Contact:

Media Relations
Jeanmarie McFadden
212-762-6901

Investor Relations
William Pike
212-761-0008

Morgan Stanley Reports Third Quarter Results
Quarterly EPS from Continuing Operations of $1.38
ROE from Continuing Operations of 17%
Record Net Revenues, Net Income and EPS for First Nine Months of FY07
NEW YORK, September 19, 2007 - Morgan Stanley (NYSE: MS) today reported income fromcontinuing operations for the third quarter ended August 31, 2007 of $1,474 million, a decrease of 7
percent from $1,588 million in the third quarter of 2006. Diluted earnings per share from continuing
operations were $1.38 compared with $1.50 a year ago. Net revenues were $8.0 billion, 13 percent
above last year's third quarter. Non-interest expenses of $5.7 billion increased 18 percent from lastyear. The annualized return on average common equity from continuing operations was 17.2 percent
in the current quarter compared with 23.3 percent in the third quarter of 2006.

For the first nine months of 2007, income from continuing operations was a record $6,151 million, a41 percent increase from $4,353 million a year ago. Diluted earnings per share from continuing
operations were a record $5.79 compared with $4.12 last year. Net revenues rose 29 percent to arecord $28.5 billion and non-interest expenses increased 24 percent to $19.2 billion. The annualized
return on average common equity from continuing operations was 25.5 percent compared with 22.4
percent a year ago.

The results for Discover Financial Services prior to its spin-off on June 30, 2007 are reported indiscontinued operations on an after-tax basis. Including these results, net income for the quarter was$1,543 million, a decrease of 17 percent from $1,851 million in the third quarter of 2006. For the firstnine months of 2007, net income was a record $6,797 million, a 29 percent increase from $5,266
million a year ago. Diluted earnings per share were $1.44 for the quarter compared with $1.75 in thethird quarter of 2006, and the annualized return on average common equity for the third quarter was
17.1 percent compared with 22.7 percent a year ago. For the first nine months, diluted earnings per
share were a record $6.40 compared with $4.99 a year ago, and the annualized return on averagecommon equity was 24.9 percent compared with 22.6 percent last year.

Business Highlights•

Institutional Securities achieved net revenues of $5.0 billion, up 2 percent from last year,
although down from the record second quarter.

•

Investment Banking revenues increased 45 percent to $1.4 billion from the third quarter of2006. Morgan Stanley ranked #1 in Global Completed M&A and #2 in Global Announced
M&A 1 and our pipeline remains strong.

•

Equity sales and trading net revenues increased 16 percent to $1.8 billion from last year.
Record results in derivatives and prime brokerage and record trading volumes in our core
equity business were partly offset by significant trading losses in quantitative strategies.

•

Fixed income sales and trading net revenues decreased 3 percent to $2.2 billion from last year,
as significantly lower revenues in credit products were offset by record revenues in interest
rate & currency products.

•

Other sales and trading included losses of approximately $940 million due to the marking tomarket of loans as well as closed and pipeline commitments. These losses reduced third
quarter earnings per share from continuing operations by approximately $0.33. The
markdowns reflect the illiquidity created by current market conditions.

•Global Wealth Management delivered its sixth consecutive quarter of improved performance– with the third highest quarterly net revenues ever and a pre-tax margin of 17 percent. Client
inflows of nearly $15 billion reached all-time highs, and annualized revenue per global
representative was a record $817,000.

•

Asset Management recorded its fourth consecutive quarter of net positive flows. Record net
customer inflows for the quarter of $20.8 billion compared with $9.3 billion in the priorquarter. Assets under management reached $577 billion at quarter-end, a 25 percent increase
from a year ago.

John J. Mack, Chairman and CEO, said, “Morgan Stanley’s diversification across businesses andregions helped us deliver ROE of 17.2% this quarter, despite the impact of the severe market
disruption on some areas of the Firm--including our credit products, leveraged lending andquantitative strategies businesses. Even with these turbulent markets, Morgan Stanley still delivered
strong performances across many core businesses and achieved record results in our prime brokerage,
derivatives and interest rate & currencies businesses. In addition, we continued making progress in
1

Source: Thomson Financial – for the period January 1, 2007 to August 31, 20072

executing our growth plans and vastly improving performance in Asset Management and Global
Wealth Management.

