Media Relations: Jeanmarie McFadden 212-761-2433

Investor Relations: Suzanne Charnas 212-761-3043

Morgan Stanley Reports Second Quarter 2010:•

Net Revenues of $8.0 Billion•

Income from Continuing Operations of $0.80 per Diluted Share (Includes $0.27
from Changes in Morgan Stanley’s Debt-Related Credit Spreads and $0.20 from a
Discrete Tax Benefit)•

Book Value per Common Share Increased 7% During the Quarter to $29.65

NEW YORK, July 21, 2010 – Morgan Stanley (NYSE: MS) today reported income of $1.4 billion, or $0.80
per diluted share, from continuing operations applicable to Morgan Stanley for the quarter ended June 30,2010 compared with a loss of $138 million, or $1.36 per diluted share, for the same period a year ago. Net
revenues were $8.0 billion for the current quarter compared with $5.2 billion a year ago. Net revenues in thecurrent quarter included positive revenue of $750 million compared with negative revenue of $2.3 billion in
the prior year’s second quarter related to Morgan Stanley’s debt-related credit spreads (DVA).1, 2Comparisons of current quarter results with the prior year were affected by the results of Morgan Stanley
Smith Barney (MSSB),3 which closed on May 31, 2009. The results for the quarter also included a tax benefitof $345 million, or $0.20 per diluted share, associated with the remeasurement of tax reserves based on thestatus of federal and state examinations. The annualized return on average common equity from continuing
operations was 12.2% in the quarter.
For the quarter net income applicable to Morgan Stanley, including discontinued operations, was $1.09 per
diluted share compared with a net loss of $1.10 per diluted share in the second quarter of 2009. Discontinued
operations included an after-tax gain of $514 million related to the sale of substantially all of the retail asset
management business, including Van Kampen Investments, Inc.4
Compensation expenses of $3.9 billion included a charge of $361 million related to the U.K. government’s
payroll tax on 2009 discretionary bonuses.5 Compensation expenses increased slightly from $3.8 billion a year
ago as higher compensation costs related to MSSB3 were mostly offset by lower compensation costs in
Institutional Securities. The Firm’s compensation to net revenue ratio for the current quarter was 49%
compared with 73% a year ago. Non-compensation expenses of $2.4 billion increased from $2.0 billion a year
ago, primarily due to the inclusion of MSSB.3
Business Highlights•

Investment banking revenues were $885 million: Morgan Stanley ranked #2 in global announced andcompleted M&A and #1 in global IPOs.6•

Sales and trading net revenues were $3.7 billion and included positive revenue of approximately $750
million related to DVA2 in the current quarter.

•

Global Wealth Management delivered net revenues of $3.1 billion, with client assets of $1.5 trillion and
18,087 global representatives.

•

Asset Management reported net revenues of $410 million, and Morgan Stanley completed the previously

1announced sale of substantially all of the retail asset management business, including Van Kampen
Investments, Inc., to Invesco Ltd.
•

Morgan Stanley and Mitsubishi UFJ Financial Group, Inc. commenced operations of the previously
announced joint venture on May 1, 2010.7

James P. Gorman, President and Chief Executive Officer, said, “While markets were challenging this quarter,
Morgan Stanley benefited from a deliberate and disciplined focus on execution. We strengthened leading
market positions in our client-focused Investment Banking business, improved client flows in Sales and Trading,and continued progress on the integration of Morgan Stanley Smith Barney as well as the repositioning of ourAsset Management business. We still have a great deal of work to do across our global franchise and anticipate
that the difficult market environment may continue in the months ahead. That said, we believe that regulatory
reforms are a key step toward restoring trust in the industry and the markets.”

