This summary is based on the fourth quarter fiscal 2007 earnings call conducted by Morgan Stanley (MS: chart) on December 19, 2007.

Management:

Chief Financial Officer: Colm Kelleher
Chairman and Chief Executive Officer: John Mack

Key Investors Issues

- EPS represented a loss of $3.61 a share versus a profit of $1.44 a share last year.
- The company lost $5.8 billion compared to a profit of $2.27 billion a year ago.
- Revenue was negative $450 million compared to $7.85 billion in last year''s fourth quarter.

Fourth Quarter Highlights

The company took a $435 million writedown on the securities available for sale portfolio in subsidiary banks.

- The company continues to see value in this portfolio, which is made up of AAA rated residential mortgage-backed securities and the portfolios contains no subprime home loans, subprime residuals or CDOs.
- This portfolio was re-designated as trading effective November 30. To preserve flexibility with the portfolio until in line with the accounting treatment of other trading portfolios so that any mark-to-market will flow directly through the income statement each quarter.
- These factors totaling $9.4 billion in writedowns drove the fourth quarter loss $3.6 billion down from last quarter''s $1.5 billion profits. The EPS impact from these writedowns was $5.80.
- Basic EPS from continuing operations was a loss of $3.61 per share versus $1.44 gain the quarter last quarter.

Revenue was negative $450 million compared to $7.85 billion in last year''s fourth quarter.

- Total non-interest expense was $5.4 billion, down 6% from last quarter.
- Compensation and benefits expense were $3.2 billion, reflecting an adjustment to the full year payout. Despite the quarter with lower revenues, compensation reflects strength across most businesses and recognition of the competitive environment and the need to retain talent.
- Non-compensation expenses was $2.2 billion, which includes the $360 million reversal of the Sunbeam Coleman Reserve resulted from the recent Florida Supreme Court decision.
- Excluding this reversal, non-comparable expense dropped 21%, driven by higher business development in professional service expenses.

Institutional Security loss on fixed income sales and trading drove negative revenues of $3.4 million, down a 169% from the third quarter.

- Non-interest expense of $3.1 million decreased 12%, driven by lower compensation expenses, excluding $360 million recovery the Coleman Sunbeam Reserve, non-interest expenses were down 2%.PBT was $6.5 billion loss.
- Sales and trading reporting total negative revenues were $5.6 billion, reflecting the loss in credit business within fixed income and the write-down and securities available for sale portfolio within other sales and trading. These losses were partially offset by record results in equities and recoveries related to leverage lending business.

The credit environment impact in sales and trading results was partially offset by a gain of approximately $455 million from the spread widening in Morgan Stanley’s credit on some of own structured notes.

Of this amount, approximately $185 million was reported in fixed income sales and trading, and $270 million in equity sales and trading.

- In fixed income sales and trading, the company reported $7.9 billion in losses, compared to $2.2 billion in revenues last quarter, reflecting the write-down of subprime related assets.
- Corporate credit and securitized credit product sales and trading, which includes residential and commercial mortgage business reported losses of $9.2 billion, down from an approximately $260 million gain last quarter.
- Majority of the losses were in U.S. subprime residential business, and the result is partial positions that taken in the beginning of 2007. The other mortgage related markdowns were driven by the November fair value deterioration.

Interest rates and currencies were down 17% from third quarter, continues to perform well in this environment, reflecting strong customer flow, increased volatility and the $185 million benefit from the impact of widening credit spreads on firm-issued structured notes.

- Commodities decreased 84% driven by lower trading revenues across metals, oil, electricity and natural gas and the lack of structured deals this quarter.
- Client flow business performed well, it was more than offset by poor positioning performance relative to opportunity in the market created by volatility of most products.

Equity sales and trading revenues of $2.5 billion were 40% higher than last quarter.

- Strong revenues were driven by client flow of prime brokerage businesses, positive results in Quant trading strategies for $270 million benefit for the widening of credit spreads of firm-issued structured notes and regional strength outside the U.S. especially in Asia.
- Non-U.S. regions contributed well than half of this quarter''s total revenue.

The cash business had record revenues and strong performance across regions including record results in Europe.