“As always, the people of Morgan Stanley remain intensely focused on helping our clients navigate
the constantly changing markets and seizing the opportunities they offer our clients and the Firm. In
the months ahead, we will continue to leverage our diverse, global franchise to create value for ourclients and shareholders.”

INSTITUTIONAL SECURITIESInstitutional Securities posted pre-tax income2 of $1.5 billion, down 22 percent from $1.9 billion in thethird quarter of 2006. Net revenues of $5.0 billion were 2 percent higher than a year ago. The
quarter’s pre-tax margin was 30 percent compared with 39 percent in last year’s third quarter. The
quarter’s return on average common equity was 16 percent compared with 30 percent a year ago.
•

Advisory revenues were $664 million, a 50 percent increase from last year’s third quarter.

•

Underwriting revenues of $775 million increased 41 percent from last year’s third quarter. Equity
underwriting revenues were $429 million, an 81 percent increase from the prior year’s third
quarter and fixed income underwriting revenues increased 11 percent to $346 million over thesame period.

•

Fixed income sales and trading net revenues were $2.2 billion, a 3 percent decrease from the third
quarter of 2006. The decrease was driven by significantly lower credit revenues as spreadwidening, lower liquidity and higher volatility resulted in lower origination, securitization andtrading results across most products. Commodities revenues were down on lower trading results.
These decreases were partly offset by record results in interest rate & currency products, which
benefited from stronger revenues in interest rates and foreign exchange. Fixed income sales andtrading also benefited by approximately $290 million from the widening of Morgan Stanley’s
credit spreads on certain long-term debt.

•

Equity sales and trading net revenues were $1.8 billion, an increase of 16 percent from last year’s
third quarter. Record results in derivatives and prime brokerage were partly offset by trading
losses in quantitative strategies of approximately $480 million resulting from unfavorable
positioning as the market significantly reduced leverage late in the quarter.

2

Represents income from continuing operations before gains / losses from unconsolidated investees and taxes.

3•

Other sales and trading net losses of $877 million primarily reflect losses of approximately $940
million from marking to market loans and closed and pipeline commitments, largely related toacquisition financing provided to non-investment grade companies.

•

Investment revenues were $217 million compared with $114 million in the third quarter of last
year.

•

The Company’s aggregate average trading VaR measured at the 95 percent confidence level was$87 million compared with $56 million in the third quarter of 2006 and $81 million in the second
quarter of 2007. Total aggregate average trading and non-trading VaR was $91 million comparedwith $66 million in the third quarter of 2006 and $87 million in the second quarter of 2007. At
quarter-end, the Company’s aggregate trading VaR was $81 million, and the aggregate trading andnon-trading VaR was $84 million, down from $86 million and $93 million, respectively, at the endof this year’s second quarter. The Company actively reduced positions during the quarter, but thechange in market conditions implied higher volatility and higher risk as measured by VaR forthese reduced exposures.

•

Non-interest expenses were $3.5 billion, an increase of 17 percent from the third quarter of lastyear. Non-compensation expenses increased from a year ago primarily as a result of higher levelsof business activity, business investment and operating expenses associated with Saxon Capital,
TransMontaigne and Heidenreich Marine, Inc. Compensation costs in the current quarter werehigher than a year ago as the prior year included an adjustment in the compensation ratio based on
an assessment of 2006 compensation levels.

For the first eight months of calendar 2007, the Company ranked first in global completed M&A witha 32 percent market share, second in global announced M&A with a 30 percent market share, secondin global IPOs with an 8 percent market share, fourth in global equity and equity-related issuanceswith an 8 percent market share and fifth in global debt issuance with a 6 percent market share.1

GLOBAL WEALTH MANAGEMENT GROUP
Global Wealth Management Group's pre-tax income for the third quarter was $287 million, a 78
percent increase from $161 million in the third quarter of last year. The quarter's pre-tax margin was
17 percent compared with 12 percent in last year's third quarter. The quarter's return on averagecommon equity was 39 percent compared with 15 percent a year ago, reflecting the increase in net
income and lower capital allocated to the business.