Summary of Business Segment Results($ millions)
Institutional Securities
Net
Pre-Tax
Revenues
IncomeGlobal Wealth Management
Net
Pre-Tax
Revenues
IncomeAsset Management
Net
Pre-Tax
Revenues
Income2Q 2010$4,502$1,570$3,074

$207

$410

($86)

1Q 2010$5,344$2,067$3,105

$278

$653

$173

2Q 2009$2,967($298)$1,923

($71)

$358

($210)INSTITUTIONAL SECURITIESInstitutional Securities reported pre-tax income from continuing operations of $1.6 billion compared with a pretax loss from continuing operations of $298 million in the second quarter of last year. The quarter’s pre-tax
margin was 35%.8 Net revenues were $4.5 billion compared with $3.0 billion a year ago. DVA resulted inpositive revenue of approximately $750 million in the current quarter compared with negative revenue of $2.3
billion a year ago.2 Due to the divergence in DVA in the comparative periods, the following discussion for
fixed income and equity sales and trading focuses on current quarter results.
•

Advisory revenues of $288 million increased 7% from a year ago and reflected higher levels of completed
activity compared with a year ago.

•

Underwriting revenues of $597 million declined 30% from last year’s second quarter on lower levels ofmarket activity. Equity underwriting revenues of $269 million declined from $456 million a year ago.
Fixed income underwriting revenues decreased 18% to $328 million from last year’s second quarter.

•

Fixed income sales and trading net revenues were $2.3 billion and reflected positive revenue of $602 million
related to DVA noted above.2 Results for the current quarter reflected improving customer flows in Interest
Rate, Credit & Currency (IRCC), which were partly offset by a challenging trading environment. Net
revenues in commodities for the current quarter were primarily driven by revenues recognized on certain
structured transactions.

•

Equity sales and trading net revenues were $1.4 billion for the quarter and reflected positive revenue of$129 million related to DVA noted above.2 Results in the cash and derivatives businesses reflected
improving customer flows in a challenging trading environment. Prime brokerage reported solid results for2the quarter.
•

Other sales and trading net losses of $101 million for the quarter included net mark-to-market losses of $277
million on loans and lending commitments, partly offset by net revenues of $176 million from other hedging
activities.

•

Investment losses of $68 million, which reflected lower equity valuations in the current quarter, declined
from a loss of $184 million a year ago. The prior year quarter primarily included losses on investments inreal estate.

•

Compensation expenses of $1.6 billion for the current quarter included a charge of $354 million related to
the U.K. government’s payroll tax on 2009 discretionary bonuses. Compensation costs decreased from $2.1
billion a year ago primarily reflecting lower net revenues, excluding the effect of changes in DVA noted
above.2 The compensation to net revenue ratio for the current quarter was 36% compared with 71% a year
ago. Non-compensation expenses of $1.3 billion increased 12% from a year ago, and reflected higher legal
costs.

•Morgan Stanley’s average aggregate trading and non-trading Value-at-Risk (VaR) measured at the 95%
confidence level was $164 million compared with $169 million in the first quarter of 2010. Average trading
VaR was $139 million compared with $143 million in the first quarter of 2010.

GLOBAL WEALTH MANAGEMENT
Global Wealth Management Group reported pre-tax income from continuing operations of $207 million
compared with a pre-tax loss from continuing operations of $71 million in the second quarter of last year.
Comparisons of the quarter’s results with prior periods were affected by the results of MSSB,3 which closed on
May 31, 2009. The quarter’s pre-tax margin was 7%.8 Income after the non-controlling interest allocation to
Citigroup Inc. and before taxes was $171 million.9•

Net revenues were $3.1 billion compared with $1.9 billion a year ago. The increase primarily reflected
incremental net revenues, following the closing of the MSSB transaction, which were partly offset by theeffect of weaker market conditions.

•Compensation expenses of $2.0 billion increased from $1.4 billion a year ago due to the inclusion of MSSB
for the full quarter. The compensation to net revenue ratio for the current quarter was 64% compared with
71% a year ago. Non-compensation expenses of $901 million increased from $632 million a year ago
primarily due to the inclusion of MSSB. The results for this quarter included costs of approximately $106
million related to the MSSB integration.

