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Morgan Stanley Reports Second Quarter Results
Net Revenues of $6.5 Billion
Quarterly EPS of $0.95
Annualized ROE of 12%

NEW YORK, June 18, 2008 – Morgan Stanley (NYSE: MS) today reported income from continuing
operations for the second quarter ended May 31, 2008 of $1,026 million, or $0.95 per diluted share,compared with $2,363 million, or $2.24 per diluted share, in the second quarter of last year. Net
revenues were $6.5 billion, 38 percent below last year’s second quarter. Non-interest expenses of $5.1
billion, including severance expense of approximately $245 million related to staff reductions1,
decreased 28 percent from a year ago. The annualized return on average common equity fromcontinuing operations was 12.3 percent in the current quarter, compared with 29.4 percent in the prioryear.

The quarterly results from continuing operations include pre-tax income from two previously
disclosed divestitures: $698 million related to the sale of Morgan Stanley Wealth Management S.V.,
S.A.U. (“MSWM S.V.”), the Spanish onshore mass affluent wealth management business, reported in
the Global Wealth Management Group business segment; and $732 million related to the secondaryoffering of MSCI Inc. reported in the Institutional Securities business segment.2

For the first six months of fiscal 2008, income from continuing operations was $2,577 million, a 45
percent decrease from $4,677 million a year ago. Diluted earnings per share from continuing
operations were $2.40 compared with $4.41 last year. Net revenues decreased 28 percent to $14.8
billion and non-interest expenses decreased 17 percent to $11.2 billion. The annualized return on
average common equity from continuing operations was 15.9 percent, compared with 30.1 percent a
year ago.

1

The severance expense is included in the business segments as follows: Institutional Securities, $203 million;
Global Wealth Management Group, $7 million; and Asset Management, $35 million.
2
Pre-tax income related to the divestitures of MSWM S.V. and MSCI Inc. reflects gains of $748 million and$744 million, respectively, partly offset by transaction related charges.

Net income for the quarter was $1,026 million, a decrease of 60 percent from $2,582 million in thesecond quarter of fiscal 2007. For the first six months of fiscal 2008, net income was $2,577 million,a 51 percent decrease from $5,254 million a year ago. Net income for the first six months of fiscal
2007 includes the results of Discover Financial Services which are reported in discontinued
operations. Diluted earnings per share were $0.95 for the quarter, compared with $2.45 in the second
quarter of fiscal 2007, and the annualized return on average common equity for the second quarter was
12.3 percent compared with 27.4 percent a year ago. For the first six months, diluted earnings per
share were $2.40, compared with $4.96 a year ago, and the annualized return on average common
equity was 15.9 percent compared with 28.7 percent last year.

Business Highlights•

Equity sales and trading net revenues of $2.1 billion decreased 11 percent from last year’s
second quarter, as strong results in the derivatives, prime brokerage and cash businesses wereoffset by lower proprietary trading results.

•

Fixed income sales and trading net revenues were $414 million, down 85 percent from lastyear’s second quarter primarily reflecting lower revenues in interest rate, credit & currency
products and commodities, and net losses of $436 million in mortgage proprietary trading.

•

Other sales and trading included net losses of approximately $519 million primarily related toloans as well as closed and pipeline commitments, due to losses on hedges which were partly
offset by mark to market gains.

•

Investment banking delivered revenues of $875 million, down 49 percent from last year’s
second quarter.

•

Global Wealth Management achieved net revenues of $2.4 billion including the sale of MSWM
S.V. noted above. This business generated net new assets of $13.3 billion, the second highest
ever, and our ninth consecutive quarter of client inflows.

•

Asset Management faced challenging market conditions with losses in real estate. The divisioncontinued to expand its product offerings including the successful closing of a $4 billion
infrastructure fund and reported net customer inflows of $15.5 billion, the seventh consecutive
quarter of net customer inflows.

•

The Firm strengthened its liquidity and capital positions in the quarter by increasing average
total and parent liquidity to $135 billion and $74 billion, respectively, and reducing the leverage
and adjusted leverage ratios to 25.1x and 14.1x, respectively.

