EX-99 4 a4596767ex991.txt MORGAN STANLEY EXHIBIT 99.1 Exhibit 99.1 Morgan Stanley Earnings Per Share Up 35%; First Quarter Net Income $1.2 Billion; Return on Equity 19% NEW YORK--(BUSINESS WIRE)--March 18, 2004--Morgan Stanley (NYSE:MWD) today reported net income of $1,226 million for the quarter ended February 29, 2004 -- an increase of 35 percent from the first quarter of 2003 and 21 percent from the fourth quarter of 2003. Diluted earnings per share were $1.11 -- compared with $0.82 a year ago and $0.92 in the fourth quarter. First quarter net revenues (total revenues less interest expense and the provision for loan losses) were $6.2 billion -- 14 percent ahead of first quarter 2003 and 23 percent ahead of fourth quarter 2003. "We had an excellent first quarter with a return on equity of 19 percent, driven by record revenues in a number of businesses and impressive market share gains in investment banking" said Philip J. Purcell, Chairman and Chief Executive Officer. "Our sales and trading businesses continue to perform very well, retail securities and investment management posted strong results and Discover Card had a record quarter." INSTITUTIONAL SECURITIES Institutional Securities reported pretax income(1) of $1,186 million, a 26 percent increase over last year's first quarter. Net revenues reached their highest level since the second quarter of 2000, driven by the Company's fixed income business and an improved environment for equity underwriting and trading. -- Fixed income sales and trading net revenues increased slightly from last year's first quarter to a record $1.7 billion. Revenues were higher in both credit products and interest rate and currency products. Credit products benefited from increased securitization flows in commercial and residential whole loans, strong customer volumes and tightening credit spreads. Interest rate and currency products benefited from favorable trading conditions in foreign exchange, tax-exempts and emerging markets debt. Commodities also had a solid quarter, reflecting volatile oil markets. -- Equity sales and trading net revenues were $1.1 billion, a 13 percent increase from a year ago and the highest total since the second quarter of 2001. The increase was driven by higher revenues in the Company's global cash business, resulting from higher market volume and a strong primary calendar. Higher revenues in the Company's Prime Brokerage business also contributed to the increase. -- Advisory revenues were $232 million, up 40 percent from first quarter 2003, even though industry-wide completed M&A transaction volume fell 13 percent over the same period.(2) -- Total underwriting revenues rose 51 percent from last year's first quarter to $507 million. Equity underwriting revenues increased nearly 150 percent, reflecting a surge in industry-wide equity new issuance activity from a weak first quarter 2003. Fixed income underwriting revenues declined 7 percent from a year ago, reflecting a modest decline in industry-wide activity from high levels the previous year.(2) -- For the calendar year-to-date, the Company ranked second in announced global M&A with a 45 percent market share; first in worldwide equity and equity-related issuances with a 14 percent market share; first in worldwide IPOs with a 29 percent market share; and fourth in global debt issuances with a 7 percent market share.(3) INDIVIDUAL INVESTOR GROUP Individual Investor Group pretax income was $166 million, compared with $61 million in the first quarter of 2003. -- Net revenues increased 23 percent to $1.2 billion, as renewed investor interest in equities drove a 49 percent increase in commissions, and asset management, distribution and administration fees rose 22 percent on higher asset levels. -- Total client assets were $595 billion, an increase of $97 billion from the end of last year's first quarter. Approximately 15 percent of the increase was attributable to net new cash flows. Client assets in fee-based accounts increased 36 percent from a year ago to $143 billion, and the percentage of total client assets in fee-based accounts continued to increase, reaching 24 percent compared with 21 percent a year ago. -- At quarter-end, the number of global financial advisors was 10,832 -- a decrease of 254 for the quarter and 1,224 over the past year. INVESTMENT MANAGEMENT Investment Management pretax income increased 70 percent from last year's first quarter to $170 million. Higher revenues, reflecting both an increase in average assets under management and a more favorable asset mix due to improving equity markets, drove the increase. -- The Company's assets under management increased $91 billion, or 23 percent, from a year ago to $495 billion,(4) primarily as a result of market appreciation. Total net fund flows were also positive over the same period. -- Retail assets were $294 billion, $17 billion above the previous quarter and $48 billion higher than last year's first quarter. Institutional assets of $201 billion increased $16 billion over the quarter and were $43 billion above a year ago. -- Among full-service brokerage firms, the Company had the highest number of domestic funds (41) receiving one of Morningstar's two highest ratings.(5) In addition, the percent of the Company's fund assets performing in the top half of the Lipper rankings for one year was 54 percent compared to 60 percent a year ago.(6) CREDIT SERVICES Credit Services pretax income rose 26 percent from first quarter 2003 to a record $365 million on a managed loan basis, driven by improved credit quality and favorable financing costs, partially offset by lower merchant and cardmember fees. -- Managed credit card loans of $47.3 billion at quarter end were 9 percent lower than a year ago, mainly due to lower balance transfer volume as the Company decreased its promotional efforts to focus on improving profitability. The interest rate spread widened 99 basis points over the same period, as the cost of funds declined and yields increased. -- Merchant and cardmember fees were $519 million, down 5 percent from last year's first quarter. An increase in cardmember rewards and a decline in cardmember late fees, reflecting lower delinquencies, was partially offset by an increase in merchant discount revenues. -- The credit card net charge-off rate was 6.31 percent, 14 basis points higher than a year ago, but 56 basis points below the fourth quarter. The increase in the net charge-off rate from last year's first quarter was driven by a $4.1 billion decline in average credit card loan balances, which more than offset a decline in net charge-off dollars. The net charge-off rate fell from the fourth quarter as Discover's bankruptcy losses dropped to their lowest level in nearly three years. -- The over-30-day delinquency rate declined 53 basis points to 5.80 percent, and the over-90-day delinquency rate declined 9 basis points to 2.86 percent from the first quarter of 2003. The decline in the over-30-day rate was the fourth consecutive quarterly decline. The Company announced that its Board of Directors