•

Total client assets were $1.5 trillion at quarter-end. Client assets in fee-based accounts were $396 billion
and represented 26% of total client assets.

•

The 18,087 global representatives at quarter-end achieved average annualized revenue per global
representative of $679,000 and total client assets per global representative of $83 million.

ASSET MANAGEMENT
Asset Management reported a pre-tax loss from continuing operations of $86 million compared with a pre-tax
loss from continuing operations of $210 million in last year’s second quarter. Discontinued operations included
the operating results and the gain related to the sale of substantially all of the retail asset management business,
including Van Kampen Investments, Inc.
•

Net revenues were $410 million compared with $358 million a year ago.

3

•Net revenues in the Core business10 were $300 million compared with $471 million in last year’s second
quarter. The decrease in net revenues primarily reflected gains of $128 million in the prior year related tothe disposition of the remaining securities issued by structured investment vehicles held on the Firm’sbalance sheet, and principal investment losses in the quarter compared with gains a year ago.

•

Net revenues in the Merchant Banking business were $110 million compared with negative revenues of$113 million in last year’s second quarter. The increase in net revenues primarily reflected principal trading
losses in the prior year related to a mark-to-market loss on a lending facility to a real estate fund sponsoredby Morgan Stanley as well as losses in other real estate investments compared with modest gains thisquarter.

•

Compensation expenses were $282 million compared with $331 million a year ago. The decrease primarilyreflected principal investment losses in the quarter in employee deferred compensation and co-investment
plans compared with gains in the prior year, partly offset by certain international tax equalization payments.
The compensation to net revenue ratio for the quarter was 69% compared with 93% a year ago. Noncompensation expenses of $214 million decreased 10% from a year ago.

•

Assets under management or supervision at June 30, 2010 of $251 billion increased from $242 billion a year
ago. The increase reflected market appreciation partly offset by net customer outflows primarily in Morgan
Stanley’s money market funds.

CAPITAL
Morgan Stanley’s Tier 1 capital ratio, under Basel I, was approximately 16.4% and Tier 1 common ratio wasapproximately 9.2%.8, 11
As of June 30, 2010, Morgan Stanley had not repurchased any shares of its common stock as part of its capitalmanagement share repurchase program.
Book value per common share was $29.65, based on 1.4 billion shares outstanding. In addition to net income
applicable to Morgan Stanley, book value increased by $0.51 per share related to an after-tax gain of $717
million on the sale of the Firm's non-controlling interest in its Japanese institutional securities business. This
gain was recorded in other comprehensive income.

OTHER MATTERS
The effective tax rate from continuing operations for the current quarter was 12.9%. As noted previously, theresults for the quarter included a tax benefit of $345 million associated with the remeasurement of tax reserves
based on the status of federal and state examinations. Excluding this benefit, the quarter’s annual effective tax
rate would have been 33.5%.
Morgan Stanley announced that its Board of Directors declared a $0.05 quarterly dividend per common share.
The dividend is payable on August 13, 2010 to common shareholders of record on July 30, 2010.
Morgan Stanley is a leading global financial services firm providing a wide range of investment banking,securities, investment management and wealth management services. The Firm's employees serve clientsworldwide including corporations, governments, institutions and individuals from more than 1,200 offices in 42
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 the earnings release andthe Financial Supplement are available online in the Investor Relations section at www.morganstanley.com.