2

John J. Mack, Chairman and CEO, said, “Given the turbulent environment this quarter, we stayed
close to shore and continued strengthening the Firm’s capital and liquidity positions. Average totalliquidity over the course of the quarter was $135 billion and we finished the quarter with $169 billion
in total liquidity. The difficult market conditions and lower levels of client activity impacted our
results, particularly in fixed income and asset management. However, Morgan Stanley’s diversified
business mix benefited the Firm, with solid results in wealth management, prime brokerage, equity
derivatives and our world-class international franchise. The careful management of our capital, risk
and liquidity leaves us well positioned to continue serving Morgan Stanley’s clients and seize
attractive risk-return opportunities as we see them.”

INSTITUTIONAL SECURITIESInstitutional Securities posted pre-tax income3 of $679 million, compared with $2,950 million in thesecond quarter of fiscal 2007. Net revenues were $3.6 billion, compared with net revenues of $7.4
billion a year ago. The quarter’s pre-tax margin was 19 percent, compared with 40 percent in lastyear’s second quarter. The quarter’s return on average common equity was 9 percent, compared with
35 percent a year ago.
•

Advisory revenues were $367 million, a 49 percent decrease from last year’s second quarter.

•

Underwriting revenues of $508 million decreased 48 percent from last year’s second quarter.
Equity underwriting revenues were $298 million, a 40 percent decrease from the prior year’s
second quarter. Fixed income underwriting revenues decreased 57 percent to $210 million fromlast year’s second quarter.

•

Fixed income sales and trading net revenues were $414 million, 85 percent below $2.7 billion in
the second quarter of fiscal 2007, driven by lower net revenues in Interest Rate, Credit & Currency(IRCC), net losses in mortgage proprietary trading and a decline in commodities. Within IRCC,
continued dislocation in the credit markets resulted in a loss in credit products, compared with asignificant gain a year ago. This loss included a $120 million negative adjustment to marks
previously taken in a trader’s book that did not comply with Firm policies. The decrease in credit
products was partly offset by higher net revenues in foreign exchange and interest rates, reflecting
strong customer flow and high levels of volatility. Commodities results declined from a year ago
reflecting losses in North American electricity and lower net revenues in oil liquids resulting from
unfavorable positioning, partly offset by strong customer flow and net revenues recognized on
structured transactions.

3

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

3•Equity sales and trading net revenues were $2.1 billion, a decrease of 11 percent from last year’s
second quarter. Net revenues declined from a year ago as higher revenues in the derivatives,prime brokerage and cash businesses reflecting strong customer flow were more than offset bysignificantly lower net revenues in proprietary trading.

•

Other sales and trading net losses of approximately $519 million primarily resulted from loans andcommitments, largely related to acquisition financing to non-investment grade companies, aslosses on hedges were partly offset by mark to market gains.

•

Investment losses were $257 million compared with gains of $396 million in the second quarter oflast year, reflecting losses on investments in real estate funds, investments for the benefit of ouremployee deferred compensation and co-investment plans, and other principal investments.

•

The Company’s average trading VaR measured at the 95 percent confidence level was $99 million
compared with $81 million in the second quarter of fiscal 2007 and $97 million in the first quarterof 2008. Total aggregate average trading and non-trading VaR was $112 million compared with$87 million in the second quarter of fiscal 2007 and $103 million in the first quarter of 2008. At
quarter-end, the Company’s trading VaR was $99 million, and the aggregate trading and nontrading VaR was $118 million. Increases in VaR were driven primarily by higher realized market
volatilities which more than offset reductions in key trading risks. In addition, the increase inaggregate trading and non-trading VaR was also driven by the issuance of long-term debt used tofund the increase in the Company’s total capital.

•

Non-interest expenses were $2.9 billion, a decrease of 34 percent from the second quarter of lastyear. Compensation costs, including the severance costs noted above, decreased from last year’s
second quarter reflecting lower revenues. Non-compensation expenses increased from a year ago
resulting from higher brokerage and clearing expenses and other business-related activities.

GLOBAL WEALTH MANAGEMENT GROUP
Global Wealth Management Group's pre-tax income for the second quarter was $989 million,
compared with $264 million in the second quarter of last year. The quarter’s pre-tax margin was 41
percent, compared with 16 percent in last year’s second quarter. The quarter’s return on averagecommon equity was 172 percent, compared with 40 percent a year ago.