declared a $0.25 quarterly dividend per common share. The dividend is payable on April 30, 2004, to common shareholders of record on April 9, 2004. Total capital at February 29, 2004 was $96.4 billion, including $29.0 billion of common shareholders' equity and junior subordinated debt issued to capital trusts. Book value per common share was $23.75, 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 590 offices in 27 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, which 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 "Forward-Looking Statements" immediately preceeding Part I, Item 1, "Certain Factors Affecting Results of Operations" under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 and "Competition" and "Regulation" in Part I, Item 1 of the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 2003. (1) Represents income before losses from unconsolidated investees, taxes and dividends on preferred securities subject to mandatory redemption. (2) Source: Thomson Financial -- for the periods: December 1, 2002 to February 28, 2003 and December 1, 2003 to February 29, 2004. (3) Source: Thomson Financial -- for the period January 1, 2004 to February 29, 2004. (4) Revenues and expenses associated with certain of these assets are included in the Company's Individual Investor Group and Institutional Securities segments. (5) Full service brokerage firms include: Merrill Lynch, Citigroup and Prudential. As of February 29, 2004. (6) As of February 29, 2004. ---------------------------------------------------------------------- MORGAN STANLEY Financial Summary (unaudited, dollars in millions) Quarter Ended -------------------------- % Feb 29, 2004 Feb 28, 2003 Change ------------ ------------ ------ Net revenues Institutional Securities $ 3,504 $ 3,135 12% Individual Investor Group 1,211 985 23% Investment Management 642 525 22% Credit Services 958 898 7% Intersegment Eliminations (74) (69) (7%) ------------ ------------ Consolidated net revenues $ 6,241 $ 5,474 14% ============ ============ Income before taxes (1) Institutional Securities $ 1,186 $ 942 26% Individual Investor Group 166 61 * Investment Management 170 100 70% Credit Services 365 290 26% Intersegment Eliminations 29 33 (12%) ------------ ------------ Consolidated income before taxes $ 1,916 $ 1,426 34% ============ ============ Basic earnings per common share $ 1.14 $ 0.84 36% Diluted earnings per common share $ 1.11 $ 0.82 35% Average common shares outstanding Basic 1,078.7 1,079.1 Diluted 1,106.0 1,099.7 Period end common shares outstanding 1,097.7 1,089.7 Return on common equity 19.2% 16.3% -------------------------- (1) Represents consolidated income before losses from unconsolidated investees, taxes and dividends on preferred securities subject to mandatory redemption. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Financial Summary (unaudited, dollars in millions) Quarter Ended -------------------------- % Feb 29, 2004 Nov 30, 2003 Change ------------ ------------ ------ Net revenues Institutional Securities $ 3,504 $ 2,603 35% Individual Investor Group 1,211 1,153 5% Investment Management 642 595 8% Credit Services 958 811 18% Intersegment Eliminations (74) (75) 1% ------------ ------------ Consolidated net revenues $ 6,241 $ 5,087 23% ============ ============ Income before taxes (1) Institutional Securities $ 1,186 $ 1,062 12% Individual Investor Group 166 153 8% Investment Management 170 97 75% Credit Services 365 209 75% Intersegment Eliminations 29 28 4% ------------ ------------ Consolidated income before taxes $ 1,916 $ 1,549 24% ============ ============ Basic earnings per common share $ 1.14 $ 0.94 21% Diluted earnings per common share $ 1.11 $ 0.92 21% Average common shares outstanding Basic 1,078.7 1,077.9 Diluted 1,106.0 1,103.3 Period end common shares outstanding 1,097.7 1,084.7 Return on common equity 19.2% 16.9% -------------------------- (1) Represents consolidated income before losses from unconsolidated investees, taxes and dividends on preferred securities subject to mandatory redemption. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-1 ---------------------------------------------------------------------- MORGAN STANLEY Consolidated Income Statement Information (unaudited, dollars in millions) Quarter Ended -------------------------- % Feb 29, 2004 Feb 28, 2003 Change ------------ ------------ ------ Investment banking $ 829 $ 589 41% Principal transactions: Trading 2,347 1,556 51% Investments 29 (22) * Commissions 901 673 34% Fees: Asset management, distribution and administration 1,072 896 20% Merchant and cardmember 337 364 (7%) Servicing 572 567 1% Interest and dividends 3,782 3,789 -- Other 123 86 43% ------------ ------------ Total revenues 9,992 8,498 18% Interest expense 3,489 2,688 30% Provision for consumer loan losses 262 336 (22%) ------------ ------------ Net revenues 6,241 5,474 14% ------------ ------------ Compensation and benefits 2,712 2,549 6% Occupancy and equipment 200 196 2% Brok., clearing and exchange fees 224 191 17% Info processing and communications 320 315 2% Marketing and business development 254 263 (3%) Professional services 318 225 41% Other 297 309 (4%) ------------ ------------ Total non-interest expenses 4,325 4,048 7% ------------ ------------ Income before losses from unconsolidated investees, taxes and dividends on preferred securities subject to mandatory redemption 1,916 1,426 34% Losses from unconsolidated investees 93 34 * Income tax expense 552 465 19% Dividends on preferred securities subject to mandatory redemption (1) 45 22 105% ------------ ------------ Net income $ 1,226 $ 905 35% ============ ============ Comp & benefits as a % of net rev. 43% 47% -------------------------- (1) At February 29, 2004, preferred securities subject to mandatory redemption were reclassified to junior subordinated debt issued to capital trusts (a component of long-term debt) pursuant to the adoption of FASB Interpretation No. 46, "Consolidation of Variable Interest Entities - an interpretation of ARB No. 51" ("FIN 46"). In future periods, dividends on junior subordinated debt issued to capital trusts will be included in interest expense. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Consolidated Income Statement Information (unaudited, dollars in millions) Quarter Ended -------------------------- % Feb 29, 2004 Nov 30, 2003 Change ------------ ------------ ------ Investment banking $ 829 $ 707 17% Principal transactions: Trading 2,347 894 * Investments 29 11 * Commissions 901 813 11% Fees: Asset management, distribution and administration 1,072 973 10% Merchant and cardmember 337 337 -- Servicing 572 483 18% Interest and dividends 3,782 4,729 (20%) Other 123 145 (15%) ------------ ------------ Total revenues 9,992 9,092 10% Interest expense 3,489 3,693 (6%) Provision for consumer loan losses 262 312 (16%) ------------ ------------ Net revenues 6,241 5,087 23% ------------ ------------ Compensation and benefits 2,712 1,782 52% Occupancy and equipment 200 212 (6%) Brok., clearing and exchange fees 224 233 (4%) Info processing and communications 320 343 (7%) Marketing and business development 254 256 (1%) Professional services 318 368 (14%) Other 297 344 (14%) ------------ ------------ Total non-interest expenses 4,325 3,538 22% ------------ ------------ Income before losses from unconsolidated investees, taxes and dividends on preferred securities subject to mandatory redemption 1,916 1,549 24% Losses from unconsolidated investees 93 104 (11%) Income tax expense 552 386 43% Dividends on preferred securities subject to mandatory redemption (1) 45 45 -- ------------ ------------ Net income $ 1,226 $ 1,014 21% ============ ============ Comp & benefits as a % of net rev. 43% 35% -------------------------- (1) At February 29, 2004, preferred securities subject to mandatory redemption were reclassified to junior subordinated debt issued to capital trusts (a component of long-term debt) pursuant to the adoption of FASB Interpretation No. 46, "Consolidation of Variable Interest Entities - an interpretation of ARB No. 51" ("FIN 46"). In future periods, dividends on junior subordinated debt issued to capital trusts will be included in interest expense. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-2 ---------------------------------------------------------------------- MORGAN STANLEY Institutional Securities Income Statement Information (unaudited, dollars in millions) Quarter Ended -------------------------- % Feb 29, 2004 Feb 28, 2003 Change ------------ ------------ ------ Investment banking $ 739 $ 501 48% Principal transactions: Trading 2,206 1,402 57% Investments 16 (10) * Commissions 505 415 22% Asset management, distribution and administration fees 34 23 48% Interest and dividends 3,225 3,194 1% Other 77 62 24% ------------ ------------ Total revenues 6,802 5,587 22% Interest expense 3,298 2,452 35% ------------ ------------ Net revenues 3,504 3,135 12% ------------ ------------ Total non-interest expenses 2,318 2,193 6% ------------ ------------ Income before losses from unconsolidated investees and dividends on preferred securities subject to mandatory redemption 1,186 942 26% Losses from unconsolidated investees 93 34 * Dividends on preferred securities subject to mandatory redemption (1) 45 22 105% ------------ ------------ Income before taxes $ 1,048 $ 886 18% ============ ============ Pre-tax profit margin (2) 33% 29% -------------------------- (1) At February 29, 2004, preferred securities subject to mandatory redemption were reclassified to junior subordinated debt issued to capital trusts (a component of long-term debt) pursuant to the adoption of FIN 46. In future periods, dividends on junior subordinated debt issued to capital trusts will be included in interest expense. (2) Income before taxes, excluding losses from unconsolidated investees, as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Institutional Securities Income Statement Information (unaudited, dollars in millions) Quarter Ended -------------------------- % Feb 29, 2004 Nov 30, 2003 Change ------------ ------------ ------ Investment banking $ 739 $ 616 20% Principal transactions: Trading 2,206 738 * Investments 16 (2) * Commissions 505 469 8% Asset management, distribution and administration fees 34 23 48% Interest and dividends 3,225 4,169 (23%) Other 77 91 (15%) ------------ ------------ Total revenues 6,802 6,104 11% Interest expense 3,298 3,501 (6%) ------------ ------------ Net revenues 3,504 2,603 35% ------------ ------------ Total non-interest expenses 2,318 1,541 50% ------------ ------------ Income before losses from unconsolidated investees and dividends on preferred securities subject to mandatory redemption 1,186 1,062 12% Losses from unconsolidated investees 93 104 (11%) Dividends on preferred securities subject to mandatory redemption (1) 45 45 -- ------------ ------------ Income before taxes $ 1,048 $ 913 15% ============ ============ Pre-tax profit margin (2) 33% 39% -------------------------- (1) At February 29, 2004, preferred securities subject to mandatory redemption were reclassified to junior subordinated debt issued to capital trusts (a component of long-term debt) pursuant to the adoption of FIN 46. In future periods, dividends on junior subordinated debt issued to capital trusts will be included in interest expense. (2) Income before taxes, excluding losses from unconsolidated investees, as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-3 ---------------------------------------------------------------------- MORGAN STANLEY Individual Investor Group Income Statement Information (unaudited, dollars in millions) Quarter Ended -------------------------- % Feb 29, 2004 Feb 28, 2003 Change ------------ ------------ ------ Investment banking $ 77 $ 80 (4%) Principal transactions: Trading 141 154 (8%) Investments 4 6 (33%) Commissions 417 280 49% Asset management, distribution and administration fees 472 386 22% Interest and dividends 93 89 4% Other 40 28 43% ------------ ------------ Total revenues 1,244 1,023 22% Interest expense 33 38 (13%) ------------ ------------ Net revenues 1,211 985 23% ------------ ------------ Total non-interest expenses 1,045 924 13% ------------ ------------ Income before taxes $ 166 $ 61 * ============ ============ Pre-tax profit margin (1) 14% 6% -------------------------- (1) Income before taxes as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Individual Investor Group Income Statement Information (unaudited, dollars in millions) Quarter Ended -------------------------- % Feb 29, 2004 Nov 30, 2003 Change ------------ ------------ ------ Investment banking $ 77 $ 80 (4%) Principal transactions: Trading 141 156 (10%) Investments 4 - * Commissions 417 365 14% Asset management, distribution and administration fees 472 432 9% Interest and dividends 93 96 (3%) Other 40 59 (32%) ------------ ------------ Total revenues 1,244 1,188 5% Interest expense 33 35 (6%) ------------ ------------ Net revenues 1,211 1,153 5% ------------ ------------ Total non-interest expenses 1,045 1,000 5% ------------ ------------ Income before taxes $ 166 $ 153 8% ============ ============ Pre-tax profit margin (1) 14% 13% -------------------------- (1) Income before taxes as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-4 ---------------------------------------------------------------------- MORGAN STANLEY Investment Management Income Statement Information (unaudited, dollars in millions) Quarter Ended -------------------------- % Feb 29, 2004 Feb 28, 2003 Change ------------ ------------ ------ Investment banking $ 13 $ 8 63% Principal transactions: Investments 9 (18) 150% Commissions 8 4 100% Asset management, distribution and administration fees 603 523 15% Interest and dividends 2 2 -- Other 9 7 29% ------------ ------------ Total revenues 644 526 22% Interest expense 2 1 100% ------------ ------------ Net revenues 642 525 22% ------------ ------------ Total non-interest expenses 472 425 11% ------------ ------------ Income before taxes $ 170 $ 100 70% ============ ============ Pre-tax profit margin (1) 27% 19% -------------------------- (1) Income