EX-99.2 3 a6362207ex99_2.htm EXHIBIT 99.2 a6362207ex99_2.htm
Exhibit 99.2
 
MORGAN STANLEY
Financial Supplement - 2Q 2010
Table of Contents
 
Page #
        
           
 
1
  
…………….
  
Quarterly Financial Summary
 
2
  
…………….
  
Quarterly Consolidated Income Statement Information
 
3 - 4
  
…………….
  
Quarterly Consolidated Financial Information and Statistical Data
 
5
  
…………….
  
Quarterly Institutional Securities Income Statement Information
 
6 - 7
  
…………….
  
Quarterly Institutional Securities Financial Information and Statistical Data
 
8
  
…………….
  
Quarterly Global Wealth Management Group Income Statement Information
 
9
  
…………….
  
Quarterly Global Wealth Management Group Financial Information and Statistical Data
 
10
  
…………….
  
Quarterly Asset Management Income Statement Information
 
11
  
…………….
  
Quarterly Asset Management Financial Information and Statistical Data
 
12
  
…………….
  
Earnings Per Share Appendix I
 
13
  
…………….
  
Earnings Per Share Appendix II
 
14 - 15
  
…………….
  
End Notes
 
16
  
…………….
  
Legal Notice
 
 
 
 
MORGAN STANLEY
  
Quarterly Financial Summary
  
(unaudited, dollars in millions)
  
                                                   
                                                   
                                                   
     
Quarter Ended
    
Percentage Change From:
    
Six Months Ended
    
Percentage
  
     
June 30, 2010
    
Mar 31, 2010
    
June 30, 2009
    
2Q10 vs. 1Q10
    
2Q10 vs. 2Q09
    
June 30, 2010
    
June 30, 2009
    
Change
  
Net revenues
                                                
 
Institutional Securities
   $ 4,502     $ 5,344     $ 2,967     (16 %)     52 %     $ 9,846     $ 4,568     116 %  
 
Global Wealth Management Group
     3,074       3,105       1,923     (1 %)     60 %       6,179       3,222     92 %  
 
Asset Management
     410       653       358     (37 %)     15 %       1,063       380     180 %  
 
Intersegment Eliminations
     (36 )     (24 )     (51 )   (50 %)     29 %       (60 )     (76 )   21 %  
 
Consolidated net revenues
   $ 7,950     $ 9,078     $ 5,197     (12 %)     53 %     $ 17,028     $ 8,094     110 %  
                                                                   
Income / (loss) from continuing operations before tax
                                                                
 
Institutional Securities
   $ 1,570     $ 2,067     $ (298 )   (24 %)     *       $ 3,637     $ (762 )   *    
 
Global Wealth Management Group
     207       278       (71 )   (26 %)     *         485       48     *    
 
Asset Management
     (86 )     173       (210 )   *       59 %       87       (493 )   *    
 
Intersegment Eliminations
     (13 )     (2 )     (5 )   *       (160 %)       (15 )     (7 )   (114 %)  
 
Consolidated income / (loss) from continuing operations before tax
   $ 1,678     $ 2,516     $ (584 )   (33 %)     *       $ 4,194     $ (1,214 )   *    
                                                                   
Income / (loss) applicable to Morgan Stanley
                                                                
 
Institutional Securities
   $ 1,382     $ 1,733     $ (122 )   (20 %)     *       $ 3,115     $ 39     *    
 
Global Wealth Management Group
     110       99       76     11 %     45 %       209       149     40 %  
 
Asset Management
     (44 )     14       (89 )   *       51 %       (30 )     (339 )   91 %  
 
Intersegment Eliminations
     (11 )     (1 )     (3 )   *       *         (12 )     (4 )   (200 %)  
 
Consolidated income / (loss) applicable to Morgan Stanley
   $ 1,437     $ 1,845     $ (138 )   (22 %)     *       $ 3,282     $ (155 )   *    
Earnings / (loss) applicable to Morgan Stanley common shareholders
   $ 1,578     $ 1,411     $ (1,256 )   12 %     *       $ 2,990     $ (1,834 )   *    
                                                                   
Earnings per basic share:
                                                                
 
Income from continuing operations
   $ 0.84     $ 1.12     $ (1.36 )   (25 %)     *       $ 1.96     $ (1.82 )   *    
 
Discontinued operations
   $ 0.36     $ (0.05 )   $ 0.26     *       38 %     $ 0.31     $ 0.11     182 %  
Earnings per basic share
   $ 1.20     $ 1.07     $ (1.10 )   12 %     *       $ 2.27     $ (1.71 )   *    
                                                                   
Earnings per diluted share:
                                                                
 
Income from continuing operations
   $ 0.80     $ 1.03     $ (1.36 )   (22 %)     *       $ 1.82     $ (1.82 )   *    
 
Discontinued operations
   $ 0.29     $ (0.04 )   $ 0.26     *       12 %     $ 0.26     $ 0.11     136 %  
Earnings per diluted share
   $ 1.09     $ 0.99     $ (1.10 )   10 %     *       $ 2.08     $ (1.71 )   *    
                                                                   
 
Notes:
 -
Results include Morgan Stanley Smith Barney (MSSB) effective from May 31, 2009.
  -
Results for the quarters ended June 30, 2010 and June 30, 2009 include positive / (negative) revenue of $0.7 billion and $(2.3) billion, respectively, related to the movement in Morgan Stanley's credit spreads on certain long-term debt. The effect of movement in these credit spreads for the quarter ended March 31, 2010 was immaterial.
  -
Income / (loss) applicable to Morgan Stanley represents consolidated income / (loss) from continuing operations applicable to Morgan Stanley before gain / (loss) from discontinued operations.
  -
For the quarter ended June 30, 2010, discontinued operations primarily included the operating results of the retail asset management business including Van Kampen and an after-tax gain of approximately $514 million related to the sale of this business. For the quarter ended March 31, 2010, discontinued operations included a loss of $932 million (reported in Institutional Securities) on the disposition of Revel Entertainment Group, LLC, (Revel), a subsidiary of the Firm, a gain of $775 million (not reported in a business segment) related to a legal settlement with Discover Financial Services and the operating results of the retail asset management business, including Van Kampen (reported in Asset Management).
  - Summation of the quarters' earnings per common share may not equal the year-to-date amounts due to the averaging effect of the number of shares and share equivalents throughout the year.
  -
Refer to Legal Notice on page 16.
 