4•Net revenues of $1.7 billion were up 23 percent from a year ago reflecting stronger transactional
revenues including higher revenues from underwriting activity, higher asset management revenues
resulting from growth in fee-based products and higher net interest revenue from growth in thebank deposit sweep program.

•

Non-interest expenses were $1.4 billion, up 15 percent from a year ago. Compensation costs
increased from a year ago, primarily reflecting higher revenues and investment in the business.
Non-compensation expenses were flat to a year ago as expenses associated with higher levels of
business activity were offset by an insurance reimbursement related to a litigation matter.

•

Total client assets were $734 billion, a 14 percent increase from last year’s third quarter. Client
assets in fee-based accounts rose 15 percent to $211 billion over the last 12 months and represent
29 percent of total assets.

•

The 8,341 global representatives at quarter-end achieved record average annualized revenue per
global representative of $817,000 and near record total client assets per global representative of$88 million.

ASSET MANAGEMENT
Asset Management’s pre-tax income for the third quarter was $491 million compared with $155
million in the third quarter of last year. The quarter’s pre-tax margin was 36 percent compared with
18 percent a year ago and the return on average common equity was 35 percent compared with 15
percent in last year’s third quarter.

•

Net revenues increased 61 percent to $1.4 billion from last year’s third quarter primarily reflecting
higher asset management and administration fees due to an increase in assets under management
and higher performance fees from the alternatives business, including FrontPoint Partners. The
increase was also driven by investment gains in the private equity and real estate businesses,
including revenues associated with employee deferred compensation and co-investment plans.

•

Non-interest expenses increased 27 percent to $873 million from a year ago driven by higher
compensation costs resulting from both increased revenues and the continued investment in theprivate equity and alternatives businesses, which was partially offset by an adjustment in thecompensation ratio reflecting our current assessment of full-year compensation levels. Noncompensation expenses increased from last year due to higher levels of business investment andbusiness activity.

•

Asset Management generated record net customer inflows of $20.8 billion for the quarter, which
represented the fourth consecutive quarter of positive flows. This compared with $1.8 billion of5

net outflows a year ago and was more than double the flows recorded in the second quarter of thisyear. Institutional money market products increased significantly in the quarter as the business
continued to expand relationships with existing and new investors. The quarter also reflected
positive long-term flows across most distribution channels.
•

Assets under management or supervision at August 31, 2007 were $577 billion, up $114 billion, or
25 percent, from a year ago, driven by increases in alternative, equity and institutional money
market asset classes. These increases primarily resulted from market appreciation and net
customer inflows.

•

The percent of the Company's long-term fund assets performing in the top half of the Lipper
rankings was 41 percent over one year, 60 percent over three years, 69 percent over five years and78 percent over 10 years.

OTHER MATTERS
The quarter’s results reflect an effective tax rate from continuing operations of 34.4 percent, up from
29.9 percent a year ago. The third quarter of 2006 reflected a year-to-date adjustment due to a change
in the geographic mix of earnings.

As of August 31, 2007, the Company repurchased approximately 42 million shares of its common
stock since the end of fiscal 2006.

The Company announced that its Board of Directors declared a $0.27 quarterly dividend per commonshare. The dividend is payable on October 31, 2007, to common shareholders of record on October
12, 2007. The Company also announced that its Board of Directors declared a quarterly dividend of$387.17 per share of Series A Floating Rate Non-Cumulative Preferred Stock (represented bydepositary shares, each representing 1/1,000th interest in a share of preferred stock and each having adividend of $0.38717) to be paid on October 15, 2007 to preferred shareholders of record on
September 30, 2007.

Total capital as of August 31, 2007 was $187.5 billion, including $40.1 billion of commonshareholders' equity, preferred equity and junior subordinated debt issued to capital trusts. Book value
per common share was $32.14, based on 1.1 billion shares outstanding.

Morgan Stanley is a leading global financial services firm providing a wide range of investment

6

banking, securities, investment management and wealth management services. The Firm's employees
serve clients worldwide including corporations, governments, institutions and individuals from morethan 600 offices in 32 countries. For further information about Morgan Stanley, please visit
www.morganstanley.com.

