What was the primary driver of the decrease in net income for the quarter?

The primary driver of the decrease in net income for the quarter ended August 31, 2001, was the underperformance of the Securities segment. This segment experienced lower revenues from investment banking, principal transactions (trading), and commissions, reflecting a challenging global market and economic environment.

How did the company's balance sheet change during this period?

The company's balance sheet expanded significantly. Total assets increased to $505.8 billion from $426.8 billion at the end of the previous fiscal year. This growth was largely driven by increases in cash and cash equivalents, financial instruments owned, and securities borrowed.

What impact did the September 11th terrorist attacks have on the company's operations and financial outlook as disclosed in this filing?

The filing notes the significant impact of the September 11th attacks, including the destruction of office space and temporary market closures. The company has implemented business recovery plans to relocate employees. Management expects these attacks to have an adverse impact on results, particularly on the aircraft financing business, and anticipates uncertainty regarding long-term effects on global economies and financial markets.

Are there any significant changes in accounting policies or new pronouncements that affected the financial statements?

Yes, the company adopted SFAS No. 133, 'Accounting for Derivative Instruments and Hedging Activities,' effective December 1, 2000, which resulted in a $59 million after-tax charge to net income for the cumulative effect. The company also adopted SFAS No. 141 and plans to adopt SFAS No. 142. The adoption of SFAS No. 140 in April 2001 also led to some reclassifications on the balance sheet.

MORGAN STANLEY 10-Q Quarterly Report Q3 FY2001

Summary

Morgan Stanley Dean Witter & Co. reported mixed financial results for the period ending August 31, 2001, compared to the prior year. Net income decreased by 43% to $705 million for the third quarter and by 38% to $2,651 million for the first nine months of the fiscal year. This decline was primarily driven by weaker performance in the Securities segment, with lower revenues from investment banking, principal transactions (trading), and commissions. The Investment Management segment also saw a decline in net income, while the Credit Services segment experienced a decrease in net income for the quarter but an increase for the nine-month period, despite a higher provision for consumer loan losses. Despite the overall decrease in profitability, the company's balance sheet grew, with total assets increasing to $505.8 billion from $426.8 billion in the prior year. This growth was fueled by increases in cash and cash equivalents and financial instruments owned. The company's liquidity and capital position remain strong, with credit ratings from major agencies indicating a solid financial standing, although some agencies had placed the company on 'Negative Outlook' following the September 11th attacks. Management is actively managing costs and capital to navigate the challenging economic and market environment, exacerbated by the recent terrorist attacks.

Key Highlights

1Net income declined significantly year-over-year, down 43% to $705 million for the quarter and 38% to $2,651 million for the nine-month period, primarily due to lower performance in the Securities segment.
2Total assets grew to $505.8 billion at August 31, 2001, an increase from $426.8 billion at November 30, 2000, indicating business expansion despite profitability pressures.
3The Securities segment experienced a substantial 53% decrease in net income for the quarter, driven by weaker investment banking, trading, and commission revenues, reflecting challenging market conditions.
4The Investment Management segment saw a 36% drop in net income for the quarter, mainly due to a decrease in asset management, distribution, and administration fees.
5The Credit Services segment's net income decreased by 14% for the quarter, impacted by a higher provision for consumer loan losses, though net revenues saw a slight increase for the nine-month period.
6The company's liquidity and capital resources remain robust, with various credit facilities available and a diversified funding strategy.
7The report notes the significant impact of the September 11, 2001 terrorist attacks, including the relocation of employees, temporary market closures, and potential adverse effects on operations, particularly in the aircraft financing business.

MORGAN STANLEY Quarterly Report for Q3 Ended Aug 31, 2001

Summary

Key Highlights

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