 
1
 
MORGAN STANLEY
  
Quarterly Consolidated Income Statement Information
  
(unaudited, dollars in millions)
  
                                                 
                                                 
   
Quarter Ended
    
Percentage Change From:
    
Six Months Ended
    
Percentage
  
   
June 30, 2010
    
Mar 31, 2010
    
June 30, 2009
    
2Q10 vs. 1Q10
    
2Q10 vs. 2Q09
    
June 30, 2010
    
June 30, 2009
    
Change
  
Revenues:
                                                
Investment banking
   $ 1,080     $ 1,060     $ 1,266     2 %     (15 %)     $ 2,140     $ 2,139     --    
Principal transactions:
                                                                
Trading
     3,346       3,751       1,732     (11 %)     93 %       7,097       3,087     130 %  
Investments
     (52 )     369       (125 )   *       58 %       317       (1,275 )   *    
Commissions
     1,316       1,261       973     4 %     35 %       2,577       1,743     48 %  
Asset management, distribution and admin. fees
     1,974       1,963       1,158     1 %     70 %       3,937       2,024     95 %  
Other
     134       293       390     (54 %)     (66 %)       427       637     (33 %)  
Total non-interest revenues
     7,798       8,697       5,394     (10 %)     45 %       16,495       8,355     97 %  
                                                                 
Interest income
     1,755       1,748       1,648     --       6 %       3,503       3,893     (10 %)  
Interest expense
     1,603       1,367       1,845     17 %     (13 %)       2,970       4,154     (29 %)  
Net interest
     152       381       (197 )   (60 %)     *         533       (261 )   *    
Net revenues
     7,950       9,078       5,197     (12 %)     53 %       17,028       8,094     110 %  
                                                                 
Non-interest expenses:
                                                                
Compensation and benefits
     3,887       4,418       3,803     (12 %)     2 %       8,305       5,781     44 %  
                                                                 
Non-compensation expenses:
                                                                
Occupancy and equipment
     403       392       373     3 %     8 %       795       710     12 %  
Brokerage, clearing and exchange fees
     371       348       267     7 %     39 %       719       515     40 %  
Information processing and communications
     416       395       313     5 %     33 %       811       595     36 %  
Marketing and business development
     153       134       120     14 %     28 %       287       230     25 %  
Professional services
     497       395       384     26 %     29 %       892       687     30 %  
Other
     545       480       521     14 %     5 %       1,025       790     30 %  
Total non-compensation expenses 
     2,385       2,144       1,978     11 %     21 %       4,529       3,527     28 %  
Total non-interest expenses
     6,272       6,562       5,781     (4 %)     8 %       12,834       9,308     38 %  
                                                                 
Income / (loss) from continuing operations before taxes
     1,678       2,516       (584 )   (33 %)     *         4,194       (1,214 )   *    
Income tax provision / (benefit) from continuing operations
     217       436       (319 )   (50 %)     *         653       (914 )   *    
Income / (loss) from continuing operations
     1,461       2,080       (265 )   (30 %)     *         3,541       (300 )   *    
Gain / (loss) from discontinued operations after tax
     523       (69 )     298     *       76 %       454       143     *    
Net income / (loss)
   $ 1,984     $ 2,011     $ 33     (1 %)     *       $ 3,995     $ (157 )   *    
Net income / (loss) applicable to non-controlling interests
     24       235       (116 )   (90 %)     *         259       (129 )   *    
Net income / (loss) applicable to Morgan Stanley
     1,960       1,776       149     10 %     *         3,736       (28 )   *    
Earnings / (loss) applicable to Morgan Stanley common shareholders
   $ 1,578     $ 1,411     $ (1,256 )   12 %     *       $ 2,990     $ (1,834 )   *    
                                                                 
Amounts applicable to Morgan Stanley:
                                                                
Income / (loss) from continuing operations
     1,437       1,845       (138 )   (22 %)     *         3,282       (155 )   *    
Gain / (loss) from discontinued operations after tax
     523       (69 )     287     *       82 %       454       127     *    
Net income / (loss) applicable to Morgan Stanley
   $ 1,960     $ 1,776     $ 149     10 %     *       $ 3,736     $ (28 )   *    
                                                                 
Pre-tax profit margin
     21 %     28 %     *                       25 %     *          
Compensation and benefits as a % of net revenues
     49 %     49 %     73 %                     49 %     71 %        
Non-compensation expenses as a % of net revenues
     30 %     24 %     38 %                     27 %     44 %        
                                                                 
Effective tax rate from continuing operations
     12.9 %     17.3 %     54.6 %                     15.6 %     75.3 %        
                                                                 
 
Notes:
 -
Results include MSSB effective from May 31, 2009.
  - Pre-tax profit margin is a non-GAAP measure that the Firm and investors use to assess operating performance.  Pre-tax profit margin is defined as income / (loss) from continuing operations before taxes, as a % of net revenues.
  -
The quarter ended June 30, 2010 included a discrete tax benefit of $345 million related to the remeasurement of tax reserves based on the status of federal and state tax examinations. Excluding this benefit, the effective tax rate for the quarter would have been 33.5%.
  -
The quarter ended March 31, 2010 included a discrete tax benefit of $382 million associated with prior year undistributed earnings of certain non-U.S. subsidiaries that were determined to be indefinitely reinvested abroad.  Excluding this benefit, the effective tax rate for the quarter would have been 32.5%.
  -
Refer to Legal Notice on page 16.
 
 
2
 
MORGAN STANLEY
  
Quarterly Consolidated Financial Information and Statistical Data
  
(unaudited)
  
                                                   
                                                   
     
Quarter Ended
    
Percentage Change From:
    
Six Months Ended
    
Percentage
  
   
June 30, 2010
    
Mar 31, 2010
    
June 30, 2009
    
2Q10 vs. 1Q10
    
2Q10 vs. 2Q09
    
June 30, 2010
    
June 30, 2009
    
Change
  
Morgan Stanley
                                                
                                                   
Regional revenue (1)
                                                
Americas
   $ 5,663     $ 6,199     $ 4,523     (9 %)     25 %     $ 11,862     $ 7,112     67 %  
EMEA (Europe, Middle East, Africa)
     1,717       2,013       7     (15 %)     *         3,730       66     *    
Asia
     570       866       667     (34 %)     (15 %)       1,436       916     57 %  
Consolidated net revenues
   $ 7,950     $ 9,078     $ 5,197     (12 %)     53 %     $ 17,028     $ 8,094     110 %  
                                                                 
Worldwide employees
     62,926       61,552       61,197     2 %     3 %                          
Total assets
   $ 809,456     $ 819,719     $ 676,957     (1 %)     20 %                          
Firmwide Deposits
     61,368       63,926       62,382     (4 %)     (2 %)                          
Consolidated assets under management or supervision (billions):
                                                                
Asset Management
     251       262       242     (4 %)     4 %                          
Global Wealth Management
     403       413       322     (2 %)     25 %                          
Total
     654       675       564     (3 %)     16 %                          
                                                                   
Common equity
     41,415       38,667       36,989     7 %     12 %                          
Preferred equity
     9,597       9,597       9,597     --       --                            
Morgan Stanley shareholders' equity
     51,012       48,264       46,586     6 %     10 %                          
Junior subordinated debt issued to capital trusts
     10,508       10,554       10,666     --       (1 %)                          
Less: Goodwill and intangible assets (2)
     (7,148 )     (7,570 )     (7,726 )   6 %     7 %                          
Tangible Morgan Stanley shareholders' equity
   $ 54,372     $ 51,248     $ 49,526     6 %     10 %                          
Tangible common equity
   $ 34,267     $ 31,097     $ 29,263     10 %     17 %                          
                                                                   
Leverage Ratio
     14.9 x     16.0 x     13.7 x                                        
Aggregate trading and non-trading Value-at-Risk (pre-tax) (3)
   $ 164     $ 169     $ 154                                          
                                                                   
Average common shares outstanding (000's)
                                                                
 
Basic
     1,317,686       1,314,608       1,138,444     --       16 %                          
 
Diluted
     1,748,209       1,626,207       1,138,444     8 %     54 %                          
Period end common shares outstanding (000's)
     1,397,007       1,398,470       1,359,204     --       3 %                          
                                                                   