•

Excluding the sale of MSWM S.V., net revenues were $1.7 billion, up 4 percent from a year ago.
Higher net interest revenues from growth in the bank deposit sweep program and stronger
transactional revenues reflecting higher fixed income trading volume were partly offset by lower
asset management revenues. The decline in asset management revenues reflects the termination of4certain fee-based brokerage programs in the fourth quarter of 2007 and a change in theclassification of sub-advisory fees relating to certain customer agreements, partly offset by growthin other fee-based products.4•

Non-interest expenses were $1.4 billion, an increase of 5 percent from a year ago. Compensation
costs increased from a year ago, primarily reflecting higher revenues and investment in thebusiness. Non-compensation expenses declined from a year ago, as higher levels of businessactivity were more than offset by a change in the classification of certain sub-advisory fees noted
above.

•

Total client assets were $739 billion, an $11 billion increase from last year’s second quarter.
Client assets in fee-based accounts were $194 billion, an 8 percent decrease from a year ago andrepresent 26 percent of total client assets.

•

The 8,350 global representatives at quarter-end achieved average annualized revenue per global
representative of $810,0005 and total client assets per global representative of $89 million.
Excluding the sale of MSWM S.V., the number of global representatives has increased 2 percent
from the first quarter of this year.

ASSET MANAGEMENT
Asset Management posted a pre-tax loss of $227 million, compared with pre-tax income of $303
million in last year’s second quarter.
•

Net revenues decreased 68 percent to $488 million resulting from losses in our merchant banking
business and lower net revenues in our core business. Merchant banking results reflect losses on
principal investments in the real estate and private equity businesses compared with strong gains
posted in the second quarter of last year. Core results reflect lower management andadministration fees primarily due to lower performance fees in our alternatives business and lower
principal investments gains. Trading results primarily reflect losses of approximately $86 million
related to securities issued by structured investment vehicles held on balance sheet by AssetManagement.

•

Non-interest expenses decreased 41 percent to $715 million from a year ago. Compensation costs
declined on lower revenues including losses associated with investments for the benefit of ouremployee deferred compensation and co-investment plans. Non-compensation expenses also
decreased from a year ago reflecting lower levels of business activity.

4

Beginning in 1Q08, certain sub-advisory fees are reported as a reduction to asset management, distribution andadministration fees, reflecting changes to certain customer agreements. In prior periods, these fees were reported
as non-compensation expenses.
5
2Q08 computation excludes gain associated with the sale of MSWM S.V.

5

•

Asset Management recorded net customer inflows of $15.5 billion for the quarter, compared with
$9.3 billion a year ago, the seventh consecutive quarter of net customer inflows. Core net flows
were $13.8 billion, compared with $5.6 billion a year ago, primarily driven by fixed income
money market products. Net flows in merchant banking of $1.7 billion for the quarter were downfrom $3.7 billion a year ago, as lower real estate flows were partly offset by higher flows ininfrastructure.

•

Assets under management or supervision at May 31, 2008 were a record $605 billion, up $45
billion, or 8 percent, from a year ago, driven by increases in both our core and merchant banking
businesses. The increase in core primarily resulted from net customer inflows in fixed income
money market products and alternatives, partly offset by net customer outflows in equity, while
the increase in merchant banking primarily reflects net customer inflows and asset appreciation inreal estate and net inflows in infrastructure.

•

The percent of the Company's long-term fund assets performing in the top half of the Lipper
rankings was 35 percent over one year, 39 percent over three years, 52 percent over five years and73 percent over ten years.

OTHER MATTERS
The quarter’s effective tax rate from continuing operations was 30.0 percent, down from 32.6 percent
a year ago. The decrease in the rate reflected lower earnings, partly offset by an increase in the rate
due to lower estimated domestic tax credits.

As of May 31, 2008, the Company has not repurchased any shares of its common stock this fiscal year
as part of its share repurchase program.

