10-Q/APeriod: Q1 FY2004

MORGAN STANLEY Quarterly Report (Amendment) for Q1 Ended Feb 29, 2004

Filed October 15, 2004For Securities:MSMS-PKMS-POMS-PQMS-PAMS-PFMS-PIMS-PLMS-PPMS-PEMSTLW

Summary

Morgan Stanley's amended quarterly report for the period ending February 29, 2004, primarily addresses a restatement of prior period financial statements related to the timing of equity compensation expense recognition. The restatement, which impacts the first three quarters of fiscal year 2003, resulted in a modest increase in net income for the quarter ended February 28, 2003, by $125 million (or $0.12 per diluted share). The company also reported strong performance in the current quarter, with net income increasing by 19% year-over-year, driven by robust activity across its business segments, particularly Institutional Securities and Individual Investor Group. Key financial highlights for the quarter include a 14% increase in net revenues and a 19.2% return on average common equity. The Institutional Securities segment saw a 12% rise in net revenues, bolstered by strong investment banking and sales and trading activities. The Individual Investor Group experienced a 23% increase in net revenues, benefiting from higher commissions and asset management fees. Investment Management also showed significant growth with a 22% rise in net revenues and a 55% increase in pre-tax income. Credit Services delivered a record pre-tax income, up 25% year-over-year, driven by improved credit quality and financing costs.

Key Highlights

  • 1Restatement of fiscal 2003 interim financial statements to adjust the timing of equity-based compensation expense, resulting in a $125 million increase in net income for the quarter ended February 28, 2003.
  • 2Net income for the quarter ended February 29, 2004, increased by 19% to $1.226 billion compared to the prior year's quarter.
  • 3Net revenues grew by 14% to $6.241 billion, driven by strong performance across all business segments.
  • 4Return on average common equity improved to 19.2% from 18.5% in the prior year.
  • 5Institutional Securities segment income before taxes increased by 9% to $1.186 billion, with strong contributions from investment banking and sales & trading.
  • 6Individual Investor Group income before taxes more than doubled to $166 million, driven by higher commissions and asset management fees.
  • 7Credit Services segment reported record income before taxes of $365 million, up 25% year-over-year, due to lower loan loss provisions and favorable financing costs.

Frequently Asked Questions

This filing is an amendment to the original Form 10-Q to reflect the restatement of Morgan Stanley's condensed consolidated financial statements for the first, second, and third quarters of fiscal year 2003. The restatement pertains to the timing of the recognition of expense related to equity compensation awards.

The restatement adjusted the timing of equity-based compensation expense. For the quarter ended February 28, 2003, it reduced compensation and benefits expense by $185 million, increased net income by $125 million (or $0.12 per diluted share), and increased the annualized return on average common equity by 2.2%. The restatement did not affect the total compensation expense or net income for the nine months ended August 31, 2003, or the twelve months ended November 30, 2003.

Morgan Stanley demonstrated strong performance in the quarter ended February 29, 2004. Net income rose 19% to $1.226 billion, and diluted earnings per share increased by 18% to $1.11. Net revenues grew 14% to $6.241 billion, and the return on average common equity improved to 19.2%.

All segments showed improved performance. The Institutional Securities segment's income before taxes increased 9% due to strong investment banking and sales & trading results. The Individual Investor Group's income before taxes more than doubled, driven by higher commissions and asset management fees. The Credit Services segment achieved record income before taxes, up 25%, benefiting from improved credit quality and lower financing costs. Investment Management also saw significant growth in net revenues and pre-tax income.