Contact:

Media Relations
Jeanmarie McFadden
212-762-6901

Investor Relations
Suzanne Charnas
212-761-3043

Morgan Stanley Reports Third Quarter Results
Net Revenues of $8.0 Billion
Quarterly EPS of $1.32
Annualized ROE of 16%
Strong Results in Commodities, Foreign Exchange and Equity Trading, Including a
Record in Prime Brokerage
NEW YORK, September 16, 2008 – Morgan Stanley (NYSE: MS) today reported income fromcontinuing operations for the third quarter ended August 31, 2008 of $1,425 million, or $1.32 perdiluted share, compared with $1,474 million, or $1.38 per diluted share, in the third quarter of lastyear. Net revenues were $8.0 billion, 1 percent above last year’s third quarter. Non-interest expenses
of $6.1 billion increased 7 percent from a year ago. The annualized return on average common equityfrom continuing operations was 16.5 percent in the current quarter, compared with 17.2 percent in theprior year.

For the first nine months of fiscal 2008, income from continuing operations was $4,002 million, or$3.72 per diluted share, compared with $6,151 million, or $5.79 per diluted share a year ago. Net
revenues decreased 20 percent to $22.9 billion and non-interest expenses decreased 10 percent to$17.3 billion. The annualized return on average common equity from continuing operations was 16.1
percent, compared with 25.5 percent a year ago.

Net income for the quarter was $1,425 million, or $1.32 per diluted share, compared with $1,543
million, or $1.44 per diluted share, in the third quarter of fiscal 2007. The annualized return on
average common equity for the quarter was 16.5 percent, compared with 17.1 percent a year ago. For
the first nine months of fiscal 2008, net income was $4,002 million, or $3.72 per diluted share,compared with $6,797 million, or $6.40 per diluted share a year ago. Net income for the first ninemonths of fiscal 2007 includes the results of Discover Financial Services which are reported indiscontinued operations. The annualized return on average common equity for the first nine months
was 16.1 percent, compared with 24.9 percent last year.

Business Highlights•

Equity sales and trading net revenues of $2.7 billion included record results in prime brokerageand strong results in the proprietary trading, derivatives and cash businesses.

•

Fixed income sales and trading net revenues of $1.9 billion included higher revenues incommodities, offset by lower revenues in interest rate, credit & currency products and net
writedowns in the mortgage proprietary trading business of $640 million.

•

Equity and fixed income sales and trading net revenues included approximately $0.5 billion and$0.9 billion, respectively, from the widening of Morgan Stanley’s credit spreads on certain longterm debt.

•

Investment banking delivered net revenues of $1.0 billion, despite the challenging market
environment.

•

During the quarter, the Firm advised the U.S. Treasury Department on strategic alternatives for
Fannie Mae and Freddie Mac, a testament to the strength of our investment banking franchise.

•

Global Wealth Management achieved net revenues of $1.6 billion. This business generated net
new assets of $13.7 billion, the second highest ever, and our tenth consecutive quarter of client
inflows.

•

The Firm continued to maintain strong liquidity and capital positions in the quarter with average
total and parent liquidity of $175 billion and $81 billion, respectively, and leverage and adjusted
leverage ratios of 23.5x and 12.9x, respectively.

John J. Mack, Chairman and CEO, said, “Despite unprecedented market conditions, Morgan Stanley's
core client franchise achieved solid revenue growth, profitability and ROE this quarter. Our people
delivered particularly strong performance across our prime brokerage, commodities, foreign exchange
and equities businesses, and we saw continued growth in our international business. We havecontinued to actively reduce our legacy positions and carefully manage our risk, capital and liquidity.
I am confident that Morgan Stanley’s strong balance sheet and product and geographic diversification
leave us well-positioned to serve our clients and realize opportunities in these challenging markets.”

2

INSTITUTIONAL SECURITIESInstitutional Securities posted pre-tax income1 of $2.2 billion, compared with $1.5 billion in the third
quarter of fiscal 2007. Net revenues of $5.9 billion, which included a gain of $745 million related to
the follow-on offering of MSCI Inc., increased 19 percent from $5.0 billion a year ago. The quarter’s
pre-tax margin was 37 percent, compared with 30 percent in last year’s third quarter. The quarter’s
return on average common equity was 29 percent, compared with 16 percent a year ago.
•

Advisory revenues were $401 million, a 40 percent decrease from last year’s third quarter.