4###(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 whichreflect management's current estimates, projections, expectations or beliefs and which are subject to risks
and uncertainties that may cause actual results to differ materially. For a discussion of additional risks anduncertainties that may affect the future results of the Company, please see "Forward-Looking Statements"
immediately preceding Part I, Item 1, "Competition" and "Supervision and Regulation" in Part I, Item 1,"Risk Factors" in Part I, Item 1A, "Legal Proceedings" in Part I, Item 3, "Management’s Discussion andAnalysis of Financial Condition and Results of Operations" in Part II, Item 7 and "Quantitative andQualitative Disclosures about Market Risk" in Part II, Item 7A of the Company's Annual Report on Form
10-K for the year ended December 31, 2009 and other items throughout the Form 10-K, the Company’s
Quarterly Reports on Form 10-Q and the Company’s Current Reports on Form 8-K.

5

1

Represents the changes in Morgan Stanley’s credit spreads resulting from fluctuation in the fair value of certain of its
long-term and short-term borrowings (commonly referred to as “DVA”).
2

Due to DVA, sales and trading net revenue for the quarter ended June 30, 2010 included positive revenue of $750 million(fixed income: $602 million; equity: $129 million; other: $19 million) and sales and trading net revenue for the quarter
ended June 30, 2009 included negative revenue of $2.3 billion (fixed income: $1.3 billion; equity: $757 million; other:$237 million).

3

MSSB results included revenues and expenses (compensation and non-compensation), related to legacy Smith Barney
operations, that were incremental to the Firm’s financial results subsequent to the closing on May 31, 2009.

4

The cumulative after-tax gain on the sale of this business is $673 million, of which $514 million is recorded in the current
quarter. Additional gains of $159 million were recorded in discontinued operations in prior quarters.

5

The charge is included in the business segments as follows: Institutional Securities: $354 million, Global WealthManagement: $4 million and Asset Management: $3 million.

6

Source: Thomson Reuters – for the period of January 1, 2010 to June 30, 2010 as of July 6, 2010.

7

The operating results of this joint venture were included in the Institutional Securities business segment and were notmaterial to this quarter.
8

Pre-tax margin and Tier 1 common ratios are non-GAAP measures. Pre-tax margin represents income or loss fromcontinuing operations before tax, divided by net revenues. The Tier 1 common ratio equals Tier 1 capital (see note 11) lessqualifying perpetual preferred stock, qualifying trust preferred securities and qualifying restricted core capital elements,
adjusted for the portion of goodwill and non-servicing assets associated with MSSB’s non-controlling interests divided byrisk-weighted assets. Morgan Stanley and investors utilize these measures to assess operating performance and capital
adequacy.
9Morgan Stanley owns 51% of MSSB, which is consolidated. The results related to the 49% interest retained by Citigroup
Inc. are reported in the net income / (loss) applicable to non-controlling interests on page 8 of Morgan Stanley’s Financial
Supplement accompanying this release.
10

The Core business includes traditional, hedge funds and fund of funds asset management.

11

The Firm calculates its Tier 1 capital ratio and risk-weighted assets in accordance with the capital adequacy standards forfinancial holding companies adopted by the Federal Reserve Board. These standards are based upon a frameworkdescribed in the International Convergence of Capital Measurement and Capital Standards, July 1988, as amended, also
referred to as Basel I. These computations are preliminary estimates as of July 21, 2010 (the date of this release) and could
be subject to revision in Morgan Stanley’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010.

6

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

June 30, 2010
Net revenues
Institutional Securities
Global Wealth Management Group
Asset Management
Intersegment Eliminations
Consolidated net revenues
Income / (loss) from continuing operations before tax
Institutional Securities
Global Wealth Management Group
Asset Management
Intersegment Eliminations
Consolidated income / (loss) from continuing operations before tax
Income / (loss) applicable to Morgan Stanley
Institutional Securities
Global Wealth Management Group
Asset Management
Intersegment Eliminations
Consolidated income / (loss) applicable to Morgan Stanley

