Jerker Johansson, Global Head of EquitiesDavid H. … · David H. Sidwell, Chief Financial Officer Jerker Johansson, Global Head of Equities May 17, 2005

David H. Sidwell, Chief Financial OfficerJerker Johansson, Global Head of Equities

May 17, 2005

This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. No representation is made that it is accurate or complete. The presentation has been prepared solely for informational purposes, is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented.

This presentation may contain forward-looking statements. These statements, which reflect management's beliefs and expectations, 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 preceding 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 and other items throughout the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 2004 and "Management Discussions and Analysis of Financial Condition and Results of Operations" in the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 2005.

The presentation may also include certain non-GAAP financial measures. The reconciliation of such measures to the comparable GAAP figures are included in our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on 8-K, which are available on our Web site www.morganstanley.com.

Notice


• Introduction

• Global Equities Overview

• Our Strategy

• Q&A

Agenda


Introduction

David H. SidwellChief Financial Officer


Strategy and Execution Agenda

• Pursue a Global Securities-Focused Strategy

• Integrate Our Securities Businesses

• Align Management Structure with our Integrated Securities Model

• Pursue Credit Services Business – Discover – Spin-off

• Regain a Premium Return on Equity


A Premier Franchise

Institutional Securities

• #1 Announced Global M&A

• #1 Global IPOs

• #3 Global Debt

• Overall Debt, Equity and M&A Deals of the Year

Individual Investor Group Investment Management

Investment Banking Fixed Income Institutional Equities

Source/Notes: Investment Banking: Thomson Financial data 1/1/05-4/30/05; Corporate Finance Magazine 2004 Fixed Income: Global Investor 2004 FX Survey; Euromoney’s 2004 Awards for ExcellenceInstitutional Equities: Independent survey from 1/1/04-12/31/04; Greenwich Associates 2005 Survey; 2004 Global Custodian “Prime Brokerage Survey”

Individual Investor Group: Morgan Stanley SEC filings and 1Q05 Financial Supplement; Peer company 10-K filings and 1Q05 earnings releases; CerrulliAssociates Report 2004

Investment Management: Morningstar (Current data as of 3/31/05); Lipper (Current data as of 3/31/05), 1/3/5/10 year performance shown; Wall Street Journal 2004“Category Kings”; Morgan Stanley SEC filings and 1Q05 Financial Supplement

• #1 Overall in 2004 Global InvestorFX Survey

• Best in class commodities business

• Global Credit Derivatives House of the Year

• Best in class securitization business

• #1 Equity secondary trading

• #1 in Greenwich Trading Quality Index

• Best in class prime brokerage

• Substantial scale: 10,471 Global Representatives

• #3 Brokerage house by revenues and number of financial advisors

• Total client assets of $618Bn, 27% in fee based accounts

• 46% of funds ranked 4/5 Star by Morningstar (up from 41% at end-2003)

• 72-81% of funds in Lipper top half rankings(up from 56-75% at end-2003)

• Seven funds included in WSJ “Category Kings” for 2004


Management Aligned With Strategy

Steve Crawford and Zoe CruzCo-Presidents

Investment Banking Fixed Income Investment

ManagementInstitutional

Equity Individual

Investor Group

Finance

Operations

Technology

Risk Management

Law

Compliance

Common Platform

Securities Business Credit Services Business

David NelmsChairman and CEO


Where Are We Now?

• Governance Changes− Created Lead Director Position− Adding Two Additional Outside Directors− Accelerated De-staggering of Board− Removed Requirement of Supermajority Vote− Reaffirmed Director Retirement Age of 72− Added to Compensation Committee Charter Management

Development and Succession

• Three Key Constituencies− Employees− Clients− Investors

• Moving Forward


Global Equities Overview

Jerker JohanssonHead of Global Equities


The Evolution of the Total Market

0

20

40

60

80

100

120

140

160

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Total Market Value as a % of GDP%

