This summary is based on the first quarter fiscal 2008 earnings call conducted by Morgan Stanley (MS: chart) on March 19, 2008.

Key Investors Issues

- EPS were $1.45 a share compared to $2.51 a share last year.
- Net income was $1.56 billion compared to $2.67 billion in the year-earlier period.
- Net revenue fell 17% to $8.32 billion

First Quarter Highlights

Income from continuing operations was $1,551 million, or $1.45 per share, compared with $2,314 million, or $2.17 per share, in the first quarter of last year.

- Net revenues were $8.3 billion, 17% below last year’s first quarter.
- Non-interest expenses of $6.1 billion, including severance expense of approximately $161 million related to staff reductions, decreased 7% from a year ago.
- The annualized return on average common equity from continuing operations was 19.7% in the current quarter, compared with 30.9% in the prior year.

Net income was $1,551 million, or $1.45 per share, compared with net income of $2,672 million, or $2.51 per share, in the first quarter of 2007.

Net income for the first quarter of 2007 includes the results of Discover Financial Services and Quilter Holdings Ltd which are reported in discontinued operations. The annualized return on average common equity was 19.7%, compared with 29.9% a year ago.

Institutional Securities revenues were $6.2 billion, the third highest quarter ever.

- Equity sales and trading revenues were a record $3.3 billion, up 51% from last year’s first quarter, reflecting record results in both derivatives and prime brokerage.
- Fixed income sales and trading revenues were $2.9 billion, the second highest quarter ever. These results reflect record revenues in interest rate, credit & currency products and the second highest quarter ever for commodities, partly offset by mortgage proprietary trading net writedowns of approximately $1.2 billion.

- Other sales and trading included net losses of approximately $1.1 billion due primarily to the marking to market of loans as well as closed and pipeline commitments.
- Investment banking delivered solid revenues of $980 million, including advisory revenues of $444 million, up 19% from last year’s first quarter.
- Global Wealth Management achieved net revenues of $1.6 billion, up 6% from the first quarter of last year and a pre-tax margin of 16%. This business generated net new assets of $11 billion, the second highest on record and eighth consecutive quarter of client inflows.

- Asset Management faced challenging market conditions with losses in real estate and incurred further losses related to securities issued by structured investment vehicles resulting in a pre-tax loss of $161 million. The division continued to expand its product offerings with the launch of 15 new products in the first quarter including nine in alternatives, four in equities and two in fixed income.
- The Firm’s international businesses achieved record revenues of $4.5 billion, up 15% from last year, on strong results across Europe and the emerging markets.

Institutional Securities posted pre-tax income of $2,117 million, compared with $2,845 million in the first quarter of 2007.

- Net revenues were $6.2 billion compared with net revenues of $7.2 billion a year ago.
- The quarter’s pre-tax margin was 34%, compared with 40% in last year’s first quarter.
- The quarter’s return on average common equity was 24% compared with 38% a year ago.

- Advisory revenues were $444 million, a 19% increase from last year’s first quarter, compared with a decrease of 35% in industrywide completed M&A activity.
- Underwriting revenues of $536 million decreased 19% from last year’s first quarter.
- Equity underwriting revenues were $261 million, a 13% decrease from the prior year’s first quarter, compared with a 23% decrease in industrywide activity.
- Fixed income underwriting revenues decreased 23% to $275 million over the same period, compared with a 39% decrease in industrywide activity.3

- Fixed income sales and trading net revenues were $2.9 billion, 15% below the record $3.4 billion in the first quarter of 2007 as record revenues in Interest Rate, Credit & Currency (IRCC) business were partly offset by the mortgage proprietary trading net writedowns noted above. Within IRCC, interest rate products and credit trading generated higher revenues from strong customer flow and higher levels of volatility, and emerging markets generated record results. Credit trading also benefited from favorable positioning as credit spreads widened during the quarter. Commodities results, benefiting from strong customer flow, were higher than a year ago as higher trading revenues in agricultural products and oil liquids were partly offset by lower revenues in electricity and natural gas. Fixed income sales and trading also benefited by approximately $527 million from the widening of Morgan Stanley’s credit spreads on certain long-term debt.

- Record equity sales and trading net revenues were $3.3 billion, an increase of 51% from last year’s first quarter.
- Strong trading results in a volatile market coupled with increased customer flow contributed to record results in derivatives and higher revenues in cash equities.
- Prime brokerage also generated record net revenues for the quarter.
- Equity sales and trading benefited by approximately $321 million from the widening of Morgan Stanley’s credit spreads on certain long-term debt.

- Other sales and trading losses of approximately $1.1 billion reflected writedowns on loans and commitments largely related to acquisition financing to non-investment grade companies and the writedown of securities in the Firm’s subsidiary banks.
- Investment losses were $141 million compared to gains of $350 million in the first quarter of last year, reflecting losses on investments in real estate funds and employee deferred compensation and co-investment plans.

- The company’s average trading VaR measured at the 95% confidence level was $97 million compared with $90 million in the first quarter of 2007 and $89 million in the fourth quarter of 2007. Total aggregate average trading and non-trading VaR was $103 million compared with $92 million in the first quarter of 2007 and $98 million in the fourth quarter of 2007. At quarter-end, the company’s trading VaR was $100 million, and the aggregate trading and non-trading VaR was $107 million.
- Non-interest expenses were $4.1 billion, a decrease of 5% from the first quarter of last year. Compensation costs, including the severance costs noted above, decreased from last year’s first quarter reflecting lower revenues. Non-compensation expenses increased from a year ago primarily resulting from higher levels of business activity.
- For the first two months of calendar 2008, the company ranked second in global announced M&A with a 23% market share, fourth in global completed M&A with a 28% market share, eighth in global IPOs with a 4% market share, tenth in global equity and equity-related issuances with a 4% market share and fifth in global debt issuance with a 5% market share.5

Global Wealth Management Group''s pre-tax income was $254 million, a 12% increase from $226 million in the first quarter of last year.