10-QPeriod: Q1 FY2006

MORGAN STANLEY Quarterly Report for Q1 Ended Feb 28, 2006

Filed April 7, 2006For Securities:MSMS-PKMS-POMS-PQMS-PAMS-PFMS-PIMS-PLMS-PPMS-PEMSTLW

Summary

Morgan Stanley reported strong financial results for the quarter ended February 28, 2006, with net income increasing by 11% to $1.56 billion and diluted earnings per share rising by 14% to $1.47 compared to the prior year period. Net revenues reached a record $8.48 billion, up 24%, driven by robust performance across its business segments. The Institutional Securities segment, in particular, saw a significant 63% increase in income from continuing operations, fueled by record fixed income and strong equity trading revenues, as well as higher investment banking revenues. Discover also delivered a record pre-tax income, up 35%, demonstrating the strength of its credit card business. The company highlighted its commitment to shareholder returns through share repurchases, totaling $1.2 billion in the quarter. Additionally, Morgan Stanley is actively managing its regulatory environment, becoming subject to SEC’s consolidated supervised entity rules and continuing its implementation of Basel II capital standards. The company's solid financial performance and strategic initiatives position it well amidst a generally favorable market and economic backdrop.

Key Highlights

  • 1Net income increased 11% year-over-year to $1.56 billion.
  • 2Diluted EPS rose 14% to $1.47.
  • 3Record net revenues of $8.48 billion, up 24% year-over-year.
  • 4Institutional Securities segment income from continuing operations surged 63% due to strong trading and investment banking performance.
  • 5Discover segment reported record pre-tax income, up 35%, driven by credit card operations.
  • 6Company repurchased $1.2 billion of its common stock during the quarter.
  • 7Morgan Stanley is implementing SEC's consolidated supervised entity rules and Basel II capital standards.

Frequently Asked Questions

Morgan Stanley reported record net revenues of $8.48 billion for the quarter ended February 28, 2006, representing a 24% increase compared to the same period in the prior year.

The Institutional Securities segment experienced significant growth, with income from continuing operations increasing by 63% to $1.75 billion. This was driven by record fixed income and near-record equity sales and trading revenues, as well as higher investment banking revenues.

Morgan Stanley completed the acquisition of the Goldfish credit card business in the UK on February 17, 2006, for approximately $1.68 billion. This acquisition is expected to add economies of scale and strengthen its position in the UK credit card market. The results of Goldfish have been included in the Discover segment's financial performance since the acquisition date.

While market conditions are generally favorable, Morgan Stanley anticipates that new minimum payment requirements and overall credit conditions may adversely impact delinquency and charge-off trends in the Discover business during the second half of fiscal 2006.