Total EU Japan US NJA

Source: Datastream and Morgan Stanley Research


Market Value of Global Equity Market

3128

2427

20

3229

23

1815

13

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005YTD


$ Trillions

CAGR +13.2%



$ Trillions

3.44.8

5.9

8.2

11.212.0

12.911.9

9.2

13.213.8

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005YTD

Market Value of U.S. Equity Market

CAGR +3.5%



$ Trillions

2.63.3

4.3

5.5

7.48.38.6

7.16.0

10.09.2

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005YTD

Market Value of European Equity Market

CAGR +12.1%



$ Trillions

4.4 4.4 4.2

3.2 3.4

4.84.5

3.63.2

5.7

6.4

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005YTD

Market Value of Asian Equity Market

CAGR +16.6%


Little Growth In Overall Commission Pot

Source: Third Party Independent Research

Total Commissions Excluding New Issues$Bn

2.8 3.44.4

6.2

8.9

13.2

16.4 16.2

14.015.2

11.6

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

CAGR +4.2%


Margin Erosion Is A Constant – Requiring Innovation And Leadership In Low Cost Execution

0.800.850.900.951.001.051.101.15

1Q02

2Q02

3Q02

4Q02

1Q03

2Q03

3Q03

4Q03

1Q04

2Q04

3Q04

4Q04

Trends in Morgan Stanley Commission Rates

Source: Securities Industry Association, NYSE, Morgan Stanley analysis

U.S. CPS U.K. BPS EURO BPS

Total NYSE Share Volume vs. Average Commissions Per Share

NYSE ShareVolume (Bn)

Average CommissionRate ($)

Total NYSE Share VolumeAvg Commission per Share

0

50

100

150

200

250

300

350

400

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

(Indexed)


Rise of Lower Margin Electronic Trading Is Key

54.72

41.04

18.97

Mar-99 Jan-00 Dec-00 Nov-01 Oct-02 Sep-03 Aug-04

Program Trading as a % of Total NYSE Trading Volume

Source: NYSE

… Morgan Stanley is #1 in Agency business on NYSE


Changing Client Needs Require Innovation, Client Focus and Low Cost Execution

0

20

40

60

80

100

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Case Study: One Client’s Volume Traded By Broker Category in 2004%

Source: Case Study of One Morgan Stanley Institutional Client

Full Service Discount Direct Market Access

Equity Swap


Growth of Alternative Investments Provides Numerous New Opportunities

Hedge Fund of Funds Growth 2000 – 2004$Bn

Via Fund of funds ~50%

Via Advisers or direct ~10%

~$450

~$975

~$80

~$450~$370

~$525

2000 2004

Source: Morgan Stanley Equity Research Source: Morgan Stanley Equity Research

Hedge Fund AUM by Strategy$Bn

0

100

200

300

400

500

600

700

800

900

1,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Multi-Strategy Long / Short Fixed Income

Emerging Markets Other Macro

Total ~20%


Greater Transparency Reinforced By Regulatory Change

• Expect greater transparency on all practices, especially retail fee levels and soft commissions, and prompt restructuring of practices

• Extensive review by the SEC, Spitzer, and the U.K. regulator FSA has acted as a catalyst for major review of practices and pricing

• Changes to capital adequacy regulations will require modestly higher capital to be put aside and drive further changes to business models


Investment Process(Themes & Solutions)

Gives Rise to Revenue in Potentially Any Product Area

Helping Clients Across Their Entire Business

Products

Cash

Convertibles

Options

Futures

Investment

Financing

Portfolio

Other Derivatives

EFS

ManyReasons

ManyProducts

C

L

I

E

N

T

M

O

R

G

A

N

S

T

A

N

L

E

Y

Investment Process

Capital Raising

Alpha Generation and Portfolio Strategies

Trading

Alternative Investment Vehicles

Market Access

Financial & Leverage

Hedging & Risk Management

Cash and Balance Sheet Management

Tax Solutions

Management Information

Regulatory Solutions


Brokers Face Two Choices

• Clearly defined niche

– Region or industry

– Differentiated product

• Flexible business model

Global/ Large Specialist

• Diverse product set and cross asset class ability

• Technology

• Capital strength

• Willingness to take risk

• Global scale/ flows• Talent management

• Strong risk management and controls

Global / Large or Specialist?