$

$

$

$

$

$

Quarter Ended
Mar 31, 2010

4,502
3,074
410
(36)
7,950

$

1,570
207
(86)
(13)
1,678

$

1,382
110
(44)
(11)
1,437

$

$

$

$

June 30, 2009

5,344
3,105
653
(24)
9,078

$

2,067
278
173
(2)
2,516

$

1,733
99
14
(1)
1,845

$

$

$

$

Percentage Change From:Mar 31, 2010
June 30, 2009

Six Months Ended
June 30, 2010
June 30, 2009

2,967
1,923
358
(51)
5,197

(16%)
(1%)
(37%)
(50%)
(12%)

52%
60%
15%
29%
53%

$

9,846
6,179
1,063
(60)
17,028

$

(298)
(71)
(210)
(5)
(584)

(24%)
(26%)
*
*
(33%)

*
*
59%
(160%)
*

$

3,637
485
87
(15)
4,194

$

(122)
76
(89)
(3)
(138)

(20%)
11%
*
*
(22%)

*
45%
51%
*
*

$

$

$

3,115
209
(30)
(12)
3,282

12%

*

$

$

$

Percentage
Change

4,568
3,222
380
(76)
8,094

116%
92%
180%
21%
110%

(762)
48
(493)
(7)
(1,214)***(114%)
*

$

39
149
(339)
(4)
(155)

*
40%
91%
(200%)*

2,990$(1,834)$$*

Earnings / (loss) applicable to Morgan Stanley common shareholders

$

1,578

$

1,411

$

(1,256)

Earnings per basic share:
Income from continuing operations
Discontinued operations
Earnings per basic share

$
$
$

0.84
0.36
1.20

$
$
$

1.12
(0.05)
1.07$$$(1.36)
0.26(1.10)

(25%)
*
12%

*
38%
*

$
$
$

1.96
0.31
2.27

$
$
$

(1.82)
0.11(1.71)*
182%*

Earnings per diluted share:
Income from continuing operations
Discontinued operations
Earnings per diluted share

$
$
$

0.80
0.29
1.09

$
$
$

1.03
(0.04)
0.99$$$(1.36)
0.26(1.10)

(22%)
*
10%

*
12%
*

$
$
$

1.82
0.26
2.08

$
$
$

(1.82)
0.11(1.71)*
136%*

Notes: - Results include Morgan Stanley Smith Barney (MSSB) effective from May 31, 2009.
- Results for the quarters ended June 30, 2010 and June 30, 2009 include positive / (negative) revenue of $0.7 billion and $(2.3) billion, respectively, related to the movement in Morgan Stanley's credit spreads on
certain long-term debt. The effect of movement in these credit spreads for the quarter ended March 31, 2010 was immaterial.
- Income / (loss) applicable to Morgan Stanley represents consolidated income / (loss) from continuing operations applicable to Morgan Stanley before gain / (loss) from discontinued operations.
- For the quarter ended June 30, 2010, discontinued operations primarily included the operating results of the retail asset management business including Van Kampen and an after-tax gain of approximately $514
million related to the sale of this business. For the quarter ended March 31, 2010, discontinued operations included a loss of $932 million (reported in Institutional Securities) on the disposition of RevelEntertainment Group, LLC, (Revel), a subsidiary of the Firm, a gain of $775 million (not reported in a business segment) related to a legal settlement with Discover Financial Services and the operating resultsof the retail asset management business, including Van Kampen (reported in Asset Management).
- Summation of the quarters' earnings per common share may not equal the year-to-date amounts due to the averaging effect of the number of shares and share equivalents throughout the year.
7

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

Revenues:
Investment banking
Principal transactions:
Trading
Investments
Commissions
Asset management, distribution and admin. fees
Other
Total non-interest revenues

June 30, 2010

Quarter Ended
Mar 31, 2010

June 30, 2009

$

$

$

Notes:

(15%)

$

2,140

$

2,139

--

(11%)
*
4%
1%
(54%)
(10%)

93%
58%
35%
70%
(66%)
45%

7,097
317
2,577
3,937
427
16,495

3,087(1,275)
1,743
2,024
637
8,355

130%
*
48%
95%
(33%)
97%

1,755
1,603
152
7,950

1,748
1,367
381
9,078

1,648
1,845
(197)
5,197

-17%
(60%)
(12%)

