Morgan Stanley (MS)
Q4 2008 Earnings Call Transcript
December 17, 2008 11:00 a.m. ET

Executives

Colm Kelleher – Chief Financial Officer, Executive Vice President & Co-Head of Strategic Planning

Analysts

Roger Freeman – Barclays Capital
Guy Moszkowski - Merrill Lynch
Glenn Schorr - UBS
Mike Mayo – Deutsche Bank
James Mitchell – Buckingham Research Group
David Trone – Fox-Pitt Kelton
Jeff Harte - Sandler O’Neill & Partners

Presentation

Operator

Welcome to the Morgan Stanley conference call. The following is a live broadcast by Morgan Stanley and is provided as a courtesy. Please note that this call is being broadcast on the Internet through the Company’s website at www.morganstanley.com. A replay of the call and webcast will be available through the Company’s website and by phone through January 17, 2009.

This presentation may contain forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made, which reflect management''s current estimates, projections, expectations or beliefs and which are subject to risks and uncertainties that may cause actual results to differ materially.

For a discussion of additional risks and uncertainties that may affect the future results of the Company, please see ""Forward-Looking Statements"" immediately preceding Part I, Item 1, ""Competition"" and ""Regulation"" in Part I, Item 1, ""Risk Factors "" in Part 1, Item 1A, ""Legal Proceedings"" in Part 1, Item 3, ""Management''s Discussion and Analysis of Financial Condition and Results of Operations"" in Part II, Item 7 and ""Quantitative and Qualitative Disclosures about Market Risk"" in Part II, Item 7A of the Company''s Annual Report on Form 10-K for the fiscal year ended November 30, 2007, and other items throughout the Form 10-K, ""Management''s Discussion and Analysis of Financial Condition and Results of Operations"" and ""Risk Factors"" in the Company''s 2008 Quarterly Reports on Form 10-Q and other items throughout the Company''s Quarterly Reports on Form 10-Q and the Company''s 2008 Current Reports on Form 8-K.

The presentation may also include certain non-GAAP financial measures. The reconciliation of such measures to the comparable GAAP figures are included in our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on 8-K, which are available on our website at www.morganstanley.com.

Any recording, rebroadcast or other use of this presentation in whole or in part is strictly prohibited without prior written consent of Morgan Stanley. This presentation is copyrighted and proprietary to Morgan Stanley.

At this time, I would like to turn the program over to Colm Kelleher for today’s call.

Colm Kelleher

Good morning everyone and thank you for joining us. Today we will review our results and highlight how we are positioning Morgan Stanley for this rapidly changing environment. The major equity indices all fell for three straight months losing 30% for the quarter, amounting to a loss of 40% or more for the fiscal year.

Financial stocks, which led the way, were down 40% for the quarter, 60% for the year. Emerging markets were similarly stressed. Capital market conditions were extremely weak. Volatility peaked across asset classes and de-leveraging accelerated, adding to the already severe asset price declines.

Hedging strategies became less effective as correlations broke down. In addition, the market reaction over the purpose of TARP and the uncertainty of its use caused a re-pricing of fixed income assets in November to distressed levels that materially impacted market liquidity and evaluation of a broad range of financial instruments.

Despite these challenging conditions we had strength across several of our industry leading businesses including commodities, foreign exchange, equity sales and trading including derivatives, advisory and global wealth management.

We took leverage down substantially to 11.4 times on a gross basis at the end of the fourth quarter of ’08 and significantly reduced our total assets by 33% sequentially to $658 billion of which $128 billion is our liquidity pool at the end of the quarter, up again to $140 billion as of today.

We further strengthened our strategic alliance along with successful $9 billion capital raise from Mitsubishi UFJ. Along with eight of our peers we received capital from the TARP. In our case it was $10 billion. With institutional securities we are engaged in a deliberate and focused reduction of balance sheet intensive businesses including a resizing of Prime Brokerage, the ongoing exit of select proprietary trading strategies, the reduction of principal investments and the closure of residential mortgage origination.