Return on average common equity
                                                                
 
from continuing operations
     12.2 %     17.1 %     *                                          
Return on average common equity
     17.4 %     16.3 %     *                                          
                                                                   
Book value per common share (4)
   $ 29.65     $ 27.65     $ 27.21     7 %     9 %                          
Tangible book value per common share
   $ 24.53     $ 22.24     $ 21.53     10 %     14 %                          
                                                                   
 
Notes:
 -
All data presented in millions except ratios, book values and number of employees.
  -
Results include MSSB effective from May 31, 2009.
  -
The number of worldwide employees for all periods has been restated to exclude employees of the retail asset management business, including Van Kampen.
  -
Goodwill and intangible assets exclude non-controlling interests and reflect the Firm's share of MSSB's goodwill and intangible assets.
  -
Tangible common equity is a non-GAAP measure that the Firm and investors use to assess capital adequacy.  Tangible common equity equals common equity less goodwill and intangible assets net of allowable mortgage servicing rights deduction.
  -
Leverage ratio is a non-GAAP measure that the Firm and investors use to assess capital adequacy.  Leverage ratio equals total assets divided by tangible Morgan Stanley shareholders' equity.
  -
Book value per common share equals common equity divided by period end common shares outstanding.
  -
Tangible book value per common share is a non-GAAP measure that the Firm and investors use to assess capital adequacy.  Tangible book value per common share equals tangible common equity divided by period end common shares outstanding.
  - Tangible MS shareholders' equity is a non-GAAP measure that the Firm and investors use to assess capital adequacy.
  -
Refer to End Notes on pages 14-15 and Legal Notice on page 16.
 
 
3
 
MORGAN STANLEY
  
Quarterly Consolidated Financial Information and Statistical Data
  
(unaudited)
  
                                       
                                       
                                       
     
Quarter Ended (Billions)
  
     
June 30, 2010
    
Mar 31, 2010
  
       
Average tier 1
capital (1)
      
Average common
equity (1)
      
Return on
average
common equity
      
Average tier 1
capital (1)
      
Average common
equity (1)
      
Return on
average
common equity
  
Institutional Securities
   $  26.3     $ 17.5       30%     $ 24.9     $ 17.3       39%  
Global Wealth Management Group
      3.0       6.8       6%       3.0       6.9       5%  
Asset Management
      2.0       1.7       *       2.2       2.1       2%  
Parent capital
      20.2       13.6               18.4       11.3          
Total - continuing operations
       51.5       39.6       12%       48.5       37.6       17%  
Discontinued operations
       0.2       0.4               0.2       0.5          
Firm
   $   51.7     $ 40.0       17%     $ 48.7     $ 38.1       16%  
                                                   
                                                   
     
Six Months Ended (Billions)
                          
     
June 30, 2010
                          
       
Average tier 1
capital (1)
      
Average common
equity (1)
      
Return on
average
common equity
                          
Institutional Securities
   $   25.6     $ 17.4       34%                          
Global Wealth Management Group
       3.0       6.8       6%                          
Asset Management
       2.1       1.9       *                          
Parent capital
       19.3       12.6                                  
Total - continuing operations
       50.0       38.7       15%                          
Discontinued operations
       0.2       0.4                                  
Firm
   $   50.2     $ 39.1       17%                          
                                                   
                                                   
                                                   
                                                   
 
Notes:  -
Excluding the effect of the discrete tax benefits in the quarters ended June 30, 2010 and March 31, 2010, the return on average common equity for Institutional Securities would have been 22% and 30%, respectively.
  -
Beginning with the quarter ended June 30, 2010, the Firm's capital estimate is based on the Required Capital Framework, an internal capital adequacy measure. The quarter ended March 31, 2010 has been restated to conform to the current framework. Quarterly data for 2009 has not been restated.
  -
Refer to End Notes on pages 14-15 and Legal Notice on page 16.
 
 
4
 
MORGAN STANLEY
  
Quarterly Institutional Securities Income Statement Information
  
(unaudited, dollars in millions)
  
                                                 
                                                 
   
Quarter Ended
    
Percentage Change From:
    
Six Months Ended
    
Percentage
  
   
June 30, 2010
    
Mar 31, 2010
    
June 30, 2009
    
2Q10 vs. 1Q10
    
2Q10 vs. 2Q09
    
June 30, 2010
    
June 30, 2009
    
Change
  
Revenues:
                                                
Investment banking
   $ 885     $ 887     $ 1,126     --       (21 %)     $ 1,772     $ 1,937     (9 %)  
Principal transactions:
                                                                
Trading
     3,109       3,411       1,520     (9 %)     105 %       6,520       2,626     148 %  
Investments
     (68 )     174       (184 )   *       63 %       106       (974 )   *    
Commissions
     625       581       565     8 %     11 %       1,206       1,077     12 %  
Asset management, distribution and admin. fees
     39       26       19     50 %     105 %       65       45     44 %  
Other
     26       140       311     (81 %)     (92 %)       166       497     (67 %)  
Total non-interest revenues
     4,616       5,219       3,357     (12 %)     38 %       9,835       5,208     89 %  
                                                                 
Interest income
     1,367       1,408       1,388     (3 %)     (2 %)       2,775       3,406     (19 %)  
Interest expense
     1,481       1,283       1,778     15 %     (17 %)       2,764       4,046     (32 %)  
Net interest
     (114 )     125       (390 )   *       71 %       11       (640 )   *    
Net revenues
     4,502       5,344       2,967     (16 %)     52 %       9,846       4,568     116 %  
                                                                 
Compensation and benefits 
     1,638       2,171       2,109     (25 %)     (22 %)       3,809       3,149     21 %  
Non-compensation expenses 
     1,294       1,106       1,156     17 %     12 %       2,400       2,181     10 %  
Total non-interest expenses
     2,932       3,277       3,265     (11 %)     (10 %)       6,209       5,330     16 %  
                                                                 
                                                                 
Income / (loss) from continuing operations before taxes
     1,570       2,067       (298 )   (24 %)     *         3,637       (762 )   *    
Income tax provision / (benefit) from continuing operations
     197       330       (168 )   (40 %)     *         527       (775 )   *    
Income / (loss) from continuing operations
     1,373       1,737       (130 )   (21 %)     *         3,110       13     *    
Gain / (loss) from discontinued operations after tax
     (25 )     (938 )     315     97 %     *         (963 )     326     *    
Net income / (loss)
     1,348       799       185     69 %     *         2,147       339     *    
Net income / (loss) applicable to non-controlling interests
     (9 )     4       3     *       *         (5 )     (10 )   50 %  
Net income / (loss) applicable to Morgan Stanley
   $ 1,357     $ 795     $ 182     71 %     *       $ 2,152     $ 349     *    
                                                                 
Amounts applicable to Morgan Stanley:
                                                                
Income / (loss) from continuing operations
     1,382       1,733       (122 )   (20 %)     *         3,115       39     *    
Gain / (loss) from discontinued operations after tax
     (25 )     (938 )     304     97 %     *         (963 )     310     *    
Net income / (loss) applicable to Morgan Stanley
   $ 1,357     $ 795     $ 182     71 %     *       $ 2,152     $ 349     *    
                                                                 