6%
(13%)
*
53%

3,503
2,970
533
17,028

3,893
4,154
(261)
8,094

(10%)
(29%)
*
110%

3,887

4,418

3,803

(12%)

2%

8,305

5,781

44%

403
371
416
153
497
545
2,385

392
348
395
134
395
480
2,144

373
267
313
120
384
521
1,978

3%
7%
5%
14%
26%
14%
11%

8%
39%
33%
28%
29%
5%
21%

795
719
811
287
892
1,025
4,529

710
515
595
230
687
790
3,527

12%
40%
36%
25%
30%
30%
28%

6,272

6,562

5,781

(4%)

8%

12,834

9,308

38%

$

1,678
217
1,461
523
1,984
24
1,960
1,578

$

2,516
436
2,080
(69)
2,011
235
1,776
1,411

$

(584)
(319)
(265)
298
33
(116)
149
(1,256)

(33%)
(50%)
(30%)
*
(1%)
(90%)
10%
12%

*
*
*
76%
*
*
*
*

$

4,194
653
3,541
454
3,995
259
3,736
2,990

$

(1,214)
(914)
(300)
143
(157)
(129)
(28)
(1,834)

*
*
*
*
*
*
*
*

$

1,437
523
1,960

$

1,845
(69)
1,776

$

(138)
287
149

(22%)
*
10%

*
82%
*

$

3,282
454
3,736

$

(155)
127
(28)

*
*
*

Total non-interest expenses

Effective tax rate from continuing operations

2%

1,732
(125)
973
1,158
390
5,394

Non-compensation expenses:
Occupancy and equipment
Brokerage, clearing and exchange fees
Information processing and communications
Marketing and business development
Professional services
Other
Total non-compensation expenses

Pre-tax profit margin
Compensation and benefits as a % of net revenues
Non-compensation expenses as a % of net revenues

1,266

Percentage
Change

3,751
369
1,261
1,963
293
8,697

Non-interest expenses:
Compensation and benefits

Amounts applicable to Morgan Stanley:
Income / (loss) from continuing operations
Gain / (loss) from discontinued operations after tax
Net income / (loss) applicable to Morgan Stanley

1,060

Six Months Ended
June 30, 2010
June 30, 2009

3,346
(52)
1,316
1,974
134
7,798

Interest income
Interest expense
Net interest
Net revenues

Income / (loss) from continuing operations before taxes
Income tax provision / (benefit) from continuing operations
Income / (loss) from continuing operations
Gain / (loss) from discontinued operations after tax
Net income / (loss)
Net income / (loss) applicable to non-controlling interests
Net income / (loss) applicable to Morgan Stanley
Earnings / (loss) applicable to Morgan Stanley common shareholders

1,080

Percentage Change From:Mar 31, 2010
June 30, 2009

$

$

$

$

$

21%
49%
30%

28%
49%
24%

*
73%
38%

25%
49%
27%

*
71%
44%

12.9%

17.3%

54.6%

15.6%

75.3%

- Results include MSSB effective from May 31, 2009.
- Pre-tax profit margin is a non-GAAP measure that the Firm and investors use to assess operating performance. Pre-tax profit margin is defined as income / (loss) from continuing operations before taxes,
as a % of net revenues.
- The quarter ended June 30, 2010 included a discrete tax benefit of $345 million related to the remeasurement of tax reserves based on the status of federal and state tax examinations. Excluding thisbenefit, the effective tax rate for the quarter would have been 33.5%.
- The quarter ended March 31, 2010 included a discrete tax benefit of $382 million associated with prior year undistributed earnings of certain non-U.S. subsidiaries that were determined to be indefinitely
reinvested abroad. Excluding this benefit, the effective tax rate for the quarter would have been 32.5%.

8