Global Wealth Management

- This quarter represent best quarter in terms of net revenues since 2000.
- Revenues reached $1.6 billion up 9% from the first quarter and is third best revenue quarter, reflecting higher commissions due to continuation of the favorable market, increased asset management revenues largely from higher balances in fee-based accounts, higher net interest due to the growth in the bank deposit program as well as gains from investments in memberships and exchanges.
- Non-interest expenses of $1.4 billion were up 7%, reflecting higher incentive-based compensation costs associated with improved performance as well as higher professional services, marketing and business development costs from the seasonally lower first quarter.
- Profit before tax of $269 million was up 17% and profit before tax margin increased to 16% from 15%.
- Return on equity increased to 41%, reflecting the improved profit before tax as well as lower capital requirements. This business continues to build on its momentum showing improvements in many areas.

- Net new assets of $8.7 billion represented fifth consecutive quarter of client inflows and the highest it has been since the company started tracking this metric.
- Assets in the $1 million plus household segment increased by $33 billion and a 71% of total client assets base versus 65% at this point last year.
- Total client assets increased to $728 billion and fee-based access represented 29% of the total.
- FA headcount is up to over 8100 producer.
- Average production increased to $814,000 per global representative as the company continues to attract and retain high quality producers.
- Total client assets per global representative reached a record high of $89 million. Banks deposit program continued to grow ending the quarter to over $18 million, on-track to achieve goal of $20 billion by year-end.
- The company had successful product launch in coordination with Asset Management.

Asset Management

It includes the results for real estate investing business formally reported in Institutional Securities. The company decided to move this business from Investment Banking division strategically aligning it with Asset Management alongside equities, fixed income and alternative offerings to clients, as real estate has matured and become a primary alternative asset class.

- The company posted $9.3 billion of positive flows. This positive trend in that flows along with strong market performance have contributed to record assets under management of $560 billion at quarter-end, up 7% from last quarter which is evidence of the progress the company is making on key initiative and the momentum being built in the business.
- Net revenues were $1.5 billion, up 10%.
- Income before taxes was $306 million, down 20%.
- Profit before tax margin was 20%.
- Return on equity decreased to 23%, driven by an increase in expenses and higher capital usage.
- Management and administration fees increased 10% to $844 million largely driven by higher assets under management in core traditional equities and fixed income businesses as well as higher incentive fees in alternatives business.

- Principal transaction investment revenues of $588 million were 11% higher than last quarter. This quarter includes $308 million in revenue from real estate and $183 million from private equity with notable trend in on going Asia Private Equity business as well as from the wind down portfolio. These numbers include the gross-up in employee deferred compensation related to these businesses, which are offset by an equivalent gross-up in compensation.
- Expenses of $1.2 billion were up 22%, driven by a number of factors.
- Higher compensation was a result of higher revenues, the continued investment in the business across the core alternative, private equity and infrastructure, and the gross-up of employee deferred compensation plan.
- There were increases in professional services and brokerage and clearing expenses, driven both by the increase in asset management and administration fees and the recognition of up front costs associated with the launch of products in fixed income and infrastructure businesses.
- With the transfer of the real estate investing business to this segment and the strong principal transactions investment revenues in the first half of the year, the company believes the margin could come in a few points better.

- Assets under management or supervision increased $39 billion to the end the quarter at $560 billion. The alternative category includes real estate investing, private equity and infrastructure partners, in addition to the hedge fund and other alternative offerings previously disclosed in this category.
- The company had $9.3 billion in total net inflows. Positive net flows were driven by strength in the non-U.S. channel with $4.1 billion of inflows, institutional liquidity with $3.5 billion, $1.8 billion in the America''s intermediary channel and $1.3 billion in the U.S. institutional channel.
- Retail liquidity outflows were $1.5 billion.
- Morgan Stanley branded retail fund flows were positive for the first time in six years, driven by sales of $1.4 billion from emerging markets domestic debt closed-end fund. The majority of which was distributed through Global Wealth Management sales force.
- In addition to the impact of positive flows across market channels, the company saw the benefit of strong markets.

- The company continues to broaden products offerings and launch an incubated 15 new products, including five in alternatives, six in equities, and four in fixed income. The company will continue to launch products to meet the needs of clients. For example, recently launched FX Alpha Plus Risk Controlled fund, part of a new suite of alternative strategies, raised over $1 billion from European clients in the three months since launch.