The Company announced that its Board of Directors declared a $0.27 quarterly dividend per commonshare. The dividend is payable on July 31, 2008, to common shareholders of record on July 11, 2008.
The Company also announced that its Board of Directors declared a quarterly dividend of $252.78 pershare of Series A Floating Rate Non-Cumulative Preferred Stock (represented by depositary shares,
each representing 1/1,000th interest in a share of preferred stock and each having a dividend of$0.25278) to be paid on July 15, 2008 to preferred shareholders of record on June 30, 2008.

Total capital as of May 31, 2008 was $210.1 billion, including $45.0 billion of common equity,
preferred equity and junior subordinated debt issued to capital trusts. Book value per common share
was $30.11, based on 1.1 billion shares outstanding.

6

Morgan Stanley is a leading global financial services firm providing a wide range of investmentbanking, 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 33 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, "Legal
Proceedings" in Part I, Item 3, "Management’s Discussion and Analysis of Financial Condition
and Results of Operations" in Part II, Item 7 and "Quantitative and Qualitative Disclosures about
Market Risk" in Part II, Item 7A of the Company's Annual Report on Form 10-K for the fiscal
year ended November 30, 2007 and "Management's Discussion and Analysis 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 2008
Current Reports on Form 8-K.

7

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

Quarter Ended
May 31, 2007

May 31, 2008
Net revenues(1)
Institutional Securities
Global Wealth Management Group (2)Asset Management
Intersegment Eliminations
Consolidated net revenues
Income / (loss) before taxes (3)Institutional Securities
Global Wealth Management Group
Asset Management
Intersegment Eliminations
Consolidated income / (loss) before taxes
Earnings / (loss) applicable to common shareholders
Earnings per basic share: (4)Income from continuing operations
Discontinued operations (5)Earnings per basic share

$

3,625
2,436
488
(39)
6,510

$

$

$
$

679
989
(227)
5
1,446
1,012

$
$
$

$
$
$

$

$

Feb 29, 2008

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

$

$

$
$

2,950
264
303
7
3,524
2,565

0.97
0.97

$
$
$

0.95
0.95

$
$
$

$

Percentage Change From:
May 31, 2007
Feb 29, 2008

Six Months Ended
May 31, 2008
May 31, 2007

6,213
1,606
543
(40)
8,322

(51%)
48%
(68%)
30%
(38%)

(42%)
52%
(10%)
3%
(22%)

$

(77%)
*
(175%)
(29%)
(59%)
(61%)

(68%)
*
(41%)
25%
(35%)
(34%)

$

$
$

2,117
254
(161)
4
2,214
1,534

2.35
0.22
2.57

$
$
$

1.50
1.50

(59%)
*
(62%)

2.24
0.21
2.45

$
$
$

1.45
1.45

(58%)
*
(61%)

$

9,838
4,042
1,031
(79)
14,832

$

$

$
$

2,796
1,243
(388)
9
3,660
2,546

(35%)
-(35%)

$
$
$

(34%)
-(34%)$$$$

Percentage
Change14,591
3,153
2,877
(103)
20,518

(33%)
28%
(64%)
23%
(28%)

$
$

5,795
490
682
13
6,980
5,220

(52%)
154%
(157%)
(31%)
(48%)
(51%)

2.47
2.47

$
$
$

4.63
0.58
5.21

(47%)
*
(53%)

2.40
2.40

$
$
$

4.41
0.55
4.96

(46%)
*
(52%)

$

(4)

Earnings per diluted share:
Income from continuing operations
Discontinued operations (5)Earnings per diluted share
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)
(3)
(4)
(5)
Note:

1,038,145,038
1,067,184,178
1,108,865,416

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

1,020,802,234
1,057,867,487
1,105,301,550

1,029,473,636
1,062,525,833
1,108,865,416

1,002,894,369
1,051,684,753
1,051,690,047

12.3%
12.3%

29.4%
27.4%

19.7%
19.7%

15.9%
15.9%

30.1%
28.7%

The quarter ended May 31, 2008 includes a pre-tax gain of $744 million related to the secondary offering of MSCI Inc.
The quarter ended May 31, 2008 includes a pre-tax gain of $748 million on the sale of the Spanish wealth management business, Morgan Stanley Wealth Management S.V., S.A.U.
Represents consolidated income / (loss) from continuing operations before gain / (loss) from unconsolidated investees, taxes and gain / (loss) from discontinued operations.
Summation of the quarters' earnings per common share may not equal the annual amounts due to the averaging effect of the number of shares and share equivalents throughout the year.
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
Interest and dividends
(1)
Other
Total revenues
Interest expense
Net revenues