Return on average common equity
                                                                
from continuing operations
     30 %     39 %     N/A                       34%       N/A          
Pre-tax profit margin
     35 %     39 %     *                       37%       *          
Compensation and benefits as a % of net revenues
     36 %     41 %     71%                       39%       69%          
                                                                 
 
Notes:
 -
Pre-tax profit margin is a non-GAAP measure that the Firm and investors use to assess operating performance.  Pre-tax profit margin is defined as income / (loss) from continuing operations before taxes, as a % of net revenues.
  -
For the quarter ended March 31, 2010, discontinued operations included a loss of $932 million on the disposition of Revel.
  -
Excluding the effect of the discrete tax benefits in the quarters ended June 30, 2010 and March 31, 2010, the return on average common equity for Institutional Securities would have been 22% and 30%, respectively.
  -
Beginning with the quarter ended June 30, 2010, the Firm's estimation of segment capital is based on the Required Capital Framework, an internal capital adequacy measure.  Segment capital for the quarter ended March 31, 2010 has been restated to conform to this framework.  Quarterly segment capital for 2009, however, has not been restated under this framework.  As a result, the business segment's return on average common equity from continuing operations for the quarter and six months ended June 30, 2009 is not available. 
  - 
Refer to Legal Notice on page 16.
 
 
5
 
 
MORGAN STANLEY
  
 
Quarterly Financial Information and Statistical Data
  
 
Institutional Securities
  
 
(unaudited, dollars in millions)
  
                                                   
                                                   
                                                   
     
Quarter Ended
    
Percentage Change From:
    
Six Months Ended
    
Percentage
  
     
June 30, 2010
    
Mar 31, 2010
    
June 30, 2009
    
2Q10 vs. 1Q10
    
2Q10 vs. 2Q09
    
June 30, 2010
    
June 30, 2009
    
Change
  
                                                   
Investment Banking
                                                
Advisory revenue
   $ 288     $ 327     $ 268     (12 %)     7 %     $ 615     $ 679     (9 %)  
Underwriting revenue
                                                                
 
Equity
     269       264       456     2 %     (41 %)       533       611     (13 %)  
 
Fixed income
     328       296       402     11 %     (18 %)       624       647     (4 %)  
Total underwriting revenue
   $ 597     $ 560     $ 858     7 %     (30 %)     $ 1,157     $ 1,258     (8 %)  
                                                                   
Total investment banking revenue
   $ 885     $ 887     $ 1,126     --       (21 %)     $ 1,772     $ 1,937     (9 %)  
                                                                   
Sales & Trading
                                                                
 
Equity
   $ 1,415     $ 1,419     $ 776     --       82 %     $ 2,834     $ 1,730     64 %  
 
Fixed income
     2,345       2,723       903     (14 %)     160 %       5,068       2,147     136 %  
 
Other
     (101 )     1       35     *       *         (100 )     (769 )   87 %  
Total sales & trading net revenue
   $ 3,659     $ 4,143     $ 1,714     (12 %)     113 %     $ 7,802     $ 3,108     151 %  
                                                                   
                                                                   
Average Daily 95% / One-Day Value-at-Risk ("VaR") (1)
                                                                
Primary Market Risk Category ($ millions, pre-tax)
                                                                
 
Interest rate and credit spread
   $ 132     $ 127     $ 124                                          
 
Equity price
   $ 29     $ 26     $ 19                                          
 
Foreign exchange rate
   $ 26     $ 32     $ 17                                          
 
Commodity price
   $ 29     $ 27     $ 23                                          
                                                                   
Trading VaR
   $ 139     $ 143     $ 132                                          
                                                                   
                                                                   
 
Note:
Refer to End Notes on pages 14-15 and Legal Notice on page 16.
 
 
6
 
MORGAN STANLEY
  
Quarterly Financial Information and Statistical Data
  
Institutional Securities - Corporate Lending
  
(unaudited, dollars in billions)  
                               
                               
   
Quarter Ended
    
Percentage Change From:
  
   
June 30, 2010
    
Mar 31, 2010
    
June 30, 2009
    
2Q10 vs. 1Q10
    
2Q10 vs. 2Q09
  
                               
                               
Corporate funded loans
                              
Investment grade
   $ 5.1     $ 5.7     $ 7.2     (11 %)     (29 %)  
Non-investment grade
     6.8       7.7       10.2     (12 %)     (33 %)  
Total corporate funded loans
   $ 11.9     $ 13.4     $ 17.4     (11 %)     (32 %)  
                                         
Corporate lending commitments
                                        
Investment grade
   $ 43.6     $ 42.0     $ 35.7     4 %     22 %  
Non-investment grade
     11.6       11.6       6.0     --       93 %  
Total corporate lending commitments
   $ 55.2     $ 53.6     $ 41.7     3 %     32 %  
                                         
Corporate funded loans plus lending commitments
                                        
Investment grade
   $ 48.7     $ 47.7     $ 42.9     2 %     14 %  
Non-investment grade
   $ 18.4     $ 19.3     $ 16.2     (5 %)     14 %  
                                         
% investment grade
     73 %     71 %     73 %                
% non-investment grade
     27 %     29 %     27 %                
                                         
Total corporate funded loans and lending commitments
   $ 67.1     $ 67.0     $ 59.1     --       14 %  
Hedges
   $ 20.1     $ 22.3     $ 31.8     (10 %)     (37 %)  
                                         
 
Notes:
 -
In connection with certain of its Institutional Securities business activities, the Firm provides loans or lending commitments to select clients related to its leveraged acquisition finance or relationship lending activities.  For a further discussion of this activity, see the Firm's Annual Report on Form 10-K for the year ended December 31, 2009.
  -
For the quarters ended June 30, 2010, Mar 31, 2010 and June 30, 2009, the leveraged acquisition finance portfolio of pipeline commitments and closed deals were $4.9 billion, $5.7 billion and $4.2 billion, respectively.
  -
The hedge balance reflects the notional amount utilized by the lending business.
  -
Refer to Legal Notice on page 16.
 
 
7
 
MORGAN STANLEY
  
Quarterly Global Wealth Management Group Income Statement Information
  
(unaudited, dollars in millions)
  
                                                 
                                                 
   
Quarter Ended
    
Percentage Change From:
    
Six Months Ended
    
Percentage
  
   
June 30, 2010
    
Mar 31, 2010
    
June 30, 2009
    
2Q10 vs. 1Q10
    
2Q10 vs. 2Q09
    
June 30, 2010
    
June 30, 2009
    
Change
  
Revenues:
                                                
Investment banking
   $ 201     $ 173     $ 165     16 %     22 %     $ 374     $ 226     65 %  
Principal transactions:
                                                                
Trading
     249       342       303     (27 %)     (18 %)       591       549     8 %  
Investments
     0       6       1     *       *         6       (13 )   *    
Commissions
     692       682       412     1 %     68 %       1,374       674     104 %  
Asset management, distribution and admin. fees
     1,572       1,628       816     (3 %)     93 %       3,200       1,327     141 %  
Other
     72       83       66     (13 %)     9 %       155       112     38 %  
Total non-interest revenues
     2,786       2,914       1,763     (4 %)     58 %       5,700       2,875     98 %  
                                                                 
Interest income
     387       339       265     14 %     46 %       726       491     48 %  
Interest expense
     99       148       105     (33 %)     (6 %)       247       144     72 %  
Net interest
     288       191       160     51 %     80 %       479       347     38 %  
Net revenues
     3,074       3,105       1,923     (1 %)     60 %       6,179       3,222     92 %  
                                                                 
