This summary is based on the second quarter fiscal 2007 earnings call conducted by Morgan Stanley (MS: chart) on June 20, 2007.

CFO and EVP: David Sidwell

Key Investors Issues

- EPS were $2.45 a share compared to $1.75 a share last year.
- Net income was $3.87 billion, up from the year-ago $2.86 billion a year ago.
- Net revenue rose 32% from a year ago to $11.52 billion.

Second Quarter Highlights

Equity markets rose, credit spreads and emerging markets and other markets tightened.

The dollar weakened against most currencies, and there was a high level of client activity including in the M&A and financing markets. These factors more than offset the impact of increasing rates around the world.

- Income from continuing operations was $2.6 billion.
- Earning per share from continuing operations was $2.45 per share, versus $2.40 in the first quarter.
- Earnings per share were $2.45. This compares to $2.51 in the first quarter, which included 11 cents per share in discontinued operations line related to the sale of Quilter.
- Return on equity from continuing operations was 27.5%.
- Net revenues were $11.5 billion, 5% higher than in the first quarter.
- Total non-interest expenses were $7.6 billion, up 7%.
- The largest component, compensation benefits expense was $5.2 billion, up from $5 billion for compensation to net revenue ratio of 45%.
- Non-compensation expense was $2.4 billion, up 13%, driven primarily by higher professional services and marketing and business development expenses, related to the high level of business activity across all business segments following the traditional seasonal slow down in these types of expenses in the first quarter.
- Non-compensation to net revenue ratio was 21%.

Financial Highlights of Segments

Institutional Securities

- The strength and diversity of franchise was evident, as a sequential drop in fixed income sales and trading was offset by record revenues in investment banking and equity sales and trading.
- The company moved to real estate investing business from Institutional Securities to Asset Management, to reflect how the company manages this business. The prior results have been restated for this change. Real estate advisory and certain passive limited partnership interests remain in Institutional Securities.

- Net revenues were $7.4 billion, up 4% from previous record in the first quarter.
- Non-interest expenses of $4.4 billion increased 4%, driven by the high level of business activity.
- Profit before tax at $3 billion was up 4% from the first quarter''s previous record.
- The margin of 40% was flat with last quarter.

- The company achieved a strong return on equity at 35%.
- Investment banking revenues reached $1.7 billion, a 65% increase from the first quarter. All categories were higher, versus last quarter and one year ago.
- Advisory revenues increased 94% to $725 million, which set a record for the firm. M&A backlog remains strong, up sequentially and up even more significantly year-over-year.
- Equity underwriting revenues were up 64% to $493 million.
- Equity backlog is up from the first quarter and last years'' second quarter, with a strong pipeline of equity offerings across geographies.
- Fixed income underwriting revenues were $486 million, up 35% from the first quarter driven by M&A and LBO activity.
- Debt backlog also is up quarter-over-quarter and year-over-year.

- The company had a strong sales and trading quarter, with total revenues of $5 billion, down 9% from record first quarter.
- The company has modified disclosure by adding another sales and trading category.

- Equity sales and trading revenues of $2.2 billion were higher than previous record last quarter, reflecting strong revenue growth across client businesses in all regions which more than offset lower revenues from robust levels last quarter in principal strategies.
- Cash equities revenues were up 20%, driven by rising stock market industries and strong client volumes across all regions.
- Derivative revenues increased 2% to a new record, because of higher client flows and new deal activity across all regions.
- Financing products increased, driven by increased seasonal activity in Europe and growth in client business, given the favorable market conditions. This was a record quarter in prime brokerage, with revenues up substantially on both new accounts and the 17th consecutive quarter of growth in global client balances.

- In fixed income sales and trading, revenues were $2.9 billion, down 16% from record first quarter results, which included favorable positioning in the Subprime Mortgage Market.
- The company saw healthy trading performance and good levels of client activity across fixed income business, across regions.
- Interest rate and currencies dropped.
- The company has record results in emerging markets.
- Most emerging markets rallied, and credit spreads tightened to historic lows providing good trading opportunities.

- Credit products declined 24% from a record in the first quarter, which included record securitized product revenues driven by favorable positioning in the Subprime Mortgage Markets. The decline this quarter was driven by lower volumes and volatility in the mortgage markets. This decrease was partially offset by record corporate credit results, driven by large structured transactions and trading activity.

- Commodities decreased 22%, driven by weaker positioning revenues in electricity and natural gas and less revenue from structured transactions across all business lines, offset by strong oil liquids performance that was flat with the first quarter.
- Principal transaction''s investment revenues were $396 million, a $46 million increase. The increase was primarily driven by mark-ups of principal investments, real estate limited partnership investments, and the revenue growth associated with certain employee deferred compensation and current investment plans to reflect the returns on such plans in both revenues and compensation expense.

- Over the quarter while the company increased the level of risk, on average it operated at a lower value of risk level than last quarter.
- Aggregate average trading and non-trading value of risk was down $5 million to $87 million. With decreases in equities and commodities risk and increases in foreign exchange and interest rate and credit spread risk.
- Period end aggregate trading and non-trading value of risk rose to $93 million.
- The company continued to allocate more economic capital to Institutional Securities businesses which is another measure of increasing risk as well as the increasing scale of this business segment.

- Total loans and commitments rose by $26 billion, compared to where the company was last year at this time.
- Total loans and commitments, net of hedges have increased by $34.4 billion or 167%. Non-investment grade loans and commitments have increased by $25.3 billion.
- The company continues to see considerable opportunities to bundle services providing solutions for client''s need including event lending as it grows Leveraged Finance business.