May 31, 2008

Quarter Ended
May 31, 2007

Feb 29, 2008

$

$

$

1,049

1,913

Percentage Change From:
May 31, 2007
Feb 29, 2008

1,109

(45%)

(5%)

Six Months Ended
May 31, 2008
May 31, 2007
$

2,158

$

Percentage
Change

3,140

(31%)

1,403
(464)
1,155
1,464
10,117
1,799
16,523
10,013
6,510

4,838
1,004
1,123
1,596
15,400321
26,195
15,671
10,524

3,390
(346)
1,199
1,550
13,965317
21,184
12,8628,322(71%)(146%)
3%
(8%)
(34%)
*
(37%)
(36%)
(38%)

(59%)
(34%)
(4%)
(6%)
(28%)
*
(22%)
(22%)
(22%)

4,793
(810)
2,354
3,014
24,082
2,116
37,70722,875
14,832

8,996
1,884
2,128
3,075
29,571
593
49,38728,86920,518(47%)(143%)
11%
(2%)
(19%)
*
(24%)
(21%)
(28%)

Compensation and benefits

2,960

4,994

4,071

(41%)

(27%)

7,031

9,769

(28%)

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

329
448
312
207
472
336
2,104

279
366
286
199
510
366
2,006

286
444
305
183
379
440
2,037

18%
22%
9%
4%
(7%)
(8%)
5%

15%
1%
2%
13%
25%
(24%)
3%

615
892
617
390
851
776
4,141

539
727
563
352
929
659
3,769

14%
23%
10%
11%
(8%)
18%
10%

Total non-interest expenses

5,064

7,000

6,108

(28%)

(17%)

11,172

13,538

(17%)

1,446
19
439
1,026

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

2,214
2
665
1,551

(59%)
195%
(62%)
(57%)

(35%)
*
(34%)
(34%)

3,660
21
1,104
2,577

6,980
(46)
2,257
4,677

(48%)
146%
(51%)
(45%)

0
0
0
1,026
14
1,012

349
130
219
2,582
17
2,565

0
0
0
1,551
17
1,534

*
*
*
(60%)
(18%)
(61%)

---(34%)
(18%)
(34%)

0
0
0
2,577
31
2,546

913
336
577
5,254
34
5,220

*
*
*
(51%)
(9%)
(51%)

Income / (loss) from continuing operations before gain / (loss)
from unconsolidated investees and taxes
Gain / (loss) from unconsolidated investees
Provision / (benefit) for income taxes
Income / (loss) from continuing operations(2)
Discontinued operations
Gain / (loss) from discontinued operations
Income tax provision / (benefit)
Gain / (loss) from discontinued operations
Net income / (loss)
Preferred stock dividend requirements
Earnings / (loss) applicable to common shareholders

$
$
$

$
$
$

$
$
$

$
$
$

$
$
$

Return on average common equityfrom continuing operations
Return on average common equity(3)
Pre-tax profit margin
Compensation and benefits as a % of net revenues
Non-Compensation expenses as a % of net revenues

12.3%
12.3%
22%
46%
32%

29.4%
27.4%
34%
48%
19%

19.7%
19.7%
27%
49%
25%

15.9%
15.9%
25%
47%
28%

30.1%
28.7%
34%
48%
18%

Effective tax rate

30.0%

32.6%

30.0%

30.0%

32.5%

(1)
(2)
(3)
Note:

The quarter ended May 31, 2008 includes a pre-tax gain of $744 million related to the secondary offering of MSCI Inc., (reported in Institutional Securities) and a pre-tax gain of $748 million
on the sale of the Spanish wealth management business, Morgan Stanley Wealth Management S.V., S.A.U. (reported in Global Wealth Management Group)
All periods have been restated to include the results of Discover Financial Services in discontinued operations
Income / (loss) from continuing operations before 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