•

Underwriting revenues of $631 million decreased 19 percent from last year’s third quarter. Equity
underwriting revenues were $379 million, a 12 percent decrease from the prior year’s third
quarter. Fixed income underwriting revenues decreased 27 percent to $252 million from lastyear’s third quarter.

•

Fixed income sales and trading net revenues of $1.9 billion were 8 percent below the third quarterof last year and included $0.9 billion from the widening of Morgan Stanley’s credit spreads on
certain long-term debt. In addition, lower net revenues in Interest Rate, Credit & Currency(IRCC) and net losses in mortgage proprietary trading were partly offset by higher net revenues incommodities. Within IRCC, continued dislocation in the credit markets resulted in a significant
decline in credit products net revenues from a year ago primarily reflecting losses related tomonoline exposure, partly offset by strong results in foreign exchange driven by higher levels ofcustomer flow and market volatility. Commodities revenues increased substantially from a year
ago primarily reflecting strong customer flow and higher price volatility.

•

Equity sales and trading net revenues of $2.7 billion were 42 percent above last year’s third
quarter and included $0.5 billion from the widening of Morgan Stanley’s credit spreads on certain
long-term debt. In addition, the quarterly results reflect higher net revenues in the proprietary
trading, derivatives and cash businesses, and record results in prime brokerage. Proprietary
trading results reflect solid gains compared with significant losses a year ago.

•

Other sales and trading net losses of approximately $410 million primarily resulted from mark tomarket losses on loans and commitments, largely related to acquisition financing to noninvestment grade companies, partly offset by gains on hedges.

•

Investment losses were $245 million compared with gains of $217 million in the third 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.

1

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

3

•

The Company’s average trading VaR measured at the 95 percent confidence level was $99 million
compared with $87 million in the third quarter of fiscal 2007 and $99 million in the second quarterof 2008. Total aggregate average trading and non-trading VaR was $128 million, compared with
$91 million in the third quarter of fiscal 2007 and $112 million in the second quarter of 2008. At
quarter-end, the Company’s trading VaR was $92 million, compared with $99 million in thesecond quarter of 2008, and the aggregate trading and non-trading VaR was $119 million
compared with $118 million in the prior quarter. Average trading VaR remained unchanged fromlast quarter as increases in VaR, driven primarily by higher spread levels, were offset by areduction in key trading risks. The change in aggregate average trading and non-trading VaR was
driven primarily by increased lending activity, which was reduced by quarter-end.

•

Non-interest expenses were $3.7 billion, an increase of 7 percent from the third quarter of lastyear. Compensation costs increased from last year’s third quarter. Non-compensation expenses
decreased from a year ago primarily reflecting lower brokerage and clearing expenses.

GLOBAL WEALTH MANAGEMENT GROUP
Global Wealth Management Group posted a pre-tax loss of $34 million, compared with pre-tax
income of $287 million in the third quarter of last year. The results for the quarter include a charge of$277 million for the settlement related to auction rate securities (ARS).2•

Net revenues were $1.6 billion, down 8 percent from a year ago reflecting lower asset
management and underwriting revenues partly offset by higher net interest revenues from growthin the bank deposit sweep program. The decline in asset management revenues reflects thetermination of certain fee-based brokerage programs in the fourth quarter of 2007 and a change inthe classification of sub-advisory fees relating to certain customer agreements, partly offset by
growth in other fee-based products.3•

Non-interest expenses of $1.6 billion included the charge related to the ARS settlement noted
above. Excluding this charge, non-interest expense decreased 6 percent from a year ago.
Compensation costs decreased from a year ago, primarily reflecting lower net revenues. Noncompensation expenses declined from a year ago reflecting the change in the classification ofcertain sub-advisory fees noted above, partly offset by an insurance reimbursement related to alitigation matter included in the prior year.

2

The total charge related to the ARS settlement was $288 million, of which $11 million is included in the resultsof the Institutional Securities business segment.
3
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.

4

•Total client assets of $707 billion declined $27 billion, or 4 percent, from last year’s third quarteras net new assets were more than offset by asset depreciation. Client assets in fee-based accounts
were $186 billion, a 12 percent decrease from a year ago and represent 26 percent of total client
assets.

•The 8,500 global representatives at quarter-end achieved average annualized revenue per global
representative of $741,000 and total client assets per global representative of $83 million. The
number of global representatives has increased 2 percent from the second quarter of this year
driven by strong recruiting and low turnover.

