume fell 22 percent compared with first quarter 2002./1/ . Underwriting revenues of $337 million were 8 percent above last year's first quarter. A strong increase in debt underwriting revenues driven by robust levels of fixed income new issue activity was partially offset by lower equity underwriting revenues, reflecting a 60 percent industry-wide decline in equity activity./1/ . The Company ranks second in announced global M&A with a 21 percent market share; second in worldwide equity and equity related issuances with a 13 percent market share; and second in U.S. investment grade debt issuances with an 11 percent market share./2/ ---------- /1/ Source: Thomson Financial Securities Data -- for the periods: December 1, 2001 to February 28, 2002 and December 1, 2002 to February 28, 2003. 2 INDIVIDUAL INVESTOR GROUP The Individual Investor Group reported a $1 million net loss compared to $7 million in net income for the first quarter of 2002, as a result of a decline in net revenues partially offset by lower non-interest expenses. . Net revenues decreased 12 percent from a year ago to $900 million. Retail participation in equity markets fell from last year's levels, and asset management fees declined as a result of a lower level of retail assets under management. . Total client assets of $499 billion were 15 percent lower than the end of last year's first quarter, reflecting in part, declines of 24 percent for the S&P 500 and 23 percent for the Nasdaq. Client assets in fee-based accounts of $106 billion fell 7 percent over the past twelve months. However, the percentage of client assets in fee-based accounts increased to 21 percent from 19 percent a year ago. . At quarter-end, the number of global financial advisors was 12,056 -- a decrease of 490 for the quarter and 2,059 over the past year. INVESTMENT MANAGEMENT Investment Management net income declined 26 percent from last year's first quarter to $106 million. Lower revenues, reflecting a decrease in average assets under management and a continued shift in asset mix away from equity products, drove the earnings decline. . The Company's assets under management declined $52 billion, or 12 percent, from a year ago to $400 billion, primarily as a result of a decline in market values. . Retail assets were $242 billion, $14 billion below the previous quarter and $38 billion below last year's first quarter. Institutional assets of $158 billion decreased $6 billion over the quarter and were $14 billion lower than a year ago. ---------- /2/ Source: Thomson Financial Securities Data--for the period January 1, 2003 to February 28, 2003. 3 . Among full-service brokerage firms, the Company had the highest number of domestic funds (45) receiving one of Morningstar's two highest ratings./3/ In addition, the percent of the Company's fund assets performing in the top half of the Lipper rankings over three years was 70 percent compared to 71 percent a year ago./4/ CREDIT SERVICES Credit Services posted strong first quarter earnings of $182 million, 9 percent higher than the first quarter of 2002. The increase was the result of increases in merchant and cardmember fees, net interest income and other revenue -- partially offset by higher non-interest expenses. Net charge-off and delinquency rates were lower than a year ago. . Managed credit card loans at quarter end rose 5 percent from a year ago to a record $51.8 billion. However, the interest rate spread contracted by 25 basis points over the same period, as a decline in the cost of funds was more than offset by a lower finance charge yield. . Merchant and cardmember fees rose 4 percent to $547 million largely as a result of higher merchant discount fees from increased transaction volume. Transaction volume rose 8 percent from a year ago to a record $26.1 billion, on increased sales and higher balance transfers. . The credit card net charge-off rate declined to 6.17 percent -- 23 basis points below a year ago. The Company's continued focus on credit quality helped improve the contractual loss rate despite continued softness in the U.S. economy. The over-30-day delinquency rate improved 42 basis points to 6.33 percent, and the over-90-day delinquency rate improved 17 basis points to 2.95 percent from the first quarter of 2002. . Non-interest expenses were $608 million, up 7 percent compared to first quarter 2002 -- driven by increases in marketing and advertising expenses, and higher personnel costs. ---------- /3/ Full service brokerage firms include: Merrill Lynch, Citigroup and Prudential. As of February 28, 2003. 