Derivative revenues decreased from a strong third quarter reflecting difficult market conditions with poor liquidity and even volumes.

Quantitative strategies business recovered from losses last quarter that contributed healthy revenue gains more consistent with historical level, despite operating in a reduced risk and capital environment.

- Prime brokerage business produced the second best revenue quarter ever with average customer balances down from the end of the third quarter.
- Outside of the U.S., the business reported record revenues.
- Prime balances were down towards increase in client balance in October though it sustained in November consistent with the recovery in the equity markets.

Other sales and trading was negative $202 million, driven by the write-down in securities available-for-sale portfolio offset by recoveries and leveraged acquisition pipeline reflecting the improvements in liquidity.

- Leverage finance business is subject to liquidity in the marketplace and this quarter the company saw deals price activity began to return to the market.
- Total loans and commitments net of hedges declined $12.1 billion to $55.1 billion.
- Commitments including both investment and non-investment grade are down 18% to $70.2 billion, through a combination of deal closings, renegotiation or deals going away.

- Over the course of the quarter, $4.4 billion of deals were withdrawn and $14.7 billion of deals were closed. Of the deals closed, $6 billion have been funded and are included in the $10 billion of non-investment grade loans.

Investment banking revenues were $1.4 billion, down 5% in the third quarter of 2007.

- Advisory revenues increased 17% to $779 million, driven by revenue strength across all regions.
- Underwriting revenues were lower than last quarter in both, equity and debt underwriting.
- Sequentially, equity underwriting revenues were down 19% to $348 million, but up 37% from the fourth quarter of 2006 with particular strength in Asia, fixed income underwriting revenues of $236 million, down 32% from the third quarter largely reflecting the decline in non-investment grade issuance as investors grappled with the deterioration in the credit environment. Partially offsetting this decline was the increased demand for investment grade debt, especially during September and October.
- The investment banking environment was mixed, volumes decreased across products as uncertainty returned through the overall market in November, except an announced M&A where volumes remained healthy.

Equity backlog is higher than the third quarter and fourth quarter of 2006, with particular strength in Europe and Asia.

- But non-investment grade debt backlog is down, and investment grade backlogs are higher as capital raising needs remain robust.
- Principal transactions, investment revenues were $496 million, up $279 million increase versus the third quarter. The increase was largely driven by higher investment gains in Bovespa Holding to the fourth quarter and Grifols SA in the full year.

Aggregate average trading and non-trading VaR increased to $98 million from $91 million last quarter, driven predominantly by the increase in non-trading VaR.

- The increase in non-trading VaR primarily reflects the firm''s exposure to event loans that closed and are currently in the process of being distributed.
- Aggregate average trading VaR increased to $89 million from $87 million.
- Aggregate quarter-end trading VaR decreased to $78 million from $81 million, reflecting an active reduction in risk exposure that was offsetting the VaR model by higher realized market volatilities.

The company is issuing approximately $5 billion of securities to the China Investment Corporation that mandatorily converts into shares in August 2010.

- Mandatory convertible securities the company is issuing to CIC targeted yield of 9% and the after-tax profit approximately 7% because portion of the yield is tax deductible. Therefore, the after-tax yield of these equity securities is only 4.75% over common dividend yield.
- In return for this excess yield of these equity securities, the company retains the first 20% depreciation of stock price.

Current capital position, average unallocated capital, economic capital was negative $400 million, down from $3.5 billion surplus the last quarter.

- The period end unallocated economic capital was a shortfall of $4.1 billion. However, the firm continues to maintain total capital level to exceed regulatory requirements.
- Capital requirements for institutional securities increased mainly due to increased volatility in the credit markets and rating has declined in underlying assets of certain credit businesses.

- The company repurchased approximately 9.2 million shares of common stock for approximately $560 million.
- Year-to-date, the company has repurchased approximately 51.7 million shares of common stock for approximately $3.8 billion. Even after reflecting the write-downs and losses in fixed income business and response to current market conditions, the company reduced total assets on the balance sheets by a $133 billion to $1.1 trillion. This brought the adjusted leverage ratio down from 18.8 to 17.6.

Wealth Management revenues reached $1.8 billion, up 6% from the third quarter, as the retail investor remained active.

- Commission on principal trading results was strong, which more than offset the sequential decline in investment banking revenues.
- Non-interest expenses of $1.4 billion were up 1% from last quarter, reflecting increases in business development expenses, the absence of the insurance recovery in the third quarter and commission-based compensation reflecting higher revenues.

- PBT of $378 million was up 32%, and PBT margin increased to 21% from 17% in the last quarter.
- The return on equity of this business was 52%.
- PBT totaled $1.2 billion, up a 127% from 2006, and PBT margin improved 17%.