before taxes as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Investment Management Income Statement Information (unaudited, dollars in millions) Quarter Ended -------------------------- % Feb 29, 2004 Nov 30, 2003 Change ------------ ------------ ------ Investment banking $ 13 $ 11 18% Principal transactions: Investments 9 13 (31%) Commissions 8 7 14% Asset management, distribution and administration fees 603 556 8% Interest and dividends 2 - * Other 9 9 -- ------------ ------------ Total revenues 644 596 8% Interest expense 2 1 100% ------------ ------------ Net revenues 642 595 8% ------------ ------------ Total non-interest expenses 472 498 (5%) ------------ ------------ Income before taxes $ 170 $ 97 75% ============ ============ Pre-tax profit margin (1) 27% 16% -------------------------- (1) Income before taxes as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-5 ---------------------------------------------------------------------- MORGAN STANLEY Credit Services Income Statement Information (unaudited, dollars in millions) Quarter Ended -------------------------- % Feb 29, 2004 Feb 28, 2003 Change ------------ ------------ ------ Fees: Merchant and cardmember $ 337 $ 364 (7%) Servicing 572 567 1% Other 5 (4) * ------------ ------------ Total non-interest revenues 914 927 (1%) Interest revenue 480 546 (12%) Interest expense 174 239 (27%) ------------ ------------ Net interest income 306 307 -- Provision for consumer loan losses 262 336 (22%) ------------ ------------ Net credit income 44 (29) * ------------ ------------ Net revenues 958 898 7% ------------ ------------ Total non-interest expenses 593 608 (2%) ------------ ------------ Income before taxes $ 365 $ 290 26% ============ ============ Pre-tax profit margin (1) 38% 32% -------------------------- (1) Income before taxes as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Credit Services Income Statement Information (unaudited, dollars in millions) Quarter Ended -------------------------- % Feb 29, 2004 Nov 30, 2003 Change ------------ ------------ ------ Fees: Merchant and cardmember $ 337 $ 337 -- Servicing 572 483 18% Other 5 (5) * ------------ ------------ Total non-interest revenues 914 815 12% Interest revenue 480 487 (1%) Interest expense 174 179 (3%) ------------ ------------ Net interest income 306 308 (1%) Provision for consumer loan losses 262 312 (16%) ------------ ------------ Net credit income 44 (4) * ------------ ------------ Net revenues 958 811 18% ------------ ------------ Total non-interest expenses 593 602 (1%) ------------ ------------ Income before taxes $ 365 $ 209 75% ============ ============ Pre-tax profit margin (1) 38% 26% -------------------------- (1) Income before taxes as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-6 ---------------------------------------------------------------------- MORGAN STANLEY Credit Services Income Statement Information (unaudited, dollars in millions) (Managed loan basis) Quarter Ended -------------------------- % Feb 29, 2004 Feb 28, 2003 Change ------------ ------------ ------ Fees: Merchant and cardmember $ 519 $ 548 (5%) Servicing - - -- Other 35 53 (34%) ------------ ------------ Total non-interest revenues 554 601 (8%) Interest revenue 1,524 1,580 (4%) Interest expense 350 441 (21%) ------------ ------------ Net interest income 1,174 1,139 3% Provision for consumer loan losses 770 842 (9%) ------------ ------------ Net credit income 404 297 36% ------------ ------------ Net revenues 958 898 7% ------------ ------------ Total non-interest expenses 593 608 (2%) ------------ ------------ Income before taxes $ 365 $ 290 26% ============ ============ Pre-tax profit margin (1) 38% 32% -------------------------- (1) Income before taxes as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Credit Services Income Statement Information (unaudited, dollars in millions) (Managed loan basis) Quarter Ended -------------------------- % Feb 29, 2004 Nov 30, 2003 Change ------------ ------------ ------ Fees: Merchant and cardmember $ 519 $ 512 1% Servicing - - -- Other 35 1 * ------------ ------------ Total non-interest revenues 554 513 8% Interest revenue 1,524 1,517 -- Interest expense 350 366 (4%) ------------ ------------ Net interest income 1,174 1,151 2% Provision for consumer loan losses 770 853 (10%) ------------ ------------ Net credit income 404 298 36% ------------ ------------ Net revenues 958 811 18% ------------ ------------ Total non-interest expenses 593 602 (1%) ------------ ------------ Income before taxes $ 365 $ 209 75% ============ ============ Pre-tax profit margin (1) 38% 26% -------------------------- (1) Income before taxes as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-7 ---------------------------------------------------------------------- MORGAN STANLEY Intersegment Eliminations (unaudited, dollars in millions) Quarter Ended -------------------------- % Feb 29, 2004 Feb 28, 2003 Change ------------ ------------ ------ Investment banking $ - $ - -- Principal transactions: Trading - - -- Investments - - -- Commissions (29) (26) (12%) Asset management, distribution and administration fees (37) (36) (3%) Interest and dividends (18) (42) 57% Other (8) (7) (14%) ------------ ------------ Total revenues (92) (111) 17% Interest expense (18) (42) 57% ------------ ------------ Net revenues (74) (69) (7%) ------------ ------------ Total non-interest expenses (103) (102) (1%) ------------ ------------ Income before taxes $ 29 $ 33 (12%) ============ ============ -------------------------- Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Intersegment Eliminations (unaudited, dollars in millions) Quarter Ended -------------------------- % Feb 29, 2004 Nov 30, 2003 Change ------------ ------------ ------ Investment banking $ - $ - -- Principal transactions: Trading - - -- Investments - - -- Commissions (29) (28) (4%) Asset management, distribution and administration fees (37) (38) 3% Interest and dividends (18) (23) 22% Other (8) (9) 11% ------------ ------------ Total revenues (92) (98) 6% Interest expense (18) (23) 22% ------------ ------------ Net revenues (74) (75) 1% ------------ ------------ Total non-interest expenses (103) (103) -- ------------ ------------ Income before taxes $ 29 $ 28 4% ============ ============ -------------------------- Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-8 ---------------------------------------------------------------------- MORGAN STANLEY Financial Information and Statistical Data (unaudited) Quarter Ended -------------------------- % Feb 29, 2004 Feb 28, 2003 Change ------------ ------------ ------ Total assets (millions) $ 656,898 $ 559,436 17% Adjusted assets (millions) (1) $ 428,479 $ 361,685 18% Period end common shares outstanding (millions) 1,097.7 1,089.7 1% Book value per common share $ 23.75 $ 20.62 15% Shareholders' equity (millions) (2) $ 28,961 $ 24,475 18% Total capital (millions) (3) $ 96,359 $ 72,432 33% Worldwide employees 50,979 54,493 (6%) Average Daily 99%/One-Day Value-at-Risk ("VaR") (4) Primary Market Risk Category ($ millions, pre-tax) Interest rate and credit spread $ 42 $ 42 Equity price 30 24 Foreign exchange rate 11 12 Commodity price 27 29 Aggregate trading VaR $ 62 $ 52 -------------------------- (1) Adjusted assets exclude certain self-funded assets considered to have minimal market, credit and/or liquidity risk that are generally attributable to matched book and securities lending businesses as measured by aggregate resale agreements and securities borrowed less non-derivative short positions. The Company changed its methodology for calculating the adjusted leverage ratio to reflect those assets that are not subject to material market, credit and/or liquidity risk. See page F-17 for further information. (2) At February 29, 2004, shareholders' equity includes $2,897 million of junior subordinated debt issued to capital trusts that in prior periods was classified as preferred securities subject to mandatory redemption. This amount was reclassified to long-term debt at February 29, 2004 pursuant to the adoption of FIN 46. See Note 12 to the Consolidated Financial Statements in the Company's Form 10-K for fiscal 2003. At the prior quarter ends, shareholders' equity included preferred securities subject to mandatory redemption. The junior subordinated debt issued to capital trusts at February 29, 2004 and the preferred securities subject to mandatory redemption at the prior quarter ends are collectively referred to hereinafter as junior subordinated debt issued to capital trusts. (3) Includes common equity, junior subordinated debt issued to capital trusts, capital units and the non-current portion of long-term debt. (4) 99%/One-Day VaR represents the loss amount that one would not expect to exceed, on average, more than one time every one hundred trading days in the Company's trading positions if the portfolio were held constant for a one day period. The Company's VaR incorporates substantially all financial instruments generating market risk that are managed by the Company's trading businesses. For a further discussion of the calculation of VaR and the limitations of the Company's VaR methodology, see Part II, Item 7A "Quantitative and Qualitative Disclosures about Market Risk" in the Company's Form 10-K for fiscal 2003. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Financial Information and Statistical Data (unaudited) Quarter Ended -------------------------- % Feb 29, 2004 Nov 30, 2003 Change ------------ ------------ ------ Total assets (millions) $ 656,898 $ 602,843 9% Adjusted assets (millions) (1) $ 428,479 $ 388,595 10% Period end common shares outstanding (millions) 1,097.7 1,084.7 1% Book value per common share $ 23.75 $ 22.93 4% Shareholders' equity (millions) (2) $ 28,961 $ 27,677 5% Total capital (millions) (3) $ 96,359 $ 82,769 16% Worldwide employees 50,979 51,196 -- Average Daily 99%/One-Day Value-at-Risk ("VaR") (4) Primary Market Risk Category ($ millions, pre-tax) Interest rate and credit spread $ 42 $ 45 Equity price 30 29 Foreign exchange rate 11 13 Commodity price 27 26 Aggregate trading VaR $ 62 $ 61 -------------------------- (1) Adjusted assets exclude certain self-funded assets considered to have minimal market, credit and/or liquidity risk that are generally attributable to matched book and securities lending businesses as measured by aggregate resale agreements and securities borrowed less non-derivative short positions. The Company changed its methodology for calculating the adjusted leverage ratio to reflect those assets that are not subject to material market, credit and/or liquidity risk. See page F-17 for further information. (2) At February 29, 2004, shareholders' equity includes $2,897 million of junior subordinated debt issued to capital trusts that in prior periods was classified as preferred securities subject to mandatory redemption. This amount was reclassified to long-term debt at February 29, 2004 pursuant to the adoption of FIN 46. See Note 12 to the Consolidated Financial Statements in the Company's Form 10-K for fiscal 2003. At the prior quarter ends, shareholders' equity included preferred securities subject to mandatory redemption. The junior subordinated debt issued to capital trusts at February 29, 2004 and the preferred securities subject to mandatory redemption at the prior quarter ends are collectively referred to hereinafter as junior subordinated debt issued to capital trusts. (3) Includes common equity, junior subordinated debt issued to capital trusts, capital units and the non-current portion of long-term debt. (4) 99%/One-Day VaR represents the loss amount that one would not expect to exceed, on average, more than one time every one hundred trading days in the Company's trading positions if the portfolio were held constant for a one day period. The Company's VaR incorporates substantially all financial instruments generating market risk that are managed by the Company's trading businesses. For a further discussion of the calculation of VaR and the limitations of the Company's VaR methodology, see Part II, Item 7A "Quantitative and Qualitative Disclosures about Market Risk" in the Company's Form 10-K for fiscal 2003. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-9 ---------------------------------------------------------------------- MORGAN STANLEY Financial Information and Statistical Data (unaudited) Quarter Ended -------------------------- % Feb 29, 2004 Feb 28, 2003 Change ------------ ------------ ------ Institutional Securities Advisory revenue (millions) $ 232 $ 166 40% Underwriting revenue (millions) Equity $ 314 $ 127 147% Fixed income $ 193 $ 208 (7%) Sales and trading net revenue (millions) (1) Equity $ 1,105 $ 977 13% Fixed income $ 1,651 $ 1,635 1% Mergers and acquisitions announced trans (2) Morgan Stanley global market volume (billions) $ 172.2 $ 26.8 Rank 2 2 Worldwide equity and related issues (2) Morgan Stanley global market volume (billions) $ 11.6 $ 3.8 Rank 1 2 Individual Investor Group Global financial advisors 10,832 12,056 (10%) Total client assets (billions) $ 595 $ 498 19% Fee-based client account assets (billions) (3) $ 143 $ 105 36% Fee-based assets as a % of client assets 24% 21% Domestic retail locations 526 558 (6%) -------------------------- (1) Includes principal trading, commissions and net interest revenue. (2) Source: Thomson Financial. Market and volume and rank are on a calendar year to date basis for each reporting period: January 1 to February 29, 2004, January 1 to February 28, 2003 and January 1 to November 30, 2003. (3) 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. MORGAN STANLEY Financial Information and Statistical Data (unaudited) Quarter Ended -------------------------- % Feb 29, 2004 Nov 30, 2003 Change ------------ ------------ ------ Institutional Securities Advisory revenue (millions) $ 232 $ 225 3% Underwriting revenue (millions) Equity $ 314 $ 178 76% Fixed income $ 193 $ 213 (9%) Sales and trading net revenue (millions) (1) Equity $ 1,105 $ 919 20% Fixed income $ 1,651 $ 977 69% Mergers and acquisitions announced trans (2) Morgan Stanley global market