4 As of February 28, 2003 the Company had repurchased approximately 4 million shares of its common stock since the end of fiscal 2002. The Company also announced that its Board of Directors declared a $0.23 quarterly dividend per common share. The dividend is payable on April 30, 2003, to common shareholders of record on April 11, 2003. Total capital at February 28, 2003 was $72.4 billion, including $24.5 billion of common shareholders' equity and preferred securities subject to mandatory redemption. Book value per common share was $20.62, based on 1.1 billion shares outstanding. Morgan Stanley is a global financial services firm and a market leader in securities, investment management and credit services. With more than 600 offices in 26 countries, Morgan Stanley connects people, ideas and capital to help clients achieve their financial aspirations. Access this press release on-line @www.morganstanley.com # # # (See Attached Schedules) This release may contain forward-looking statements. These statements reflect management's beliefs and expectations, and are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of the risks and uncertainties that may affect the Company's future results, please see "Certain Factors Affecting Results of Operations" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Competition" and "Regulation" in Part I, Item 1 in the Company's 2002 Annual Report on Form 10-K. ---------- /4/ As of February 28, 2003. 5 MORGAN STANLEY Financial Summary (unaudited, dollars in millions) Quarter Ended ------------------------- Feb 28, Feb 28, % 2003 2002 Change -------- -------- ------ Net revenues Institutional Securities $ 3,161 $ 2,800 13% Individual Investor Group 900 1,019 (12%) Investment Management 519 623 (17%) Credit Services 898 823 9% -------- -------- Consolidated net revenues $ 5,478 $ 5,265 4% ======== ======== Net income/(loss) Institutional Securities $ 618 $ 530 17% Individual Investor Group (1) 7 (114%) Investment Management 106 144 26% Credit Services 182 167 9% -------- -------- Consolidated net income $ 905 $ 848 7% ======== ======== Basic earnings per common share $ 0.84 $ 0.78 8% Diluted earnings per common share $ 0.82 $ 0.76 8% Average common shares outstanding Basic 1,079.1 1,082.4 Diluted 1,099.7 1,113.0 Period end common shares outstanding 1,089.7 1,101.2 Return on common equity 16.3% 16.4% -------- Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 1 MORGAN STANLEY Financial Summary (unaudited, dollars in millions) Quarter Ended ------------------------- Feb 28, Nov 30, % 2003 2002 Change -------- -------- ------ Net revenues Institutional Securities $ 3,161 $ 1,881 68% Individual Investor Group 900 907 (1%) Investment Management 519 541 (4%) Credit Services 898 927 (3%) -------- -------- Consolidated net revenues $ 5,478 $ 4,256 29% ======== ======== Net income/(loss) Institutional Securities $ 618 $ 453 36% Individual Investor Group (1) (31) 97% Investment Management 106 116 (9%) Credit Services 182 194 (6%) -------- -------- Consolidated net income $ 905 $ 732 24% ======== ======== Basic earnings per common share $ .84 $ 0.68 24% Diluted earnings per common share $ .82 $ 0.67 22% Average common shares outstanding Basic 1,079.1 1,074.7 Diluted 1,099.7 1,095.7 Period end common shares outstanding 1,089.7 1,081.4 Return on common equity 16.3% 13.7% -------- Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 2 MORGAN STANLEY Consolidated Income Statement Information (unaudited, dollars in millions) Quarter Ended ----------------------- Feb 28, Feb 28, % 2003 2002 Change -------- -------- ------ Investment banking $ 589 $ 674 (13%) Principal transactions: Trading 1,556 1,132 37% Investments (22) 33 (167%) Commissions 670 777 (14%) Fees: Asset management, distribution and administration 903 1,016 (11%) Merchant and cardmember 363 342 6% Servicing 567 540 5% Interest