Compensation and benefits 
     1,966       1,972       1,362     --       44 %       3,938       2,206     79 %  
Non-compensation expenses 
     901       855       632     5 %     43 %       1,756       968     81 %  
Total non-interest expenses
     2,867       2,827       1,994     1 %     44 %       5,694       3,174     79 %  
                                                                 
Income / (loss) from continuing operations before taxes
     207       278       (71 )   (26 %)     *         485       48     *    
Income tax provision / (benefit) from continuing operations
     61       64       (29 )   (5 %)     *         125       17     *    
Income / (loss) from continuing operations
     146       214       (42 )   (32 %)     *         360       31     *    
Gain / (loss) from discontinued operations after tax
     0       0       0     --       --         0       0     --    
Net income / (loss)
     146       214       (42 )   (32 %)     *         360       31     *    
Net income / (loss) applicable to non-controlling interests
     36       115       (118 )   (69 %)     *         151       (118 )   *    
Net income / (loss) applicable to Morgan Stanley
   $ 110     $ 99     $ 76     11 %     45 %     $ 209     $ 149     40 %  
                                                                 
Amounts applicable to Morgan Stanley:
                                                                
Income / (loss) from continuing operations
     110       99       76     11 %     45 %       209       149     40 %  
Gain / (loss) from discontinued operations after tax
     0       0       0     --       --         0       0     --    
Net income / (loss) applicable to Morgan Stanley
   $ 110     $ 99     $ 76     11 %     45 %     $ 209     $ 149     40 %  
                                                                 
Return on average common equity
                                                                
from continuing operations
     6 %     5 %     N/A                       6 %     N/A          
Pre-tax profit margin
     7 %     9 %     *                       8 %     2%          
Compensation and benefits as a % of net revenues
     64 %     64 %     71%                       64 %     69%          
                                                                 
 
Notes:
 -
Results include MSSB effective from May 31, 2009.
  -
The tax provision / (benefit) for all periods includes the Firm's interest in MSSB.
  -
Net income / (loss) applicable to non-controlling interests reflects the 49% allocation of MSSB's pre-tax results to Citigroup.
  -
Pre-tax profit margin is a non-GAAP measure that the Firm and investors use to assess operating performance.  Pre-tax profit margin is defined as income / (loss) from continuing operations before taxes, as a % of net revenues.
  -
Beginning with the quarter ended June 30, 2010, the Firm's estimation of segment capital is based on the Required Capital Framework, an internal capital adequacy measure. Segment capital for the quarter ended March 31, 2010 has been restated to conform to this framework. Quarterly segment capital for 2009, however, has not been restated under this framework. As a result, the business segment's return on average common equity from continuing operations for the quarter and six months ended June 30, 2009 is not available.
  -
Refer to Legal Notice on page 16.
 
 
8
 
 
MORGAN STANLEY
  
 
Quarterly Financial Information and Statistical Data
  
 
Global Wealth Management Group
  
 
(unaudited)
  
                                 
                                 
                                 
     
Quarter Ended
    
Percentage Change From:
  
     
June 30, 2010
    
Mar 31, 2010
    
June 30, 2009
    
2Q10 vs. 1Q10
    
2Q10 vs. 2Q09
  
                                 
                                 
Global representatives
     18,087       18,140       18,444     --       (2 %)  
                                           
Annualized revenue per global
                                        
 
representative (000's)
   $ 679     $ 685     $ 671     (1 %)     1 %  
                                           
Assets by client segment (billions)
                                        
 
$10m or more
     440       481       389     (9 %)     13 %  
  $1m - $10m     627       670       562     (6 %)     12 %  
Subtotal - > $1m
     1,067       1,151       951     (7 %)     12 %  
  $100k - $1m     389       408       412     (5 %)     (6 %)  
 
< $100k
     44       45       57     (2 %)     (23 %)  
Total client assets (billions)
   $ 1,500     $ 1,604     $ 1,420     (6 %)     6 %  
                                           
% of assets by client segment > $1m
     71%       72%       67%                  
                                           
Fee-based client account assets (billions)
   $ 396     $ 413     $ 325     (4 %)     22 %  
Fee-based assets as a % of client assets
     26%        26%       23%                  
                                           
                                           
Bank deposit program (millions)
   $ 109,518     $ 113,545     $ 105,675     (4 %)     4 %  
                                           
Client assets per global
                                        
 
representative (millions)
   $ 83     $ 88     $ 77     (6 %)     8 %  
                                           
Global retail net new assets (billions)
                                        
 
Domestic
   $ (7.9 )   $ 6.9     $ 0.4     *       *    
 
International
   $ 2.4     $ 2.4     $ 0.0     --       *    
Total retail net new assets (1)
   $ (5.5 )   $ 9.3     $ 0.4     *       *    
                                           
Global retail locations (1)
     881       905       958     (3 %)     (8 %)  
                                           
                                           
 
Notes:
 -
Results include MSSB effective from May 31, 2009.
  -
Annualized revenue per global representative is defined as annualized revenue divided by average global representative headcount.
  -
Fee-based client account assets represents the amount of assets in client accounts where the basis of payment for services is a fee calculated on those assets.
  -
For the quarters ended June 30, 2010, Mar 31, 2010 and June 30, 2009, approximately $52 billion, $56 billion and $50 billion of the assets in the bank deposit program are attributed to Morgan Stanley.
  -
Client assets per global representative represents total client assets divided by period end global representative headcount.
  -
Refer to End Notes on pages 14-15 and Legal Notice on page 16.
 
 
9
 
MORGAN STANLEY
  
Quarterly Asset Management Income Statement Information
  
(unaudited, dollars in millions)
  
                                                 
                                                 
   
Quarter Ended
    
Percentage Change From:
    
Six Months Ended
    
Percentage
  
   
June 30, 2010
    
Mar 31, 2010
    
June 30, 2009
    
2Q10 vs. 1Q10
    
2Q10 vs. 2Q09
    
June 30, 2010
    
June 30, 2009
    
Change
  
Revenues:
                                                
Investment banking
   $ 7     $ -     $ 5     *       40 %     $ 7     $ 6     17 %  
Principal transactions:
                                                                
Trading
     (10 )     (1 )     (90 )   *       89 %       (11 )     (87 )   87 %  
Investments (1)
     16       189       58     (92 %)     (72 %)       205       (288 )   *    
Commissions
     0       0       0     --       --         0       0     --    
Asset management, distribution and admin. fees
     383       414       396     (7 %)     (3 %)       797       765     4 %  
Other
     36       71       12     (49 %)     200 %       107       28     *    
Total non-interest revenues
     432       673       381     (36 %)     13 %       1,105       424     161 %  
                                                                 
Interest income
     3       6       4     (50 %)     (25 %)       9       11     (18 %)  
Interest expense
     25       26       27     (4 %)     (7 %)       51       55     (7 %)  
Net interest
     (22 )     (20 )     (23 )   (10 %)     4 %       (42 )     (44 )   5 %  
Net revenues
     410       653       358     (37 %)     15 %       1,063       380     180 %  
                                                                 
Compensation and benefits 
     282       275       331     3 %     (15 %)       557       424     31 %  
Non-compensation expenses 
     214       205       237     4 %     (10 %)       419       449     (7 %)  
Total non-interest expenses
     496       480       568     3 %     (13 %)       976       873     12 %  
                                                                 
