Glenn Schorr (UBS): On the FAS 159, at the Level 3 disclosure stuff on both the asset and liability side of your last Q you have about $20.5 billion worth of the long-term borrowings that are the structured notes. Is that correct?

David Sidwell: That is correct.

Glenn Schorr (UBS): You have spreads widen X basis points and then you have an average maturity of these and you do the multiplication on those three components. Is that how you get what the mark-to-market up or down is on a given quarter?

David Sidwell: We have readily available market inputs of our own credit spreads, so it is moving into a different hierarchy. You are broadly correct.

Glenn Schorr (UBS): Is it the actual debt of Morgan Stanley, or is it the credit defaults normally you would be talking about the same thing, but in an environment like this, your debt widened out a lot less than the default swaps. Which is the one that you should think about?

David Sidwell: In terms of the underlying index that we use to do the mark-to-market, it is the debt.

Glenn Schorr (UBS): There is a trend where leverage ratios would go up because certain assets stay on balance sheet, because you could not sell them out into the market, so balance sheet usage goes up, and leveraged ratios go up. At what point do you get uncomfortable in the leveraged ratio?

David Sidwell: One of the drivers of our leveraged ratio has been the taking out of Discover so taking out the equity and related assets of Discover has been a driver of this. We think that growth leverage is relatively crude measure. We have increasingly been using internally data which we and our competitors and our peers will be making available next year, which is the regulatory capital Tier 1 ratios and total ratios but we tend to emphasize the Tier 1 ratio, so we internally use that measure. We do recognize the point that we want to make sure we understand our gross leverage and how we fit with our competitors, but at this point in time, we do feel comfortable with this 18.8 times adjusted leverage and 32 gross. We do monitor these ratios, along with our Tier 1 ratio, on a weekly basis and make sure we continue to feel comfortable.

Glenn Schorr (UBS): Nobody else on the broker-dealer side is disclosing that Tier 1 just yet. Is that correct?

David Sidwell: No.

Glenn Schorr (UBS): You mentioned in your remarks that you issued some CP during the quarter. Would you expand on that?

David Sidwell: We were focused day by day making sure we understand our liquidity, and we took advantage of the market opportunities during the quarter, and we have continued to do that subsequent to the quarter to both access CP and access the long-term markets. In the early part of August, it was harder than now, and the maturities for CPs have stretched out since the end of the quarter, which is a good sign. Liquidity is one of the key things we focus on, and so it is something that has a cost to it in terms of the cost of retaining so much liquidity, but we thought it was important to build our liquidity to the extent we could. It both supports the business we are in and probably just as importantly, gives us the ability as we see new opportunities not to have to say no because we do not have the cash.

Prashant Bhatia (Citigroup): With the dislocation in the marketplace, you had more of a risk appetite lately. What is your assessment of how the risk management function has performed?

Colm Kelleher: What has happened is we had a stressed market environment, and overall we feel that our risk measurement systems performed well and we reacted to those accordingly, particularly as you saw in the quantitative trading strategy. Our view of the market still is in a period of dislocation, we think there will be good opportunities to deploy capital going forward and we are cautiously optimistic, our risk systems performed well, our risk management performed very well.

Prashant Bhatia (Citigroup): Based on your outlook of a couple of more challenging quarters, is there an opportunity to take risk management higher, or has that appetite changed internally?

Colm Kelleher: We do not think the appetite has changed internally at all. These are early days. There will be opportunities, and we will apply the same criteria to assess those opportunities as we go forward.

Prashant Bhatia (Citigroup): How much of the $31 billion that are commitments may end up sitting on the balance sheet at the end of the year, and how does that impact decisions on deploying capital?

Colm Kelleher: Our capital management is based upon the liquidity of our balance sheet accordingly, and our balance sheet actually is much more liquid. The $31 billion is a function of when the markets reopen. We have seen evidence out of Europe that there are buyers coming back into the leveraged lending space. There is some evidence that TLOs are beginning to get more active again, but a lot of it will depend on the overall market conditions. We took the mark as of 8/31 knowing the factors that were relevant at that time. We do want to fully distributable model, and that is what we would aim to do.

Prashant Bhatia (Citigroup): You had about 2,000 in terms of growth in headcount in the cost base and the flexibility. How do you think about that going forward?

David Sidwell: We want to continue to invest. Asia is a perfect example, that has done well this last quarter compared with the rest of the world, and as a further demonstration you need to make sure you continue to invest and diversifying our business by product and by the regions of the world.

Prashant Bhatia (Citigroup): Where the headcount growth over the past quarter has gone to?

David Sidwell: If you break it down basically institutional is the largest driver, just for everyone else's benefit, it is up under 2,000 people. Institutional is about three-quarters of that, and then the other quarter is wealth management and asset management together. An example we mentioned is that the number of FAs is up in wealth management. That is included in headcount.

Michael Hecht (Banc of America Securities): The $1.2 billion gross mark that you mentioned, is that gross for both fees and hedges, or just fees?

David Sidwell: This is net of fees. This is not a book that we hedge, or relationship lending book. We do have hedges, but in our acquisition finance, given the nature of the names and the intentions to distribute, we have not had a hedging strategy here. At the end of last quarter the equivalent of the $31 billion was $42.8 billion. During the course of the quarter, we closed $3.9 billion of deals. There were deals that sponsors withdrew of $10.9 billion, and there were decreases for a number of other reasons like for instance, the commitment level was reduced of $7.1 billion. Then there were new deals of $10.4 billion. That is the roll forward of from $42.8 billion to $31 billion.

Michael Hecht (Banc of America Securities): On the mortgage side were there any writedowns related to Saxon?

David Sidwell: We look at our residential and commercial mortgage business as a total business, and so Saxon is now integrated much as we think about our residential mortgage business. Overall, that business had positive revenues. To answer in a technical manner, there was an impairment of our goodwill in the quarter on Saxon. There was no impairment because we evaluate goodwill at the fixed income level, not at the Saxon level. There was an impairment of the intangible assets that was small.

Michael Hecht (Banc of America Securities): There are some rating agencies that put your liquidity lines at relatively big numbers. What your exposure is to ABCP Conduits?

Colm Kelleher: We have ABCP Conduits as such, in terms of providing stand-bys, we have negligible exposure. In terms of investment management we act basically in ABCP as an arranger and placer of paper. That market is showing signs of life and issuance is coming back. Within investment management we hold a commercial paper issued by the Conduits, and some of the SIVs; not surprising, given that the outstanding of that market was $1.2 trillion out of $2.2 trillion, and that position has been significantly reduced. We stopped buying that paper rolling it over early on, and we feel relaxed about the positions we hold there for the time being.

David Sidwell: We were given a note too that the rating agencies seem to have a wrong number for us here, so we do not think we have a significant number.