and dividends 3,789 3,836 (1%) Other 87 196 (56%) -------- -------- Total revenues 8,502 8,546 (1%) Interest expense 2,688 2,936 (8%) Provision for consumer loan losses 336 345 (3%) -------- -------- Net revenues 5,478 5,265 4% -------- -------- Compensation and benefits 2,548 2,489 2% Occupancy and equipment 196 198 (1%) Brok., clearing and exchange fees 191 179 7% Info processing and communications 316 322 (2%) Marketing and business development 269 254 6% Professional services 225 225 -- Other 307 251 22% Restructuring and other charges 0 0 -- -------- -------- Total non-interest expenses 4,052 3,918 3% -------- -------- Income before taxes and dividends on preferred securities subject to mandatory redemption 1,426 1,347 6% Income tax expense 499 477 5% Div. on pref. securities subject to mandatory redemption 22 22 -- -------- -------- Net income $ 905 $ 848 7% ======== ======== Comp & benefits as a % of net rev. 47% 47% ---------- Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 3 MORGAN STANLEY Consolidated Income Statement Information (unaudited, dollars in millions) Quarter Ended ----------------------- Feb 28, Nov 30, % 2003 2002 Change -------- -------- ------ Investment banking $ 589 $ 671 (12%) Principal transactions: Trading 1,556 433 * Investments (22) 16 * Commissions 670 748 (10%) Fees: Asset management, distribution and administration 903 904 -- Merchant and cardmember 363 372 (2%) Servicing 567 523 8% Interest and dividends 3,789 3,790 -- Other 87 120 (28%) -------- -------- Total revenues 8,502 7,577 12% Interest expense 2,688 3,002 (10%) Provision for consumer loan losses 336 319 5% -------- -------- Net revenues 5,478 4,256 29% -------- -------- Compensation and benefits 2,548 1,147 122% Occupancy and equipment 196 221 (11%) Brok., clearing and exchange fees 191 212 (10%) Info processing and communications 316 379 (17%) Marketing and business development 269 329 (18%) Professional services 225 346 (35%) Other 307 230 33% Restructuring and other charges 0 235 * -------- -------- Total non-interest expenses 4,052 3,099 31% -------- -------- Income before taxes and dividends on preferred securities subject to mandatory redemption 1,426 1,157 23% Income tax expense 499 403 24% Div. on pref. securities subject to mandatory redemption 22 22 -- -------- -------- Net income $ 905 $ 732 24% ======== ======== Comp & benefits as a % of net rev. 47% 27% ---------- Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 4 MORGAN STANLEY Institutional Securities Income Statement Information (unaudited, dollars in millions) Quarter Ended ------------------------- Feb 28, Feb 28, % 2003 2002 Change -------- -------- ------ Investment banking $ 503 $ 603 (17%) Principal transactions: Trading 1,425 957 49% Investments (11) 30 (137%) Commissions 415 492 (16%) Asset management, distribution and administration fees 22 25 (12%) Interest and dividends 3,166 3,179 -- Other 61 143 (57%) -------- -------- Total revenues 5,581 5,429 3% Interest expense 2,420 2,629 (8%) -------- -------- Net revenues 3,161 2,800 13% -------- -------- Total non-interest expenses 2,194 1,953 12% -------- -------- Income before taxes and dividends on preferred securities subject to mandatory redemption 967 847 14% Income tax expense 327 295 11% Div. on pref. securities subject to mandatory redemption 22 22 -- -------- -------- Net income $ 618 $ 530 17% ======== ======== Profit margin (1) 20% 19% -------- (1) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 5 MORGAN STANLEY Institutional Securities Income Statement Information (unaudited, dollars in millions) Quarter Ended ------------------------- Feb 28, Nov 30, % 2003 2002 Change -------- -------- ------ Investment banking $ 503 $ 599 (16%) Principal transactions: Trading 1,425 298 * Investments (11) 15 (173%) Commissions 415 465 (11%) Asset management, distribution and administration fees 22 28 (21%) Interest and dividends 3,166 3,098 2% Other 61 91 (33%) -------- -------- Total revenues 5,581 4,594 21% Interest expense 2,420 2,713 (11%) -------- -------- Net revenues 3,161 1,881 68% -------- -------- Total non-interest expenses 2,194 1,139 93% -------- -------- Income before taxes and dividends on preferred securities