Income / (loss) from continuing operations before taxes
     (86 )     173       (210 )   *       59 %       87       (493 )   *    
Income tax provision / (benefit) from continuing operations
     (39 )     43       (120 )   *       68 %       4       (153 )   *    
Income / (loss) from continuing operations
     (47 )     130       (90 )   *       48 %       83       (340 )   *    
Gain / (loss) from discontinued operations after tax
     541       95       (19 )   *       *         636       (187 )   *    
Net income / (loss)
     494       225       (109 )   120 %     *         719       (527 )   *    
Net income / (loss) applicable to non-controlling interests (1)
     (3 )     116       (1 )   *       (200 %)       113       (1 )   *    
Net income / (loss) applicable to Morgan Stanley
   $ 497     $ 109     $ (108 )   *       *       $ 606     $ (526 )   *    
                                                                 
Amounts applicable to Morgan Stanley:
                                                                
Income / (loss) from continuing operations
     (44 )     14       (89 )   *       51 %       (30 )     (339 )   91 %  
Gain / (loss) from discontinued operations after tax
     541       95       (19 )   *       *         636       (187 )   *    
Net income / (loss) applicable to Morgan Stanley
   $ 497     $ 109     $ (108 )   *       *       $ 606     $ (526 )   *    
                                                                 
Return on average common equity
                                                                
from continuing operations
     *       2 %     N/A                       *       N/A          
Pre-tax profit margin
     *       26 %     *                       8%       *          
Compensation and benefits as a % of net revenues
     69%       42 %     93%                       52%       112%          
                                                                 
 
Notes:
 -
Gain / (loss) from discontinued operations primarily includes the results of substantially all of the retail asset management business, including Van Kampen.  The quarter ended June 30, 2010 also included an after-tax gain of approximately $514 million related to the sale of this business.
  -
Pre-tax profit margin is a non-GAAP measure that the Firm and investors use to assess operating performance.  Pre-tax profit margin is defined as income / (loss) from continuing operations before taxes, as a % of net revenues.
  -
Beginning with the quarter ended June 30, 2010, the Firm's estimation of segment capital is based on the Required Capital Framework, an internal capital adequacy measure. Segment capital for the quarter ended March 31, 2010 has been restated to conform to this framework. Quarterly segment capital for 2009, however, has not been restated under this framework. As a result, the business segment's return on average common equity from continuing operations for the quarter and six months ended June 30, 2009 is not available.
  -
Refer to End Notes on pages 14-15 and Legal Notice on page 16.
 
 
10
 
MORGAN STANLEY
  
Quarterly Financial Information and Statistical Data
  
Asset Management
  
(unaudited, dollars in billions)
  
                                                 
   
Quarter Ended
    
Percentage Change From:
    
Six Months Ended
    
Percentage
  
   
June 30, 2010
    
Mar 31, 2010
    
June 30, 2009
    
2Q10 vs. 1Q10
    
2Q10 vs. 2Q09
    
June 30, 2010
    
June 30, 2009
    
Change
  
Assets under management or supervision
                                                
                                                 
Net flows by asset class
                                                
Core Asset Management
                                                
Equity
   $ (0.8 )   $ (1.3 )   $ (4.0 )   38 %     80 %     $ (2.1 )   $ (5.6 )   63 %  
Fixed income - Long Term
     (0.1 )     1.6       (4.4 )   *       98 %       1.5       (8.9 )   *    
Money Market
     0.1       (8.4 )     (13.0 )   *       *         (8.3 )     (22.3 )   63 %  
Alternatives
     (0.7 )     0.5       (0.7 )   *       --         (0.2 )     (4.6 )   96 %  
Total Core Asset Management
     (1.5 )     (7.6 )     (22.1 )   80 %     93 %       (9.1 )     (41.4 )   78 %  
                                                                 
Merchant Banking
                                                                
Private Equity
     0.1       0.3       0.0     (67 %)     *         0.4       (0.3 )   *    
Infrastructure
     0.0       0.0       0.0     --       --         0.0       0.0     --    
Real Estate
     0.2       0.5       (1.9 )   (60 %)     *         0.7       (2.3 )   *    
Total Merchant Banking
     0.3       0.8       (1.9 )   (63 %)     *         1.1       (2.6 )   *    
Total net flows
   $ (1.2 )   $ (6.8 )   $ (24.0 )   82 %     95 %     $ (8.0 )   $ (44.0 )   82 %  
                                                                 
Assets under management or supervision by asset class
                                                                
Core Asset Management
                                                                
Equity
   $ 73     $ 81     $ 67     (10 %)     9 %                          
Fixed income - Long Term
     56       56       49     --       14 %                          
Money Market
     50       51       59     (2 %)     (15 %)                          
Alternatives
     41       43       37     (5 %)     11 %                          
Total Core Asset Management
     220       231       212     (5 %)     4 %                          
                                                                 
Merchant Banking
                                                                
Private Equity
     5       5       4     --       25 %                          
Infrastructure
     4       4       4     --       --                            
Real Estate
     15       15       17     --       (12 %)                          
Total Merchant Banking
     24       24       25     --       (4 %)                          
Total Assets Under Management or Supervision
   $ 244     $ 255     $ 237     (4 %)     3 %                          
Share of minority stake assets
     7       7       5     --       40 %                          
Total
   $ 251     $ 262     $ 242     (4 %)     4 %                          
                                                                 
                                                                 
 
Notes:
 -
Data excludes substantially all of the retail asset management business, including Van Kampen.
  -
Alternatives include a range of alternative investment products such as hedge funds, funds of hedge funds and funds of private equity funds.
  -
Net Flows by region [inflow / (outflow)] for the quarters ended June 30, 2010, Mar 31, 2010 and June 30, 2009 are:
   
U.S.: $(0.7) billion, $(7.7) billion and $(17.1) billion
   
Non-U.S.: $(0.5) billion, $0.9 billion and $(6.9) billion
  -
Assets under management or supervision by region for the quarters ended June 30, 2010, Mar 31, 2010 and June 30, 2009 are:
   
U.S.: $164 billion, $170 billion and $163 billion
   
Non-U.S.: $80 billion, $85 billion and $74 billion
  -
The share of minority stake assets represents Asset Management's proportional share of assets managed by entities in which it owns a minority stake.
  -
Refer to Legal Notice on page 16.
 