volume (billions) $ 172.2 $ 225.4 Rank 2 2 Worldwide equity and related issues (2) Morgan Stanley global market volume (billions) $ 11.6 $ 35.1 Rank 1 3 Individual Investor Group Global financial advisors 10,832 11,086 (2%) Total client assets (billions) $ 595 $ 565 5% Fee-based client account assets (billions) (3) $ 143 $ 130 10% Fee-based assets as a % of client assets 24% 23% Domestic retail locations 526 532 (1%) -------------------------- (1) Includes principal trading, commissions and net interest revenue. (2) Source: Thomson Financial. Market and volume and rank are on a calendar year to date basis for each reporting period: January 1 to February 29, 2004, January 1 to February 28, 2003 and January 1 to November 30, 2003. (3) 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. F-10 ---------------------------------------------------------------------- MORGAN STANLEY Statistical Data (unaudited) Quarter Ended -------------------------- % Feb 29, 2004 Feb 28, 2003 Change ------------ ------------ ------ Assets under management or supervision ($ billions) Net flows Retail $ 3.4 $ (0.5) * Institutional 1.3 (2.5) * ------------ ------------ Net flows excluding money markets 4.7 (3.0) * ------------ ------------ Money markets 1.4 (0.9) * Assets under management or supervision by distribution channel Retail $ 294 $ 246 20% Institutional 201 158 27% ------------ ------------ Total (1) $ 495 $ 404 23% ============ ============ Assets under management or supervision by asset class Equity $ 231 $ 155 49% Fixed income 124 129 (4%) Money market 65 67 (3%) Other (2) 75 53 42% ------------ ------------ Total (1) $ 495 $ 404 23% ============ ============ -------------------------- (1) Revenues and expenses associated with customer assets of $107 billion, $82 billion and $96 billion for fiscal 1Q04, fiscal 1Q03 and fiscal 4Q03, respectively, are included in the Company's Individual Investor Group segment, and $14 billion, $3 billion and $14 billion for fiscal 1Q04, fiscal 1Q03 and fiscal 4Q03, respectively, are included in the Company's Institutional Securities segment. (2) Includes Alternative Investments. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Statistical Data (unaudited) Quarter Ended -------------------------- % Feb 29, 2004 Nov 30, 2003 Change ------------ ------------ ------ Assets under management or supervision ($ billions) Net flows Retail $ 3.4 $ 3.7 (8%) Institutional 1.3 (1.3) * ------------ ------------ Net flows excluding money markets 4.7 2.4 96% ------------ ------------ Money markets 1.4 (2.5) * Assets under management or supervision by distribution channel Retail $ 294 $ 277 6% Institutional 201 185 9% ------------ ------------ Total (1) $ 495 $ 462 7% ============ ============ Assets under management or supervision by asset class Equity $ 231 $ 207 12% Fixed income 124 123 1% Money market 65 64 2% Other (2) 75 68 10% ------------ ------------ Total (1) $ 495 $ 462 7% ============ ============ -------------------------- (1) Revenues and expenses associated with customer assets of $107 billion, $82 billion and $96 billion for fiscal 1Q04, fiscal 1Q03 and fiscal 4Q03, respectively, are included in the Company's Individual Investor Group segment, and $14 billion, $3 billion and $14 billion for fiscal 1Q04, fiscal 1Q03 and fiscal 4Q03, respectively, are included in the Company's Institutional Securities segment. (2) Includes Alternative Investments. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-11 ---------------------------------------------------------------------- MORGAN STANLEY Financial Information and Statistical Data (unaudited, dollars in millions) Quarter Ended -------------------------- % Feb 29, 2004 Feb 28, 2003 Change ------------ ------------ ------ Credit Services Owned credit card loans Period end $ 15,850 $ 20,847 (24%) Average $ 17,880 $ 22,305 (20%) Managed credit card loans (1) Period end $ 47,336 $ 51,811 (9%) Average $ 48,667 $ 52,802 (8%) Interest yield 12.20% 11.78% 42 bp Interest spread 9.35% 8.36% 99 bp Net charge-off rate 6.31% 6.17% 14 bp Delinquency rate (over 30 days) 5.80% 6.33% (53 bp) Delinquency rate (over 90 days) 2.86% 2.95% (9 bp) Transaction volume (billions) $ 24.2 $ 26.1 (7%) Accounts (millions) 45.9 46.5 (1%) Active accounts (millions) 20.3 22.3 (9%) Average receivables per average active account (actual $) $ 2,360 $ 2,333 1% Securitization gain $ 19 $ 35 (46%) -------------------------- (1) Includes owned and securitized credit card loans. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Financial Information and Statistical Data (unaudited, dollars in millions) Quarter Ended -------------------------- % Feb 29, 2004 Nov 30, 2003 Change ------------ ------------ ------ Credit Services Owned credit card loans Period end $ 15,850 $ 18,930 (16%) Average $ 17,880 $ 18,143 (1%) Managed credit card loans (1) Period end $ 47,336 $ 48,358 (2%) Average $ 48,667 $ 48,835 -- Interest yield 12.20% 12.05% 15 bp Interest spread 9.35% 9.05% 30 bp Net charge-off rate 6.31% 6.87% (56 bp) Delinquency rate (over 30 days) 5.80% 5.97% (17 bp) Delinquency rate (over 90 days) 2.86% 2.82% 4 bp Transaction volume (billions) $ 24.2 $ 23.0 5% Accounts (millions) 45.9 46.1 -- Active accounts (millions) 20.3 20.8 (2%) Average receivables per average active account (actual $) $ 2,360 $ 2,319 2% Securitization gain $ 19 $ (7) * -------------------------- (1) Includes owned and securitized credit card loans. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-12 ---------------------------------------------------------------------- MORGAN STANLEY The following page (F-13) 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 that have securities and asset management businesses. Morgan Stanley provides this type of presentation for its credit services activities page (F-14) in order to provide helpful comparison to other credit card issuers. ---------------------------------------------------------------------- MORGAN STANLEY Inst'l Securities, Individual Investor Group and Investment Mgm't (1) Combined Income Statement Information (unaudited, dollars in millions) Quarter Ended -------------------------- % Feb 29, 2004 Feb 28, 2003 Change ------------ ------------ ------ Investment banking $ 829 $ 589 41% Principal transactions: Trading 2,347 1,556 51% Investments 29 (22) * Commissions 901 673 34% Asset management, distribution and administration fees 1,072 896 20% Interest and dividends 3,314 3,282 1% Other 120 90 33% ------------ ------------ Total revenues 8,612 7,064 22% Interest expense 3,327 2,488 34% ------------ ------------ Net revenues 5,285 4,576 15% ------------ ------------ Compensation and benefits 2,514 2,336 8% Occupancy and equipment 179 176 2% Brok., clearing and exchange fees 224 191 17% Info processing and communications 234 228 3% Marketing and business development 111 109 2% Professional services 253 174 45% Other 219 226 (3%) ------------ ------------ Total non-interest expenses 3,734 3,440 9% ------------ ------------ Income before losses from unconsolidated investees and dividends on preferred securities