subject to mandatory redemption 967 742 30% Income tax expense 327 267 22% Div. on pref. securities subject to mandatory redemption 22 22 -- -------- -------- Net income $ 618 $ 453 36% ======== ======== Profit margin (1) 20% 24% -------- (1) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 6 MORGAN STANLEY Individual Investor Group Income Statement Information (unaudited, dollars in millions) Quarter Ended ------------------------- Feb 28, Feb 28, % 2003 2002 Change -------- -------- ------ Investment banking $ 78 $ 62 26% Principal transactions: Trading 131 175 (25%) Investments 0 1 * Commissions 245 274 (11%) Asset management, distribution and administration fees 376 421 (11%) Interest and dividends 74 96 (23%) Other 24 27 (11%) -------- -------- Total revenues 928 1,056 (12%) Interest expense 28 37 (24%) -------- -------- Net revenues 900 1,019 (12%) -------- -------- Total non-interest expenses 903 1,010 (11%) -------- -------- Income/(loss) before income taxes (3) 9 (133%) Income tax expense/(benefit) (2) 2 (200%) -------- -------- Net income/(loss) $ (1) $ 7 (114%) ======== ======== Profit margin (1) 0% 1% -------- (1) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 7 MORGAN STANLEY Individual Investor Group Income Statement Information (unaudited, dollars in millions) Quarter Ended ------------------------- Feb 28, Nov 30, % 2003 2002 Change -------- -------- ------ Investment banking $ 78 $ 65 20% Principal transactions: Trading 131 135 (3%) Investments 0 (1) * Commissions 245 267 (8%) Asset management, distribution and administration fees 376 368 2% Interest and dividends 74 78 (5%) Other 24 24 -- -------- -------- Total revenues 928 936 (1%) Interest expense 28 29 (3%) -------- -------- Net revenues 900 907 (1%) -------- -------- Total non-interest expenses 903 963 (6%) -------- -------- Income/(loss) before income taxes (3) (56) 95% Income tax expense/(benefit) (2) (25) 92% -------- -------- Net income/(loss) $ (1) $ (31) 97% ======== ======== Profit margin (1) 0% (3%) -------- (1) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 8 MORGAN STANLEY Investment Management Income Statement Information (unaudited, dollars in millions) Quarter Ended ------------------------- Feb 28, Feb 28, % 2003 2002 Change -------- -------- ------ Investment banking $ 8 $ 9 (11%) Principal transactions: Trading 0 0 -- Investments (11) 2 * Commissions 10 11 (9%) Asset management, distribution and administration fees 505 570 (11%) Interest and dividends 3 8 (63%) Other 5 24 (79%) -------- -------- Total revenues 520 624 (17%) Interest expense 1 1 -- -------- -------- Net revenues 519 623 (17%) -------- -------- Total non-interest expenses 347 387 (10%) -------- -------- Income before income taxes 172 236 (27%) Income tax expense 66 92 (28%) -------- -------- Net income $ 106 $ 144 (26%) ======== ======== Profit margin (1) 20% 23% ---------- (1) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 9 MORGAN STANLEY Investment Management Income Statement Information (unaudited, dollars in millions) Quarter Ended ------------------------- Feb 28, Nov 30, % 2003 2002 Change -------- -------- ------ Investment banking $ 8 $ 7 14% Principal transactions: Trading 0 0 -- Investments (11) 2 * Commissions 10 16 (38%) Asset management, distribution and administration fees 505 508 (1%) Interest and dividends 3 2 50% Other 5 5 -- -------- -------- Total revenues 520 540 (4%) Interest expense 1 (1) 200% -------- -------- Net revenues 519 541 (4%) -------- -------- Total non-interest expenses 347 373 (7%) -------- -------- Income before income taxes 172 168 2% Income tax expense 66 52 27% -------- -------- Net income $ 106 $ 116 (9%) ======== ======== Profit margin (1) 20% 21% ---------- (1) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 10 MORGAN STANLEY Credit Services Income Statement Information (unaudited, dollars in millions) Quarter Ended ------------------------- Feb 28, Feb 28, % 2003 2002 Change -------- -------- ------ Fees: Merchant and cardmember $ 363 $ 342 6% Servicing 567 540 5% Other (3) 2 * -------- -------- Total non-interest revenues 927 884 5% Interest revenue 546 553 (1%) Interest expense 239 269 (11%) -------- -------- Net interest income 307 