 
11
 
                     
This page represents an addendum to the 2Q 2010 Financial Supplement, Appendix I              
                     
                     
 
MORGAN STANLEY
  
 
Earnings Per Share
  
 
(unaudited, in millions, except for per share data)
  
                     
                     
     
Quarter Ended
    
Six Months Ended
  
     
June 30, 2010
    
Mar 31, 2010
    
June 30, 2010
  
                     
 
Basic Earnings Per Share
                  
 
Income from continuing operations applicable to Morgan Stanley
   $ 1,437     $ 1,845     $ 3,282  
 
Gain / (loss) from discontinued operations applicable to Morgan Stanley after tax
     523       (69 )     454  
 
Net Income / (loss) applicable to Morgan Stanley
   $ 1,960     $ 1,776     $ 3,736  
 
Less: Preferred Dividends (Series A)
     (11 )     (11 )     (22 )
 
Less: Preferred Dividends (Series B – Mitsubishi)
     (196 )     (196 )     (392 )
 
Less: Preferred Dividends (Series C – Mitsubishi)
     (13 )     (13 )     (26 )
 
Income applicable to Morgan Stanley, prior to allocation of income to CIC Equity Units and Participating Restricted Stock Units
     1,740       1,556       3,296  
 
Less: Allocation of income / (loss) to CIC Equity Units:
                        
 
From continuing operations
     (67 )     (99 )     (165 )
 
From discontinued operations
     (41 )     6       (36 )
 
Total allocation of income to CIC Equity Units
     (108 )     (93 )     (201 )
 
Less: Allocation of income / (loss) to Participating Restricted Stock Units:
                        
 
From continuing operations
     (38 )     (54 )     (91 )
 
From discontinued operations
     (16 )     2       (14 )
 
Total allocation of income to Participating Restricted Stock Units
     (54 )     (52 )     (105 )
 
Earnings / (loss) applicable to Morgan Stanley common shareholders
   $ 1,578     $ 1,411     $ 2,990  
 
Weighted average common shares outstanding
     1,318       1,315       1,316  
                           
 
Earnings per basic common share
                        
 
Income / (loss) from continuing operations applicable to Morgan Stanley common shareholders
   $ 0.84     $ 1.12     $ 1.96  
 
Gain / (loss) on discontinued operations applicable to Morgan Stanley common shareholders
   $ 0.36     $ (0.05 )   $ 0.31  
 
Earnings / (loss) per basic common share
   $ 1.20     $ 1.07     $ 2.27  
                           
 
Diluted Earnings Per Share
                        
 
Earnings / (loss) applicable to Morgan Stanley common shareholders
   $ 1,578     $ 1,411     $ 2,990  
 
Income impact of assumed conversions:
                        
 
Preferred stock dividends (Series B - Mitsubishi)
     196       196       392  
 
Assumed Conversion of CIC (1)
     132       0       132  
 
Income / (loss) available to common shareholders plus assumed conversions
   $ 1,906     $ 1,607     $ 3,514  
                           
 
Weighted average common shares outstanding
     1,318       1,315       1,316  
 
Effect of dilutive securities:
                        
 
Stock options, Restricted Stock Units
     4       1       4  
 
Series B Preferred Stock
     310       310       310  
 
CIC Stock purchase contract
     116       0       58  
 
Weighted average common shares outstanding and common stock equivalents
     1,748       1,626       1,688  
                           
 
Earnings per diluted common share
                        
 
Income / (loss) from continuing operations applicable to Morgan Stanley common shareholders
   $ 0.80     $ 1.03     $ 1.82  
 
Gain / (loss) on discontinued operations applicable to Morgan Stanley common shareholders
   $ 0.29     $ (0.04 )   $ 0.26  
 
Earnings / (loss) per diluted common share
   $ 1.09     $ 0.99     $ 2.08  
                           
                           
 
Notes:
 -
The Firm calculates earnings per share using the two-class method as described under the accounting guidance for earnings per share.  For further discussion of the Firm's earnings per share calculations, see Note 2 to the consolidated financial statements in the Firm's Annual Report on Form 10-K for the year ended December 31, 2009.
  -
Refer to End Notes on pages 14-15 and Legal Notice on page 16.
 
 
12
 
 
This page represents an addendum to the 2Q 2010 Financial Supplement, Appendix II
 
MORGAN STANLEY
Earnings Per Share Calculation Under Two-Class Method
Three Months Ended June 30, 2010
(unaudited, in millions, except for per share data)
 
 
   
Allocation of net income from continuing operations
  
   
(A)
    
(B)
    
(C)
    
(D)
    
(E)
    
(F)
    
(G)
    
(H)
  
                                       
(D)+(E)+(F)
    
(G)/(A)
  
   
Weighted Average
# of Shares
    
% Allocation (3)
    
Net income from
continuing operations
applicable to
Morgan Stanley (4)
    
Distributed
Earnings (5)
    
Undistributed
Earnings Not in
Excess of Reference Dividend (6)
    
Undistributed
Earnings in Excess
of Reference
Dividend (6)
    
Total Earnings
Allocated
    
Basic EPS (10)
  
                                                 
Basic Common Shares
   1,318     89%           $66     $290     $756     $1,112 (7)     $0.84  
Participating Restricted Stock Units (1)
   45     3%           $2     $10     $26     $38 (8)      N/A  
CIC Equity Units (2)
   116     8%           $0     $0     $67     $67 (9)      N/A  
    1,479     100%     $1,217     $68     $300     $849     $1,217          
                                                 
                                                 
   
Allocation of gain from discontinued operations
    
   
(A)
    
(B)
    
(C)
    
(D)
    
(E)
    
(F)
    
(G)
    
(H)
  
                                       
(D)+(E)+(F)
    
(G)/(A)
  
   
Weighted Average
# of Shares
    
% Allocation (3)
    
Gain from Discontinued Operations Applicable to Common Shareholders,
after Tax (4)
    
Distributed
Earnings (5)
    
Undistributed
Earnings Not in
Excess of Reference
Dividend (6)
    
Undistributed
Earnings in Excess
of Reference
Dividend (6)
    
Total Earnings
Allocated
    
Basic EPS (10)
  
                                                 
Basic Common Shares
   1,318     89%           $0     $0     $466     $466 (7)     $0.36  
Participating Restricted Stock Units (1)
   45     3%           $0     $0     $16      $16 (8)     N/A  
CIC Equity Units (2)
   116     8%           $0     $0     $41     $41 (9)     N/A  
    1,479     100%     $523     $0     $0     $523     $523          
                                                 
                                                 
   
Allocation of net income available to common shareholders
    
   
(A)
    
(B)
    
(C)
    
(D)
    
(E)
    
(F)
    
(G)
    
(H)
  
                                       
(D)+(E)+(F)
    
(G)/(A)
  
   
Weighted Average
# of Shares
    
% Allocation (3)
    
Net income
applicable to
Morgan Stanley (4)
    
Distributed
Earnings (5)
    
Undistributed
Earnings Not in
Excess of Reference
Dividend (6)
    
Undistributed
Earnings in Excess
of Reference
Dividend (6)
    
Total Earnings
Allocated
    
Basic EPS (10)
  
                                                 
Basic Common Shares
   1,318     89%           $66     $290     $1,222     $1,578 (7)     $1.20  
Participating Restricted Stock Units (1)
   45     3%           $2     $10     $42     $54 (8)     N/A  
CIC Equity Units (2)
   116     8%           $0     $0     $108     $108 (9)     N/A  
    1,479     100%     $1,740     $68     $300     $1,372     $1,740          
 
       
Note:
Refer to End Notes on pages 14-15 and Legal Notice on page 16.
 