Our Strategy


Global Equity Sales & Trading Revenues (2Q04-1Q05)(Cumulative Total, $Bn)

6.0

4.8

3.2 3.22.7

2.32.0

1.41.1

4.2

GS UBS MorganStanley

DB MER CSFB C LEH JPM BSC

Source: Morgan Stanley SEC filings and peer company earnings releasesNote: (1) See Appendix at end of presentation for details on company-specific Equity Sales & Trading revenue disclosure

Morgan Stanley – A Global Leader in Equities

(1)

Equity / Total Firm Revenue (%) 28 16 17 11 14 6 3 16 3 16


2000 2001 2002 2003 2004 2005 YTD

Momentum Across Global Equities Business

Morgan Stanley Equity Sales & Trading Revenues

($MM)

Q1 Q2 Q3 Q4

Source: Morgan Stanley SEC filings

CAGR 2002-2005: 9.8%

CAGR 2002-2004: 7.4%

3,5284,067

916 1,214


Leadership Across Key Equity SegmentsCash

− Global Equity House of the Year (IFR)− #1 Equity secondary trading (Euromoney)− #1 in Greenwich Trading Quality Index

Prime Brokerage− Best in Class Prime Brokerage in Global Custodian Prime Brokerage Survey− #2 Euromoney Award for Best Technology for Prime Brokerage− #2 Euromoney Award for Electronic Prime Brokerage

Electronic Trading− #1 Euromoney Award for Best at Direct Market Access (DMA)− #1 Euromoney Award for Best at Algorithmic Trading− #1 Euromoney Award for Best Technology for Programme Trading

Derivatives− #2 Euromoney Award for Most Used Derivatives Platform

Leadership in Europe and Asia Awards− European Secondary House of the Year (Financial News European Investment Banking

Awards)− European Equity Bookrunner of the Year (International Equity Review 2005) − Japanese Equity-Linked Bookrunner of the Year (International Equity Review 2005)− Best Equity House in China (Euromoney)

Source/Notes: Independent survey from 1/1/04-12/31/04; Greenwich Associates 2005 Survey; 2004 Global Custodian “Prime Brokerage Survey”, Euromoney Awards 2004, Independent Financial Review (IFR) 2004, International Equity Review 2005


Global Equities Strategy

• “Best in Class”

• Solutions

• Advisory

• DifferentiatedProduct / Service

Profitability / Market Share / Wallet Share

• Segmentation

• Full ServiceClient

• Global Reach

• Insights

• Capital

• Cost

• TalentOptimize Factory


Focus Areas

• Talent Management

• Trading / Risk Management

• Equity Derivatives

• Client Profitability / Growth

• New Product Development

• Retail Distribution


Appendix


Note 1: Morgan Stanley results are as reported in quarterly financial supplements

Note 2: Goldman Sachs equity revenue includes Total Equities and Securities Services

Note 3: Lehman Brothers equity revenue reflects total revenues of equity business

Note 4: Merrill Lynch equity revenue includes Global Markets and Investment Banking (GMI) Equities Principal Transactions revenue and all GMI Commissions revenue

Note 5: Citigroup figures include equities trading-related revenues (including net interest income) and equities commissions. Also includes revenues reflecting minority stake in Nikko Citigroup JV

Note 6: JP Morgan equity revenue reflects "Total Capital Markets: Equities" revenue at Investment Bank –includes principal transactions, commissions, and other revenues. JP Morgan figures reflect the combined entity of JP Morgan Chase and Bank One Corporation, as provided in its 3Q04 earnings release and Form 8-K filed October 1, 2004

Note 7: CSFB equity revenue reflects total revenues of equity business

Note 8: UBS equity revenue Reflects total revenues of equity business; converted to USD from CHF based on a daily average of each quarterly period

Note 9: Deutsche Bank equity revenue reflects total revenues of equity business; figures are converted from EUR to USD based on a daily average of each quarterly period

Sources: Morgan Stanley SEC filings and peer company filings

Appendix: Notes to Accompany Slide 24 Revenue Sources and Disclosure

David H. Sidwell, Chief Financial OfficerJerker Johansson, Global Head of Equities

May 17, 2005

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Jerker Johansson, Global Head of EquitiesDavid H. … · David H. Sidwell, Chief Financial Officer Jerker Johansson, Global Head of Equities May 17, 2005