284 8% Provision for consumer loan losses 336 345 (3%) -------- -------- Net credit income (29) (61) 52% -------- -------- Net revenues 898 823 9% -------- -------- Total non-interest expenses 608 568 7% -------- -------- Income before taxes 290 255 14% Income tax expense 108 88 23% -------- -------- Net income $ 182 $ 167 9% ======== ======== Profit margin (1) 20% 20% ---------- (1) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 11 MORGAN STANLEY Credit Services Income Statement Information (unaudited, dollars in millions) Quarter Ended ------------------------- Feb 28, Nov 30, % 2003 2002 Change -------- -------- ------ Fees: Merchant and cardmember $ 363 $ 372 (2%) Servicing 567 523 8% Other (3) 0 * -------- -------- Total non-interest revenues 927 895 4% Interest revenue 546 612 (11%) Interest expense 239 261 (8%) -------- -------- Net interest income 307 351 (13%) Provision for consumer loan losses 336 319 5% -------- -------- Net credit income (29) 32 (191%) -------- -------- Net revenues 898 927 (3%) -------- -------- Total non-interest expenses 608 624 (3%) -------- -------- Income before taxes 290 303 (4%) Income tax expense 108 109 (1%) -------- -------- Net income $ 182 $ 194 (6%) ======== ======== Profit margin (1) 20% 21% ---------- (1) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 12 MORGAN STANLEY Credit Services Income Statement Information (unaudited, dollars in millions) (Managed loan basis) Quarter Ended ------------------------- Feb 28, Feb 28, % 2003 2002 Change -------- -------- ------ Fees: Merchant and cardmember $ 547 $ 527 4% Servicing 0 0 -- Other 54 16 * -------- -------- Total non-interest revenues 601 543 11% Interest revenue 1,580 1,611 (2%) Interest expense 441 499 (12%) -------- -------- Net interest income 1,139 1,112 2% Provision for consumer loan losses 842 832 1% -------- -------- Net credit income 297 280 6% -------- -------- Net revenues 898 823 9% -------- -------- Total non-interest expenses 608 568 7% -------- -------- Income before taxes 290 255 14% Income tax expense 108 88 23% -------- -------- Net income $ 182 $ 167 9% ======== ======== Profit margin (1) 20% 20% ---------- (1) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 13 MORGAN STANLEY Credit Services Income Statement Information (unaudited, dollars in millions) (Managed loan basis) Quarter Ended ------------------------- Feb 28, Nov 30, % 2003 2002 Change -------- -------- ------ Fees: Merchant and cardmember $ 547 $ 542 1% Servicing 0 0 -- Other 54 3 * -------- -------- Total non-interest revenues 601 545 10% Interest revenue 1,580 1,606 (2%) Interest expense 441 475 (7%) -------- -------- Net interest income 1,139 1,131 1% Provision for consumer loan losses 842 749 12% -------- -------- Net credit income 297 382 (22%) -------- -------- Net revenues 898 927 (3%) -------- -------- Total non-interest expenses 608 624 (3%) -------- -------- Income before taxes 290 303 (4%) Income tax expense 108 109 (1%) -------- -------- Net income $ 182 $ 194 (6%) ======== ======== Profit margin (1) 20% 21% ---------- (1) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 14 MORGAN STANLEY Financial Information and Statistical Data (unaudited) Quarter Ended ---------------------- Feb 28, Feb 28, % 2003 2002 Change -------- -------- ------ Morgan Stanley Total assets (millions) $558,000 $492,000 13% Period end common shares outstanding (millions) 1,089.7 1,101.2 (1%) Book value per common share $ 20.62 $ 18.97 9% Shareholders' equity (millions) (1) $ 24,475 $ 22,102 11% Total capital (millions) (2) $ 72,432 $ 61,042 19% Worldwide employees 54,493 59,875 (9%) Institutional Securities Advisory revenue (millions) $ 166 $ 292 (43%) Underwriting revenue (millions) $ 337 $ 311 8% Sales and trading net revenue (millions) (3) Equity $ 977 $ 931 5% Fixed income $ 1,662 $ 1,123 48% Mergers and acquisitions announced trans. (4) Morgan Stanley global market volume (billions) $ 26.8 $ 36.0 Rank 2 5 Worldwide equity and related issues (4) Morgan Stanley global market volume (billions) $ 3.8 $ 6.1 Rank 2 5 Individual Investor Group Global financial advisors 12,056 14,115 (15%) Total client assets (billions) $ 499 $ 588 (15%) Fee-based client account assets (billions) (5) $ 106 $ 114 (7%) Domestic retail locations 558 680 (18%) ---------- (1) Includes preferred and common equity and preferred securities subject to mandatory redemption. (2) Includes preferred and common equity, preferred securities subject to mandatory redemption, capital units and non-current portion of long-term debt. (3) Includes principal trading, commissions and net interest revenue. (4) Source: Thomson Financial Securities Data - January 1 to February 28, 2003. (5) Represents the amount of assets in client accounts where the basis of payment for services is a fee calculated on those assets. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 15 MORGAN STANLEY Financial Information and Statistical Data (unaudited) Quarter Ended ---------------------- Feb 28, Nov 30, % 2003 2002 Change -------- -------- ------ Morgan Stanley Total assets (millions) $558,000 $530,000 5% Period end common shares outstanding (millions) 1,089.7 1,081.4 1% Book value per common share $ 20.62 $ 20.24 2% Shareholders' equity (millions) (1) $ 24,475 $ 23,096 6% Total capital (millions) (2) $ 72,432 $ 65,936 10% Worldwide employees 54,493 55,726 (2%) Institutional Securities Advisory revenue (millions) $ 166 $ 271 (39%) Underwriting revenue (millions) $ 337 $ 328 3% Sales and trading net revenue (millions)(3) Equity $ 977 $ 634 54% Fixed income $ 1,662 $ 610 172% Mergers and acquisitions announced trans (4) Morgan Stanley global market volume (billions) $ 26.8 $ 198.0 Rank 2 3 Worldwide equity and related issues (4) Morgan Stanley global market volume (billions) $ 3.8 $ 25.6 Rank 2 4 Individual Investor Group Global financial advisors 12,056 12,546 (4%) Total client assets (billions) $ 499 $ 517 (3%) Fee-based client account assets (billions) (5) $ 106 $ 108 (2%) Domestic retail locations 558 608 (8%) ---------- (1) Includes preferred and common equity and preferred securities subject to mandatory redemption. (2) Includes preferred and common equity, preferred securities subject to mandatory redemption, capital units and non-current portion of long-term debt. (3) Includes principal trading, commissions and net interest revenue. (4) Source: Thomson Financial Securities Data - January 1 to February 28, 2003. (5) Represents the amount of assets in client accounts where the basis of payment for services is a fee calculated on those assets. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 16 MORGAN STANLEY Statistical Data (unaudited) Quarter Ended --------------------- Feb 28, Feb 28, % 2003 2002 Change -------- ------- ------ Investment Management ($ billions) Net flows Retail $ (0.5) $ 1.6 (131%) Institutional (2.5) (0.6) * -------- ------- Net flows excluding money markets (3.0) 1.0 * -------- ------- Money markets (0.9) (1.2) 25% Assets under management or supervision by distribution channel Retail $ 242 $ 280 (14%) Institutional 158 172 (8%) -------- ------- Total $ 400 $ 452 (12%) ======== ======= Assets under management or supervision by asset class Equity $ 152 $ 196 (22%) Fixed income 128 128 -- Money market 67 70 (4%) Other (1) 53 58 (9%) -------- ------- Total $ 400 $ 452 (12%) ======== ======= -------- (1) Includes Alternative Investments. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 17 MORGAN STANLEY Statistical Data (unaudited) Quarter Ended ---------------------- Feb 28, Nov 30, % 2003 2002 Change -------- -------- ------ Investment Management ($ billions) Net flows Retail $ (0.5) $ (1.0) 50% Institutional (2.5) (0.8) * -------- -------- Net flows excluding money markets (3.0) (1.8) (67%) -------- -------- Money markets (0.9) (1.2) 25% Assets under management or supervision by distribution channel Retail $ 242 $ 256 (5%) Institutional 158 164 (4%) -------- -------- Total $ 400 $ 420 (5%) ======== ======== Assets under management or supervision by asset class Equity $ 152 $ 172 (12%) Fixed income 128 127 1% Money market 67 66 2% Other (1) 53 55 (4%) -------- -------- Total $ 400 $ 420 (5%) ======== ======== ---------- (1) Includes Alternative Investments. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 18 MORGAN STANLEY Financial Information and Statistical Data (unaudited, dollars in millions) Quarter Ended ------------------------ Feb 28, Feb 28, % 2003 2002 Change -------- -------- ------ Credit Services Owned credit card loans Period end $ 20,847 $ 20,138 4% Average $ 22,305 $ 20,558 8% Managed credit card loans (1) Period end $ 51,811 $ 49,569 5% Average $ 52,802 $ 50,396 5% Interest yield 11.78% 12.63% (85 bp) Interest spread 8.36% 8.61% (25 bp) Net charge-off rate 6.17% 6.40% (23 bp) Delinquency rate (over 30 days) 6.33% 6.75% (42 bp) Delinquency rate (over 90 days) 2.95% 3.12% (17 bp) Transaction volume (billions) $ 26.1 $ 24.1 8% Accounts (millions) 46.5 46.0 1% Active accounts (millions) 22.3 23.8 (6%) Average receivables per average active account (actual $) $ 2,333 $ 2,098 11% Securitization gain $ 35 $ 8 * ---------- (1) Includes owned and securitized credit card loans. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 19 MORGAN STANLEY Financial Information and Statistical Data (unaudited, dollars in millions) Quarter Ended ------------------------ Feb 28, Nov 30, % 2003 2002 Change -------- -------- ------ Credit Services Owned credit card loans Period end $ 20,847 $ 22,153 (6%) Average $ 22,305 $ 21,641 3% Managed credit card loans (1) Period end $ 51,811 $ 51,143 1% Average $ 52,802 $ 50,239 5% Interest yield 11.78% 12.45% (67 bp) Interest spread 8.36% 8.62% (26 bp) Net charge-off rate 6.17% 5.95% 22 bp Delinquency rate (over 30 days) 6.33% 5.96% 37 bp Delinquency rate (over 90 days) 2.95% 2.66% 29 bp Transaction volume (billions) $ 26.1 $ 25.3 3% Accounts (millions) 46.5 46.5 -- Active accounts (millions) 22.3 22.6 (1%) Average receivables per average active account (actual $) $ 2,333 $ 2,214 5% Securitization gain $ 35 $ 4 * ---------- (1) Includes owned and securitized credit card loans. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 20 MORGAN STANLEY The following (page F-11) presents more detailed financial information regarding the results of operations for the combined institutional securities, individual investor group and investment management businesses. Morgan Stanley believes that a combined presentation is informative due to certain synergies among these businesses, as well as to facilitate comparisons of the Company's results with those of other companies in the financial services industry. Morgan Stanley also provides this type of presentation for its credit services activities (page F-12) in order to provide helpful comparison to other credit card issuers. Page 21 MORGAN STANLEY Institutional Securities, Individual Investor Group and Investment Management Combined Income Statement Information (unaudited, dollars in millions)
Quarter Ended ------------------------- Feb 28, Feb 28, % 2003 2002 Change -------- -------- ------ Investment banking $ 589 $ 674 (13%) Principal transactions: Trading 1,556 1,132 37% Investments (22) 33 (167%) Commissions 670 777 (14%) Asset management, distribution and administration fees 903 1,016 (11%) Interest and dividends 3,243 3,283 (1%) Other 90 194 (54%) -------- -------- Total revenues 7,029 7,109 (1%) Interest expense 2,449 2,667 (8%) -------- -------- Net revenues 4,580 4,442 3% -------- -------- Compensation and benefits 2,334 2,297 2% Occupancy and equipment 176 182 (3%) Brok., clearing and exchange fees 191 179 7% Info processing and communications 228 242 (6%) Marketing and business development 116 134 (13%) Professional services 174 174 -- Other 225 142 58% Restructuring and other charges 0 0 -- -------- -------- Total non-interest expenses 3,444 3,350 3% -------- -------- Income before taxes and dividends on preferred securities subject to mandatory redemption 1,136 1,092 4% Income tax expense 391 389 1% Div. on pref. securities subject to mandatory redemption 22 22 -- -------- -------- Net income $ 723 $ 681 6% ======== ======== Comp & benefits as a % of net rev. 51% 52% Non-comp expenses as a % of net rev. (1) 24% 24% Profit margin (2) 16% 15% Number of employees (3) 38,867 43,878 (11%)
-------- (1) Excludes restructuring and other charges. (2) Net income as a % of net revenues. (3) Includes Institutional Securities, Individual Investor Group, Investment Management and Infrastructure/Company areas. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 22 MORGAN STANLEY Institutional Securities, Individual Investor Group and Investment Management Combined Income Statement Information (unaudited, dollars in millions)