subject to mandatory redemption 1,551 1,136 37% Losses from unconsolidated investees 93 34 * Dividends on preferred securities subject to mandatory redemption (2) 45 22 105% ------------ ------------ Income before taxes $ 1,413 $ 1,080 31% ============ ============ Comp & benefits as a % of net rev. 48% 51% Non-comp exp. as a % of net rev. 23% 24% Pre-tax profit margin (3) 29% 24% Number of employees (4) 37,455 38,867 (4%) -------------------------- (1) Includes the elimination of intersegment activity. (2) At February 29, 2004, preferred securities subject to mandatory redemption were reclassified to junior subordinated debt issued to capital trusts (a component of long-term debt) pursuant to the adoption of FIN 46. In future periods, dividends on junior subordinated debt issued to capital trusts will be included in interest expense. (3) Income before taxes, excluding losses from unconsolidated investees, as a % of net revenues. (4) 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. MORGAN STANLEY Inst'l Securities, Individual Investor Group and Investment Mgm't (1) Combined Income Statement Information (unaudited, dollars in millions) Quarter Ended -------------------------- % Feb 29, 2004 Nov 30, 2003 Change ------------ ------------ ------ Investment banking $ 829 $ 707 17% Principal transactions: Trading 2,347 894 * Investments 29 11 * Commissions 901 813 11% Asset management, distribution and administration fees 1,072 973 10% Interest and dividends 3,314 4,254 (22%) Other 120 152 (21%) ------------ ------------ Total revenues 8,612 7,804 10% Interest expense 3,327 3,526 (6%) ------------ ------------ Net revenues 5,285 4,278 24% ------------ ------------ Compensation and benefits 2,514 1,572 60% Occupancy and equipment 179 191 (6%) Brok., clearing and exchange fees 224 233 (4%) Info processing and communications 234 242 (3%) Marketing and business development 111 148 (25%) Professional services 253 290 (13%) Other 219 262 (16%) ------------ ------------ Total non-interest expenses 3,734 2,938 27% ------------ ------------ Income before losses from unconsolidated investees and dividends on preferred securities subject to mandatory redemption 1,551 1,340 16% Losses from unconsolidated investees 93 104 (11%) Dividends on preferred securities subject to mandatory redemption (2) 45 45 -- ------------ ------------ Income before taxes $ 1,413 $ 1,191 19% ============ ============ Comp & benefits as a % of net rev. 48% 37% Non-comp exp. as a % of net rev. 23% 32% Pre-tax profit margin (3) 29% 30% Number of employees (4) 37,455 37,435 -- -------------------------- (1) Includes the elimination of intersegment activity. (2) At February 29, 2004, preferred securities subject to mandatory redemption were reclassified to junior subordinated debt issued to capital trusts (a component of long-term debt) pursuant to the adoption of FIN 46. In future periods, dividends on junior subordinated debt issued to capital trusts will be included in interest expense. (3) Income before taxes, excluding losses from unconsolidated investees, as a % of net revenues. (4) 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. F-13 ---------------------------------------------------------------------- MORGAN STANLEY Credit Services Income Statement Information (unaudited, dollars in millions) (Managed loan basis) Quarter Ended -------------------------- % Feb 29, 2004 Feb 28, 2003 Change ------------ ------------ ------ Fees: Merchant and cardmember $ 519 $ 548 (5%) Servicing - - -- Other 35 53 (34%) ------------ ------------ Total non-interest revenues 554 601 (8%) Interest revenue 1,524 1,580 (4%) Interest expense 350 441 (21%) ------------ ------------ Net interest income 1,174 1,139 3% Provision for consumer loan losses 770 842 (9%) ------------ ------------ Net credit income 404 297 36% ------------ ------------ Net revenues 958 898 7% ------------ ------------ Compensation and benefits 198 213 (7%) Occupancy and equipment 21 20 5% Info processing and communications 86 87 (1%) Marketing and business development 143 154 (7%) Professional services 65 51 27% Other 80 83 (4%) ------------ ------------ Total non-interest expenses 593 608 (2%) ------------ ------------ Income before taxes $ 365 $ 290 26% ============ ============ Comp & benefits as a % of net rev. 21% 24% Non-comp expenses as a % of net rev. 41% 44% Pre-tax profit margin (1) 38% 32% Number of employees 13,524 15,626 (13%) -------------------------- (1) Income before taxes as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Credit Services Income Statement Information (unaudited, dollars in millions) (Managed loan basis) Quarter Ended -------------------------- % Feb 29, 2004 Nov 30, 2003 Change ------------ ------------ ------ Fees: Merchant and cardmember $ 519 $ 512 1% Servicing - - -- Other 35 1 * ------------ ------------ Total non-interest revenues 554 513 8% Interest revenue 1,524 1,517 -- Interest expense 350 366 (4%) ------------ ------------ Net interest income 1,174 1,151 2% Provision for consumer loan losses 770 853 (10%) ------------ ------------ Net credit income 404 298 36% ------------ ------------ Net revenues 958 811 18% ------------ ------------ Compensation and benefits 198 210 (6%) Occupancy and equipment 21 21 -- Info processing and communications 86 101 (15%) Marketing and business development 143 108 32% Professional services 65 78 (17%) Other 80 84 (5%) ------------ ------------ Total non-interest expenses 593 602 (1%) ------------ ------------ Income before taxes $ 365 $ 209 75% ============ ============ Comp & benefits as a % of net rev. 21% 26% Non-comp expenses as a % of net rev. 41% 48% Pre-tax profit margin (1) 38% 26% Number of employees 13,524 13,761 (2%) -------------------------- (1) Income before taxes as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-14 ---------------------------------------------------------------------- MORGAN STANLEY The following pages (F-15 - F-16) present a reconciliation for certain information disclosed on pages F-7, F-12 and F-14. The data is presented on both a "managed" loan basis and as reported under generally accepted accounting principles ("owned" loan basis). Managed loan data assume that the Company's securitized loan receivables have not been sold and presents the results of securitized loan receivables in the same manner as the Company's owned loans. The Company operates its Credit Services business and analyzes its financial performance on a managed basis. Accordingly, underwriting and servicing standards are comparable for both owned and securitized loans. The Company believes that managed loan information is useful to investors because it provides information regarding the quality of loan origination and credit performance of the entire managed portfolio and allows investors to understand the related credit risks inherent in owned loans and retained interests in securitizations. In addition, investors often request information on a managed basis, which provides a more meaningful comparison to industry