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Goldman Sachs & Co.Financial Services Conference
Philip J. Purcell Stephen S. Crawford
Chairman & CEO Chief Financial Officer
May 13, 2002
2
This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002.
Sales and Trading
3,956 4,403
6,622
8,8518,258
2,035
1997 1998 1999 2000 2001 1Q2002
Sales and Trading Net Revenues
($MM, % Total)
% of Firm Revenues 27% 27% 31% 34% 37% 39%
1997-2001 CAGR: 20%
3
This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002.
Diversification
47%
53%
63%
37%
57%
43%
68%
32%
56%
44%
46%
54%
1997 1998 1999 2000 2001 1Q02
Sales and Trading Net Revenues
($MM, % Total)
Equity Fixed Income
4
This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002.
Balance Sheet(1)
$MMs
Note: (1) As of February 28, 2002
Total Assets
Cash and cash equivalents
Financing transactions, including:Reverse repos and securities borrowed
Financial instruments, including:Cash products ($118,770)Derivative products ($31,814)
Receivables, net of allowances:
Other assets, primarily includes:Aircraft, cash collateral, goodwill, office facilities etc.
Asset Class
$491,651
74,298
194,222
158,846
47,885
16,400
Balance$MMs
15%
40%
32%
10%
3%
% ofTotal
5
This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002.
Financial Instruments – Cash(1)
Bank Loans: $4.9Bn
Private Equity: $900MM(2)
High Yield: $1.6Bn
Loans and Commitments
Investment Grade
Non-Investment Grade
75%
25%
Note: (1) As of February 28, 2002(2) Of which only $250 MM is in inventory
Selected Financial Instruments
Total: $10.2Bn
6
This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002.
Financial Instruments – Derivatives(1)
0
2,000
4,000
6,000
<1 Yrs 1-3 Yrs 3-5 Yrs 5+ Yrs0
2,000
4,000
6,000
8,000
Interest FX Equity Commodities
Maturity Profile by Counterparty Rating
($MMs)
Counterparty Rating by Product
($MMs)
AAA AA A BBB NIGNote: (1) As of February 28, 2002
7
This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002.
Revenue Drivers
Trading Volumes
Volatility
Primary Activity
Market Direction
8
This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002.
Business Model
Increase FlowLowers Risk Strengthens Client
Relationships
9
This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002.
6.5 11.1 14.9 18.3 21.7
78.3
34
5766 72 78
22
13 23 30 35 38 41 44 47 49 51 53 55 57 59 6040
Consolidation and Fragmentation
2001 Mutual Funds 2001 Passive Funds
Top 15 Complexes (Cumulative Share %) (%)
2001 Separately Managed Accounts
(Cumulative Share %)
Fidelity
Vangu
ard
Cap R
esea
rch
Putna
m F
unds
Frank
lin T
emple
ton
Mor
gan
Stanle
y
Janu
s
TIAA-C
REFM
FS
Oppen
heim
er
AIM
Amer
ican
Expre
ss
T. Row
e Pric
e
Amer
ican
Centu
ry
PIMCO
All Oth
ers
2001 Hedge Funds
(%)
3856
75
25
BHT SSGA Vanguard Deutsche Mellon Other
Brandes Rittenhouse Alliance 1838Advisors
Lazard OtherTop 20 Next 20 Next 60 Next 535Source for above charts: Morgan Stanley/Freeman Securities Research
10
This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002.
Client Service Model
Three customer segments Mutual funds Hedge funds Asset owners
Different value chains Best execution Enhanced services Advice Capital
One prerequisite: Scale operations
11
This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002.
Execution
Applied OTC market making technology and strategy to options business
Making markets in 40,000 instruments, representing 435 names – from standing start in August 1999
Largely automated operations – handful of traders
OTC Market Making Automated Options Market MakingTotal Number of Stocks
650
1,600
End-2000 1Q2002
12
This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002.
Services and Advice
Analytics
Financing
Settlement
Securities lending
Dedicated trading
Tax and regulatory advice
Technology
13
This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002.
Scale
Morgan Stanley Institutional Securities Trading Volume and Cost per Trade
(Indexed)
0
100
200
300
400
500
600
1997 1998 1999 2000 2001 2002YTD
GrossVolumes
OperationsExpenses
Cost per Trade
14
This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002.