Discover

- Profit before tax decreased 10% to $333 million from last quarter.
- Net revenues were $1 billion were up.
- Expenses of $702 million were up 8%, driving the decrease in PBT.
- Interest income increased 2% to $970 million due to high interest spread. The yield was up from last quarter and the cost of funds was stable.
- Non-interest revenues increased $39 million to $596 million.
- While fees were flat, gains on securitizations were higher as the company did more securitizations than in the first quarter.
- Net credit income was down 6% to $439 million. The increase in interest income was offset by the provision for loan losses, which was $531 million was up 10%, reflecting an increase in charge-off to 4.24% from 4.05% in the first quarter.

- The reserve release of $6 million was lower than last quarter.
- The consumer credit environment in the United Kingdom remains challenging.
- The company took $16 million increase in reserves related to implementation of higher minimum payment requirements on certain accounts.
- In the UK, the net charge-off rate of 6.5% increased 5 basis points from the first quarter.
- Across the entire portfolio, 30-day delinquencies decreased to all-time lows.
- While there was a pick up in U.S. bankruptcy filings during the last months of the quarter, filings still remained below normalized levels.
- Consistent with the industry, U.S. bankruptcies have not returned to higher levels as quickly as expected.

- Non-interest expense increased 8%, driven by higher professional services fees and other expenses, including $20 million in spin related expenses, split equally between U.S. and U.K. businesses, and higher VISA and MasterCard litigation legal fees.
- Marketing and business development costs were flat relative to the first quarter, are tracking up 8% for the first six months versus the same time last year.
- Period end receivable showed sequential organic growth for the fifth consecutive quarter, due to increased net sales volume and stable payment rates. In some, U.S. business is performing well, with sales and receivables expected to continue to grow, and strong credit performance expected to continue.
- In the UK, the company is working hard to limit the impact it is facing due to the adverse credit environment, which has produced a profit before tax loss of $64 million, following a loss in the first quarter.

- Morgan Stanley repurchased approximately 18 million shares of its common stock for approximately $1.4 billion.
- With respect to the pace of repurchases, the company evaluates and balances the needs of business for additional capital to invest in organic growth and make attractive acquisitions with objective over time of offsetting the dilutive impact in equity compensation to employees.
- The company has $3.4 billion remaining under current board authorization.
- The markets have generally remained healthy, despite recent interest rate hikes and weakness in U.S. residential mortgage markets.
- Global liquidity remained strong, with large pools of uninvested capital, and the capital markets continue to have a brisk level of activity.
- Investment banking pipelines across advisory, equities and fixed income are strong. In addition, the level of client activity in sales and trading businesses remains strong. Results in principal investment activities will depend on the overall level of the markets.
- The company continues to invest in the long-term growth of businesses, and believes it is well-positioned to deliver value to shareholders, as it implemented strategy to capture the substantial growth opportunities the company sees around the globe.

Year-to-Date Financial Highlights

- The non-comparable ratio is at 20%, improvement over the 23% ratio for the same period last year.
- Tax rate for continuing operations was 33%, consistent with last year''s normalized rate.
- The company has repurchased approximately 33 million shares of common stock for approximately $2.6 billion.

Fiscal 2007 Outlook

- PBT margins are expected to be around 20% as the company invests in strategic growth initiative.
- It is likely that Discover will finish 2007 at the lower end of the previously expected charge-off rate range of 4% to 4.5% for the full year.
- Discover anticipates an additional $30 million in expenses to be incurred as a standalone company in the second half of 2007, related to the spin.
- Discover expects marketing and business development spending to be higher in the second half of the year. Although, full year spend will be similar to 2006.
- Discover will incur a higher funding cost and certain compensation cost, as it operates as a standalone company.
- The company is on track to complete the spin on June 30 with attributable capital of approximately $5.4 billion. Beginning in the third quarter, Discover''s June results will be reported in discontinued operations, and prior period results will be reclassified to that line.
- Certain overhead costs previously charged to Discover in periods prior to the spin will be reallocated to the continuing businesses, and restated in previously issued financial statements. These charges are approximately $20 million per quarter. Discover will be issuing a supplemental earnings release for the second quarter later today.
- The company expects Morgan Stanley''s effective tax rate from continuing operations will decrease and share count will be higher following the spin.
- Principal transactions investment revenues will be a growing but lumpy in nature part of revenue as the company builds real estate, private equity and infrastructure businesses.

Key questions from the second quarter earnings call conducted by Morgan Stanley on June 20, 2007.

Guy Moszkowski (Merrill Lynch): Could you talk through the rationale on the funded and committed loan balances up 41% with the hedges up only 15%, so your net position is up considerably granted more of that growth in investment grade?