 
13
 
MORGAN STANLEY
End Notes
 
Page 3:
(1)
Reflects the regional view of the Firm's consolidated net revenues, on a managed basis, based on the following methodology: Institutional Securities: investment banking - client location, equity capital markets - client location, debt capital markets - revenue recording location, sales & trading - trading desk location. Global Wealth Management: financial advisor location. Asset Management: client location except for the merchant banking business which is based on asset location.  All periods exclude net revenues related to substantially all of the retail asset management business, including Van Kampen.
(2)
Goodwill and intangible balances net of allowable mortgage servicing rights deduction for quarters ended June 30, 2010, Mar 31, 2010 and June 30, 2010 of $125 million, $157 million and $173 million, respectively.
(3)
Represents average daily 95% / one-day value-at-risk ("VaR").  Includes non-trading VaR for the quarters ended June 30, 2010, Mar 31, 2010 and June 30, 2009 of $67 million, $62 million and $66 million, respectively.  Counterparty portfolio VaR which reflects adjustments, net of hedges, related to counterparty credit risk and other market risks is included in trading VaR for all periods.  See page 6 for total trading VaR.  For further discussion of the calculation of VaR and the limitations of the Firm's VaR methodology, see Part II, Item 7A "Quantitative and Qualitative Disclosures about Market Risk" in the Firm's Annual Report on Form 10-K for the year ended December 31, 2009.
(4)
In addition to net income applicable to Morgan Stanley, book value increased by $0.51 per share related to an after-tax gain of $717 million on the sale of the Firm's non-controlling interest in its Japanese institutional securities business and $0.10 per share due to an after-tax gain of $133 million on the remeasurement of pension plan liabilities and assets associated with the plan's curtailment.  The latter two items were recorded in other comprehensive income.
   
Page 4:
(1)
The Firm’s capital management approach includes an estimation of an amount of capital the Firm and its businesses require over a wide range of market environments.  Beginning with the quarter ended June 30, 2010, the Firm's capital estimation is based on the Required Capital Framework, an internal capital adequacy measure.  Tier 1 capital and common equity are designated to segments based on the capital usage calculated by the Required Capital Framework which considers a combination of a base amount of capital and an amount of economic capital reserved to absorb an extreme stress event.  The Firm defines parent capital as capital not specifically designated to a particular business segment.  The Firm generally uses parent capital for prospective regulatory requirements, organic growth, acquisitions and other capital needs while maintaining adequate capital ratios.  The Firm's Required Capital is met by regulatory Tier 1 capital.  The framework will evolve over time in response to changes in the business and regulatory environment and to incorporate enhancements in modeling techniques.
   
Page 6:
(1)
Represents the loss amount that one would not expect to exceed, on average, more than five times every one hundred trading days in the Firm's trading positions if the portfolio were held constant for a one-day period.  Trading VaR for all periods includes counterparty portfolio VaR which reflects adjustments, net of hedges, related to counterparty credit risk and other market risks.  For further discussion of the calculation of VaR and the limitations of the Firm's VaR methodology, see Part II, Item 7A "Quantitative and Qualitative Disclosures about Market Risk" in the Firm's Annual Report on Form 10-K for the year ended December 31, 2009.
   
Page 9:
(1)
For the 2010 periods, the retail net new assets and retail locations metrics have been expanded to include the non-U.S. businesses. The quarter ended June 30, 2010 includes $2.4 billion of net new money inflows and 29 additional retail locations, respectively related to the non-U.S. businesses.  The quarter ended March 31, 2010 has been restated to include $2.4 billion of net new money inflows and 28 additional retail locations, respectively related to non-U.S. businesses.  2009 periods have not been restated and reflect only the U.S. retail branch system.  Certain legacy Smith Barney middle markets activities, which are primarily institutional client focused, are required under the MSSB joint venture agreement to be transitioned from Citigroup to Morgan Stanley.  As this transition progresses, commencing with the quarter ended June 30, 2010, these legacy activities have been excluded from the 2010 retail net new assets metrics.  The quarter ended June 30, 2010 excludes $2.3 billion of these legacy net new money outflows.  The quarters ended March 31, 2010 and June 30, 2009 have been restated to exclude $1.1 billion and $2.5 billion, respectively, of these legacy net new money outflows.
 
 
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MORGAN STANLEY
End Notes
 
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(1)
The quarters ended June 30, 2010 and March 31, 2010 include investment gains / (losses) for certain funds included in the Firm's consolidated financial statements.  The limited partnership interests in these gains were reported in net income / (loss) applicable to non-controlling interests.
   
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(1)
Prior to the quarter ended June 30, 2010, Morgan Stanley included the CIC Equity Units in diluted EPS using the more dilutive of the two-class method or treasury stock method.  Beginning in the quarter ended June 30, 2010, Morgan Stanley included the CIC Equity Units in diluted EPS using the more dilutive of the two-class method or the if-converted method.  The change in method had no impact to EPS for the quarter ended June 30, 2010.
   
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(1)
Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of EPS pursuant to the two-class method.  Restricted Stock Units ("RSUs") that pay dividend equivalents subject to vesting are not deemed participating securities and are included in diluted shares outstanding (if dilutive) under the treasury stock method.
(2)
For further information on the CIC Equity Units, see Note 13 to the consolidated financial statements in the Firm's Annual Report on Form 10-K for the year ended December 31, 2009.
(3)
The percentage of weighted basic common shares, participating RSUs and weighted CIC Equity Units to the total weighted average of basic common shares, participating RSUs and CIC Equity Units.
(4)
Represents net income from continuing operations, gain / (loss) from discontinued operations (after tax), and net income applicable to Morgan Stanley, respectively, for the quarter ended June 30, 2010 prior to allocations to participating RSUs and CIC Equity Units.
(5)
Distributed earnings represent the dividends declared on common shares and participating RSUs, respectively, for the quarter ended June 30, 2010.  The amount of dividends declared is based upon the number of common shares outstanding as of the dividend record date.  During the quarter ended June 30, 2010, a $0.05 dividend was declared on common shares outstanding and participating RSUs.  Under the terms of the securities purchase agreement for the sale of Equity Units to CIC, if a quarterly dividend is declared above $0.27 (the "reference dividend"), the CIC Equity Units will participate via an increase in the number of shares the Firm will be required to deliver upon settlement of the contract.  No cash dividends will be paid to the CIC Equity Units prior to settlement of the contract.  Therefore, no distributed earnings will be allocated to the CIC Equity Units in the calculation of earnings per share under the two-class method.
(6)
The two-class method assumes all of the earnings for the reporting period are distributed and allocates to the participating RSUs and CIC Equity Units what they would be entitled to based on the contractual rights and obligations of the participating security.  With respect to the CIC Equity Units, the amount allocated is representative of the value of the increase in the number of shares that the Firm would be required to deliver upon settlement of the contract. No actual cash dividends will be paid to the CIC Equity Units. Assuming the reference dividend of $0.27 has been paid to the basic common shareholders, CIC Equity Units would receive a pro-rata allocation of the remaining undistributed earnings.
(7)
Total income applicable to common shareholders to be allocated to the common shares in calculating basic and diluted EPS for common shares (see Appendix I).
(8)
Total income applicable to common shareholders to be allocated to the participating RSUs reflected as a deduction to the numerator in determining basic and diluted EPS for common shares (see Appendix I).
(9)
Total income applicable to common shareholders to be allocated to the CIC Equity Units reflected as a deduction to the numerator in determining basic EPS for common shares (see Appendix I).
(10)
Basic and diluted EPS data are required to be presented only for classes of common stock, as described under the accounting guidance for earnings per share.
 
 
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MORGAN STANLEY
Legal Notice
 
 
 
 
 
This Financial Supplement contains financial, statistical and business-related information, as well as business and segment trends. The information should be read in conjunction with the Firm's second quarter earnings press release issued July 21, 2010.
 
 
 
 
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