Quarter Ended ------------------------ Feb 28, Nov 30, % 2003 2002 Change -------- -------- ------ Investment banking $ 589 $ 671 (12%) Principal transactions: Trading 1,556 433 * Investments (22) 16 * Commissions 670 748 (10%) Asset management, distribution and administration fees 903 904 -- Interest and dividends 3,243 3,178 2% Other 90 120 (25%) -------- -------- Total revenues 7,029 6,070 16% Interest expense 2,449 2,741 (11%) -------- -------- Net revenues 4,580 3,329 38% -------- -------- Compensation and benefits 2,334 968 141% Occupancy and equipment 176 200 (12%) Brok., clearing and exchange fees 191 212 (10%) Info processing and communications 228 281 (19%) Marketing and business development 116 159 (27%) Professional services 174 266 (35%) Other 225 154 46% Restructuring and other charges 0 235 * -------- -------- Total non-interest expenses 3,444 2,475 39% -------- -------- Income before taxes and dividends on preferred securities subject to mandatory redemption 1,136 854 33% Income tax expense 391 294 33% Div. on pref. securities subject to mandatory redemption 22 22 -- -------- -------- Net income $ 723 $ 538 34% ======== ======== Comp & benefits as a % of net rev. 51% 29% Non-comp expenses as a % of net rev. (1) 24% 38% Profit margin (2) 16% 16% Number of employees (3) 38,867 40,424 (4%)
---------- (1) Excludes restructuring and other charges. (2) Net income as a % of net revenues. (3) Includes Institutional Securities, Individual Investor Group, Investment Management and Infrastructure/Company areas. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 23 MORGAN STANLEY Credit Services Income Statement Information (unaudited, dollars in millions) (Managed loan basis)
Quarter Ended ------------------------ Feb 28, Feb 28, % 2003 2002 Change -------- -------- ------ Fees: Merchant and cardmember $ 547 $ 527 4% Servicing 0 0 -- Other 54 16 * -------- -------- Total non-interest revenues 601 543 11% Interest revenue 1,580 1,611 (2%) Interest expense 441 499 (12%) -------- -------- Net interest income 1,139 1,112 2% Provision for consumer loan losses 842 832 1% -------- -------- Net credit income 297 280 6% -------- -------- Net revenues 898 823 9% -------- -------- Compensation and benefits 214 192 11% Occupancy and equipment 20 16 25% Info processing and communications 88 80 10% Marketing and business development 153 120 28% Professional services 51 51 -- Other 82 109 (25%) -------- -------- Total non-interest expenses 608 568 7% -------- -------- Income before taxes 290 255 14% Income tax expense 108 88 23% -------- -------- Net income $ 182 $ 167 9% ======== ======== Comp & benefits as a % of net rev. 24% 23% Non-comp expenses as a % of net rev. 44% 46% Profit margin (1) 20% 20% Number of employees 15,626 15,997 (2%)
-------- (1) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 24 MORGAN STANLEY Credit Services Income Statement Information (unaudited, dollars in millions) (Managed loan basis)
Quarter Ended ------------------------ Feb 28, Nov 30, % 2003 2002 Change -------- -------- ------ Fees: Merchant and cardmember $ 547 $ 542 1% Servicing 0 0 -- Other 54 3 * -------- -------- Total non-interest revenues 601 545 10% Interest revenue 1,580 1,606 (2%) Interest expense 441 475 (7%) -------- -------- Net interest income 1,139 1,131 1% Provision for consumer loan losses 842 749 12% -------- -------- Net credit income 297 382 (22%) -------- -------- Net revenues 898 927 (3%) -------- -------- Compensation and benefits 214 179 20% Occupancy and equipment 20 21 (5%) Info processing and communications 88 98 (10%) Marketing and business development 153 170 (10%) Professional services 51 80 (36%) Other 82 76 8% -------- -------- Total non-interest expenses 608 624 (3%) -------- -------- Income before taxes 290 303 (4%) Income tax expense 108 109 (1%) -------- -------- Net income $ 182 $ 194 (6%) ======== ======== Comp & benefits as a % of net rev. 24% 19% Non-comp expenses as a % of net rev. 44% 48% Profit margin (1) 20% 21% Number of employees 15,626 15,302 2%
-------- (1) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. Page 25