10-QPeriod: Q1 FY2007

MORGAN STANLEY Quarterly Report for Q1 Ended Feb 28, 2007

Filed April 6, 2007For Securities:MSMS-PKMS-POMS-PQMS-PAMS-PFMS-PIMS-PLMS-PPMS-PEMSTLW

Summary

Morgan Stanley's filing for the quarter ended February 28, 2007, demonstrates robust financial performance, with record net income of $2.67 billion and diluted earnings per share of $2.51, representing a significant 70% increase year-over-year. This growth was driven by strong performance across its business segments, particularly Institutional Securities, which saw record revenues and income, bolstered by strong fixed income and equity sales and trading, as well as investment banking activities. The Global Wealth Management Group and Asset Management segments also reported substantial income increases, reflecting growth in client assets and fee-based services. Discover, while experiencing a year-over-year decrease in income before taxes, showed resilience with stable transaction volumes. The company also highlighted strategic moves, including the planned spin-off of Discover in the third quarter of fiscal 2007, aimed at sharpening its focus on core financial services. The report also details significant share repurchases, demonstrating a commitment to capital return to shareholders, and outlines various business acquisitions that expanded its capabilities. Despite market volatility, Morgan Stanley maintained strong capital ratios and liquidity.

Key Highlights

  • 1Record Net Income: Net income reached $2.67 billion, a 70% increase year-over-year.
  • 2Record Diluted EPS: Diluted earnings per share were $2.51, a 70% increase year-over-year.
  • 3Strong Institutional Securities Performance: This segment reported record income and net revenues, driven by robust sales and trading and investment banking activities.
  • 4Growth in Wealth Management and Asset Management: Both segments saw increased income and client assets, indicating healthy growth in advisory and asset management services.
  • 5Discover Segment Performance: While income before taxes decreased year-over-year, the segment maintained stable transaction volumes and demonstrated efforts to manage credit quality.
  • 6Strategic Spin-off of Discover: The company announced plans to spin off its Discover unit in Q3 FY2007, aiming to focus on its core financial services businesses.
  • 7Significant Share Repurchases: Morgan Stanley repurchased approximately $1.2 billion of its common stock during the quarter, signaling a commitment to shareholder returns.

Frequently Asked Questions

Morgan Stanley reported record net income of $2.67 billion and a 70% year-over-year increase in diluted earnings per share to $2.51. Net revenues also saw a significant increase of 29% to $10.998 billion, with an annualized return on average common equity of 29.9%.

The Institutional Securities segment was a strong performer with record income and net revenues, driven by excellent results in fixed income and equity sales and trading, along with investment banking. The Global Wealth Management Group and Asset Management segments also showed significant income growth, fueled by increases in client assets and fee-based businesses. The Discover segment experienced a year-over-year decline in income before taxes but maintained stable transaction volumes and managed its credit quality effectively.

The most significant strategic announcement was the Board of Directors' approval of the spin-off of the Discover business, expected in the third quarter of fiscal 2007. This move is intended to allow the company to concentrate on its Institutional Securities, Global Wealth Management Group, and Asset Management segments. Additionally, the company continued its share repurchase program, buying back approximately $1.2 billion of its common stock.

The company is involved in various legal proceedings, including the 'Coleman Litigation.' A recent development in this matter was an appellate court opinion reversing a prior trial court award for damages and remanding the case. The company believes the outcome of pending matters will not have a material adverse effect on its consolidated financial condition, though specific outcomes could impact operating results for a particular period.