A financial summary follows. Financial, statistical and business-related information, as well as
information regarding business and segment trends, is included in the Financial Supplement. Both theearnings release and the Financial Supplement are available online in the Investor Relations section atwww.morganstanley.com.

###(See Attached Schedules)

The information above contains forward-looking statements. Readers are cautioned not to place
undue reliance on forward-looking statements, which speak only as of the date on which they are
made and which reflect management's current estimates, projections, expectations or beliefs andwhich are subject to risks and uncertainties that may cause actual results to differ materially. Fora discussion of additional risks and uncertainties that may affect the future results of theCompany, please see "Forward-Looking Statements" immediately preceding Part I, Item 1,"Competition" and "Regulation" in Part I, Item 1, "Risk Factors" in Part I, Item 1A and "Certain
Factors Affecting Results of Operations" in Part II, Item 7 of the Company's Annual Report on
Form 10-K for the fiscal year ended November 30, 2006 and "Management's Discussion andAnalysis of Financial Condition and Results of Operations" and "Risk Factors" in the Company's
Quarterly Reports on Forms 10-Q and other items throughout the Form 10-K, Forms 10-Q and
the Company's Current Reports on Form 8-K.

7

MORGAN STANLEY
Quarterly Financial Summary(unaudited, dollars in millions)

Aug 31, 2007
Net revenues
Institutional Securities
Global Wealth Management Group
Asset Management
Intersegment Eliminations
Consolidated net revenues$$

Quarter Ended
Aug 31, 2006

4,983
1,683
1,364
(72)
7,958

$

$

May 31, 2007

4,894
1,371
845
(46)
7,064

$

$

$

1,915
161
155
13
2,244

$

Percentage Change From:Aug 31, 2006
May 31, 2007

Nine Months Ended
Aug 31, 2007
Aug 31, 2006

7,429
1,642
1,509
(56)
10,524

2%
23%
61%
(57%)
13%

(33%)
2%
(10%)
(29%)
(24%)

$

(22%)
78%
*
*
1%

(49%)
9%
62%
*
(36%)

$

$

2,950
264
303
7
3,524

$

19,574
4,836
4,241
(175)
28,476

$

$

$

7,296
777
1,173
(1)
9,245

$

Percentage
Change15,635
4,060
2,480
(185)
21,990

25%
19%
71%
5%
29%

$

5,521
339
583
12
6,455

32%
129%
101%
(108%)
43%$

Income before taxes (1)Institutional Securities
Global Wealth Management Group
Asset Management
Intersegment Eliminations
Consolidated income before taxes

$

1,501
287
491
(14)
2,265

Earnings per basic share:
Income from continuing operations
Discontinued operations (2)Earnings per basic share

$
$
$

1.45
0.07
1.52

$
$
$

1.57
0.26
1.83

$
$
$

2.35
0.22
2.57

(8%)
(73%)
(17%)

(38%)
(68%)
(41%)

$
$
$

6.08
0.65
6.73

$
$
$

4.29
0.90
5.19

42%
(28%)
30%

Earnings per diluted share:
Income from continuing operations
Discontinued operations (2)Earnings per diluted share

$
$
$

1.38
0.06
1.44

$
$
$

1.50
0.25
1.75

$
$
$

2.24
0.21
2.45

(8%)
(76%)
(18%)

(38%)
(71%)
(41%)

$
$
$

5.79
0.61
6.40

$
$
$

4.12
0.87
4.99

41%
(30%)
28%

Average common shares outstanding
Basic
Diluted
Period end common shares outstanding
Return on average common equityfrom continuing operations
Return on average common equity

(1)
(2)
Note:

$

1,002,330,181
1,057,495,875
1,062,450,986

1,010,468,365
1,055,664,392
1,058,664,567

996,544,761
1,045,643,087
1,051,690,047

1,002,687,312
1,053,683,836
1,062,450,986

1,014,846,804
1,055,811,711
1,058,664,567

17.2%
17.1%

23.3%
22.7%

29.4%
27.4%

25.5%
24.9%

22.4%
22.6%

Represents consolidated income from continuing operations before gain/(loss) from unconsolidated investees, taxes
and gain/(loss) from discontinued operations.
All periods have been restated to include the results of Discover Financial Services in discontinued operations.
Certain reclassifications have been made to prior period amounts to conform to the current presentation.
8