competitors. ---------------------------------------------------------------------- MORGAN STANLEY Financial Information and Statistical Data (1) (unaudited, dollars in millions) Quarter Ended Feb 29, 2004 ---------------------------------------------------------- General Purpose Credit Card Loans: Delinquency Rate Net ------------- Period Interest Interest Charge- 30 90 End Avg Yield Spread offs Days Days -------- -------- -------- -------- -------- ------ ------ Owned $ 15,850 $ 17,880 10.13% 6.08% 5.81% 5.17% 2.54% Securitized 31,486 30,787 13.40% 11.20% 6.60% 6.11% 3.01% -------- -------- Managed $ 47,336 $ 48,667 12.20% 9.35% 6.31% 5.80% 2.86% ======== ======== Quarter Ended Feb 28, 2003 ---------------------------------------------------------- General Purpose Credit Card Loans: Delinquency Rate Net ------------- Period Interest Interest Charge- 30 90 End Avg Yield Spread offs Days Days -------- -------- -------- -------- -------- ------ ------ Owned $ 20,847 $ 22,305 9.26% 4.73% 5.55% 5.60% 2.63% Securitized 30,964 30,497 13.61% 10.96% 6.63% 6.82% 3.17% -------- -------- Managed $ 51,811 $ 52,802 11.78% 8.36% 6.17% 6.33% 2.95% ======== ======== Quarter Ended Nov 30, 2003 ---------------------------------------------------------- General Purpose Credit Card Loans: Delinquency Rate Net ------------- Period Interest Interest Charge- 30 90 End Avg Yield Spread offs Days Days -------- -------- -------- -------- -------- ------ ------ Owned $ 18,930 $ 18,143 10.07% 5.86% 6.56% 5.36% 2.53% Securitized 29,428 30,692 13.23% 10.88% 7.06% 6.36% 3.01% -------- -------- Managed $ 48,358 $ 48,835 12.05% 9.05% 6.87% 5.97% 2.82% ======== ======== -------------------------- (1) The tables provide a reconciliation of certain managed and owned basis statistical data (period-end and average loan balances, interest yield, interest spread, net charge-off rates, and 30- and 90-day delinquency rates) for the periods indicated. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-15 ---------------------------------------------------------------------- MORGAN STANLEY Reconciliation of Managed Income Statement Data (1) (unaudited, dollars in millions) Quarter Ended --------------------------- Feb 29, Feb 28, Nov 30, 2004 2003 2003 -------- -------- -------- Merchant and cardmember fees: Owned $ 337 $ 364 $ 337 Securitization adj. 182 184 175 -------- -------- -------- Managed $ 519 $ 548 $ 512 ======== ======== ======== Servicing fees: Owned $ 572 $ 567 $ 483 Securitization adj. (572) (567) (483) -------- -------- -------- Managed $ - $ - $ - ======== ======== ======== Other: Owned $ 5 $ (4) $ (5) Securitization adj. 30 57 6 -------- -------- -------- Managed $ 35 $ 53 $ 1 ======== ======== ======== Interest revenue: Owned $ 480 $ 546 $ 487 Securitization adj. 1,044 1,034 1,030 -------- -------- -------- Managed $1,524 $1,580 $1,517 ======== ======== ======== Interest expense: Owned $ 174 $ 239 $ 179 Securitization adj. 176 202 187 -------- -------- -------- Managed $ 350 $ 441 $ 366 ======== ======== ======== Provision for consumer loan losses: Owned $ 262 $ 336 $ 312 Securitization adj. 508 506 541 -------- -------- -------- Managed $ 770 $ 842 $ 853 ======== ======== ======== -------------------------- (1) The tables provide a reconciliation of certain managed and owned basis income statement data (merchant and cardmember fees, servicing fees, other revenue, interest revenue, interest expense and provision for consumer loan losses) for the periods indicated. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-16 ---------------------------------------------------------------------- MORGAN STANLEY The following page (F-17) presents a reconciliation of adjusted assets. Balance sheet leverage ratios are one indicator of capital adequacy when viewed in the context of a company's overall liquidity and capital policies. The Company views the adjusted leverage ratio as a more relevant measure of financial risk when comparing financial services firms and evaluating leverage trends. Adjusted assets exclude certain self-funded assets considered to have minimal market, credit and/or liquidity risk that are generally attributable to matched book and securities lending businesses as measured by aggregate resale agreements and securities borrowed less non- derivative short positions. In addition, the adjusted leverage ratio reflects the deduction from shareholders' equity of the amount of equity used to support goodwill, as the Company does not view this amount of equity as available to support its risk capital needs. ---------------------------------------------------------------------- MORGAN STANLEY Reconciliation of Adjusted Assets (unaudited, dollars in millions, except ratios) Quarter Ended ------------------------------------- Feb 29, Feb 28, Nov 30, 2004 2003 2003 ----------- ----------- ----------- Total assets $ 656,898 $ 559,436 $ 602,843 Less: Securities purchased under agreements to resell (76,755) (59,687) (78,205) Securities borrowed (179,288) (140,566) (153,813) Add: Financial instruments sold, not yet purchased 129,711 100,721 111,448 Less: Derivative contracts sold, not yet purchased (43,857) (42,604) (36,242) ----------- ----------- ----------- Subtotal 486,709 417,300 446,031 Less: Segregated customer cash and securities balances (16,935) (32,961) (20,705) Assets recorded under certain provisions of SFAS No. 140 and FIN 46 (39,756) (21,194) (35,217) Goodwill (1,539) (1,460) (1,514) ----------- ----------- ----------- Adjusted assets $ 428,479 $ 361,685 $ 388,595 =========== =========== =========== Shareholders' equity $ 26,064 $ 22,465 $ 24,867 Junior subordinated debt issued to capital trusts (1) 2,897 2,010 2,810 ----------- ----------- ----------- Subtotal 28,961 24,475 27,677 Less: Goodwill (1,539) (1,460) (1,514) ----------- ----------- ----------- Tangible shareholders' equity $ 27,422 $ 23,015 $ 26,163 =========== =========== =========== Leverage ratio (2) 24.0x 24.3x 23.0x =========== =========== =========== Adjusted leverage ratio (3) 15.6x 15.7x 14.9x =========== =========== =========== -------------------------- (1) The Company views the junior subordinated debt issued to capital trusts as a component of its equity capital base given the inherent characteristics of the securities. These characteristics include the long dated nature (final maturity at issuance of thirty years extendable at the Company's option by a further nineteen years), the Company's ability to defer coupon interest for up to 20 consecutive quarters, and the subordinated nature of the obligations in the capital structure The Company also receives rating agency equity credit for these securities. (2) Leverage ratio equals total assets divided by tangible shareholders' equity. (3) Adjusted leverage ratio equals adjusted total assets divided by tangible shareholders' equity. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-17 ---------------------------------------------------------------------- CONTACT: Morgan Stanley, New York Investor Relations William Pike, 212-761-0008 or Media Relations Raymond O'Rourke, 212-761-4262