Research
Japan II First Teams 2002
Chemicals Construction Metals Software/Business
Autos & Auto Parts Insurance Telecommunications Equipment Equity Strategy
Global II First Teams 2001
Top Ranked Analysts by Institutional Investor
Morgan Stanley Proprietary Research Ratings System
Ratings as of 3/18/2002:
O or Over = Overweight E or Equal = Equal-weight U or Under = Underweight
Pre- 3/18/2002 Ratings:
SB = Strong Buy O = Outperform N = Neutral U = Underperform
Currently 19% of stocks are ranked Underweight by MWD Analysts
North America II First Teams 2001
Medical Supplies & Devices Cable Publishing & Information
Services Radio & TV Broadcasting Enterprise Software Internet Infrastructure
Services
Specialty Chemicals Data Networking Autos & Auto Parts Brokers & Asset
Managers Insurance/Nonlife
Europe II First Teams 2002
Autos & Auto Parts Luxury Goods Telecommunications
Equipment Tobacco
Convertibles Economics/Developed
Markets Equity Strategy/Developed
Markets
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This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002.
Relative Returns
Annual ROE Comparison
(Indexed to MWD)
20%
35%
50%
65%
80%
95%
110%
125%
140%
1996 1997 1998 1999 2000 2001 1Q2002
MWD
LEH
GS
MER
JPM
C
Source: Company filings and Morgan Stanley Research
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This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002.
Provisions Address:
New NASD and NYSE Rules
Promises of Favorable Research Limitations on Relationships and Communications Analyst Compensation Firm Compensation Restrictions on Personal Trading by Analysts Disclosures of Financial Interests in Covered Companies Disclosures in Research Reports Regarding the Firm's
Ratings Disclosures During Public Appearances by Analysts
17
This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002.
Value Added By Morgan StanleyPercent of Analysts Beating Passive Portfolio
6965
42
54 53
1997 1998 1999 2000 2001Passive Portfolio
Note: Active: Portfolio weighted by Morgan Stanley research recommendations (prior to 3/18/02)Passive: Equal-weighted performance
(%)
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This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002.
Average Return(1) For All IPOs
Source: Thomson FinancialNote: (1) Based on difference between offer price and price on 5/7/02
13.64
(3.18)
(18.55) (19.70) (21.98)(26.57)
MorganStanley
Citigroup JP Morgan CSFB Merrill GoldmanSachs
Jan 1, 1999 to May 7, 2002
(%)
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This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002.
12.3 %
16.9 %
Disciplined UnderwritingMWD IPO Market Share ($ volume)(1):
1995-2001
InternetIndustry
Total IPO
Market Share
Source: Thomson FinancialNote: (1) Deals of $10MM or more
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This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002.
Disciplined UnderwritingPassed On The IPO...
1-800-Flowers
Buy.com
Earthlink
Excite
Exodus
GeoCites
Infospace
Internet Capital Group
IXL
Lycos
Network Solutions
NetZero
Pets.com
Startmedia
Theglobe.com
UUNet
USWeb
VerticalNet
Webvan
Yahoo!
21
This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002.
An Analyst Stands His Ground
Qwest Stock Price ($)
Qwest Communications
0
10
20
30
40
50
1/2/01 3/2/01 5/2/01 7/2/01 9/2/01 11/2/01 1/2/02 3/2/02 5/2/02
June 20, 2001Morgan Stanley Downgrade ReportQwest: Report is “Hogwash”
June 25, 2001Other Analysts Defend Qwest; Dismiss “Accounting Esoterics”
Aug. 14, 2001Qwest Reports 12%Increase in Revenues for Quarter Nov. 14, 2001
Qwest Reports Revenue Flat, But Key Areas Growing
Feb. 13, 2002Company Announces It will Draw Down $4Bn Bank Loan
Apr. 4, 2002SEC Announces It Has Begun Formal Investigation of Qwest
Jan. 25, 2001Morgan Stanley Downgrades
22
This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002.
Not Linked to Investment Banking Revenue
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This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002.
Note: (1) Competitors include Bernstein, CSFB, Deutsche Banc, Goldman Sachs, Merrill Lynch, Prudential Securities, and UBS Warburg
A More Robust Ratings System
Revised stock rating system March 18th, 2002 based on intensive client survey
No other firm has made similar wholesale changes in their ratings
Number of stocks rated Underweight is more than 2x major competitors combined(1)
Overweight34%
Underweight19%
Equal-Weight47%