MORGAN STANLEY
Quarterly Consolidated Income Statement Information(unaudited, dollars in millions)

Investment banking
Principal transactions:
Trading
Investments
Commissions
Asset management, distribution and admin. fees
Servicing income
Interest and dividends
Available for sale securities
Other
Total revenues
Interest expense
Net revenues

Aug 31, 2007

Quarter Ended
Aug 31, 2006

May 31, 2007

$

$

$

Compensation and benefits
Occupancy and equipment
Brokerage, clearing and exchange fees
Information processing and communications
Marketing and business development
Professional services
Other
Total non-interest expenses
Income from continuing operations before gain/(loss)
from unconsolidated investees and taxes
Gain/(loss) from unconsolidated investees
Provision for income taxes
Income from continuing operations
Discontinued operations (1)Gain/(loss) from discontinued operations
Income tax benefit/(provision)
Gain/(loss) from discontinued operations
Net income
Preferred stock dividend requirements
Earnings applicable to common shareholders
Return on average common equityfrom continuing operations
Return on average common equity(2)
Pre-tax profit margin
Compensation and benefits as a % of net revenues
(1)
(2)
Note:

$
$
$

1,659

1,138

Percentage Change From:Aug 31, 2006
May 31, 2007

1,913

46%

(13%)

Nine Months Ended
Aug 31, 2007
Aug 31, 2006
$

4,799

$

Percentage
Change

3,252

48%

1,381
558
1,264
1,701
32
14,405(18)
248
21,23013,272
7,958

2,843
300
880
1,312
0
12,0210
119
18,613
11,549
7,064

4,838
1,004
1,123
1,596
42
15,4000279
26,195
15,671
10,524

(51%)
86%
44%
30%
*
20%
*
108%
14%
15%
13%

(71%)
(44%)
13%
7%
(24%)
(6%)
*
(11%)
(19%)
(15%)
(24%)

10,377
2,442
3,392
4,776
109
43,976(18)
764
70,61742,141
28,476

9,488
1,229
2,794
3,901
0
31,4830367
52,51430,524
21,990

9%
99%
21%
22%
*
40%
*
108%
34%
38%
29%

3,596
279
459
302
190
507
360
5,693

3,085
233
339
274
147
459
283
4,820

4,994
279
366
286
199
510
366
7,000

17%
20%
35%
10%
29%
10%
27%
18%

(28%)
-25%
6%
(5%)
(1%)
(2%)
(19%)

13,365
818
1,186
865
542
1,436
1,019
19,231

10,682
658
971
805
422
1,281
716
15,535

25%
24%
22%
7%
28%
12%
42%
24%

2,265
(19)
772
1,474

2,244
20
676
1,588

3,524
(20)
1,141
2,363

1%
(195%)
14%
(7%)

(36%)
5%
(32%)
(38%)

9,245
(65)
3,029
6,151

6,455
25
2,127
4,353

43%
*
42%
41%

111
(42)
69
1,543
17
1,526

399
(136)
263
1,851
1,851

349
(130)
219
2,582
17
2,565

(72%)
69%
(74%)
(17%)
*
(18%)

(68%)
68%
(68%)
(40%)
-(41%)

1,024
(378)
646
6,797
50
6,747

1,435
(522)
913
5,266
5,266

(29%)
28%
(29%)
29%
*
28%

17.2%
17.1%
29%
45%

$
$
$

$
$
$

23.3%
22.7%
32%
44%

29.4%
27.4%
34%
48%

All periods have been restated to include the results of Discover Financial Services in discontinued operations
Income before taxes, excluding gain/(loss) from unconsolidated investees, as a % of net revenues
Certain reclassifications have been made to prior period amounts to conform to the current presentation.
9

$
$
$

25.5%
24.9%
33%
47%

$
$
$

22.4%
22.6%
29%
49%