ASSET MANAGEMENT
Asset Management posted a pre-tax loss of $204 million, compared with pre-tax income of $491
million in last year’s third quarter.
•

Net revenues decreased 53 percent to $647 million resulting from lower net revenues in ourmerchant banking and core businesses. Merchant banking net revenues declined from a year ago
as the real estate and private equity businesses reported investment losses compared with gains in
the prior year. The current quarter includes operating revenues associated with our Crescent realestate subsidiary.4 Core results reflect lower management and administration fees, primarily due
to lower performance fees in our alternatives business and principal investment losses.

•

Non-interest expenses decreased 3 percent to $851 million from a year ago. Compensation costs
declined on lower net revenues including losses associated with investments for the benefit of ouremployee deferred compensation and co-investment plans. Non-compensation expenses increased
from a year ago primarily reflecting operating costs associated with our Crescent real estatesubsidiary,4 partly offset by lower levels of business activity.

•

Asset Management recorded net customer inflows of $1.6 billion for the quarter, compared with
net inflows of $20.8 billion a year ago. Core net inflows were $1.2 billion, compared with net
inflows of $13.6 billion a year ago, primarily driven by lower flows in fixed income andalternative products. Net inflows in merchant banking of $0.4 billion for the quarter were downfrom $7.2 billion a year ago, primarily driven by lower net investment activity in real estate.

•

Assets under management or supervision at August 31, 2008 of $570 billion declined $7 billion, or
1 percent, from a year ago, reflecting a decrease in our core business, which was partly offset by
an increase in our merchant banking business. The decrease in core primarily resulted from asset
depreciation and net customer outflows in equity, partly offset by net inflows in fixed income

4

On May 31, 2008, the assets and liabilities of the Crescent Real Estate Limited Partnership were included in the
Company’s consolidated results.

5money market products, while the increase in merchant banking primarily reflects net investment
activity.
•

The percent of the Company's long-term fund assets performing in the top half of the Lipper
rankings was 34 percent over one year, 42 percent over three years, 54 percent over five years and67 percent over ten years.

OTHER MATTERS
The quarter’s results reflect a decrease in the Company’s annual effective tax rate from 30.0 percent in
the second quarter to 29.0 percent, reflecting higher domestic tax credits.

As of August 31, 2008, the Company has not repurchased any shares of its common stock this fiscal
year as part of its capital management share repurchase program. On September 8, 2008, theCompany’s outstanding share count was reduced by approximately 24 million shares in connection
with employee tax withholding obligations resulting from the conversion of certain restricted stock
unit awards, previously granted to employees, to common stock.

The Company announced that its Board of Directors declared a $0.27 quarterly dividend per commonshare. The dividend is payable on October 31, 2008, to common shareholders of record on October
17, 2008. The Company also announced that its Board of Directors declared a quarterly dividend of$255.56 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 $0.25556) to be paid on October 15, 2008 to preferred shareholders of record on
September 30, 2008.

Total capital as of August 31, 2008 was $202.6 billion, including $46.1 billion of common equity,
preferred equity and junior subordinated debt issued to capital trusts. Book value per common share
was $31.25, based on 1.1 billion shares outstanding.

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 35 countries. For further information about Morgan Stanley, please visit
www.morganstanley.com.

6

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
Aug 31, 2007

Aug 31, 2008
Net revenues
Institutional Securities (1)Global Wealth Management Group (2)Asset Management
Intersegment Eliminations
Consolidated net revenues

5,911
1,555
647
(64)
8,049

$

$

$
$

2,183
(34)
(204)
3
1,948
1,414

Earnings per basic share: (4)Income from continuing operations
Discontinued operations (5)Earnings per basic share$$$

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

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

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

$

$

$

May 31, 2008

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

$

$

$
$

1,501
287
491
(14)
2,265
1,526

1.36
1.36

$
$
$

1.32
1.32

$
$
$

$

Percentage Change From:Aug 31, 2007
May 31, 2008

Nine Months Ended
Aug 31, 2008
Aug 31, 2007

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

19%
(8%)
(53%)
11%
1%

63%
(36%)
33%
(64%)
24%

$

45%
(112%)(142%)
121%
(14%)
(7%)

*
(103%)
10%
(40%)
35%
40%

$

$
$

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

1.45
0.07
1.52

$
$
$

0.97
0.97

(6%)
*
(11%)

1.38
0.06
1.44

$
$
$

0.95
0.95

(4%)
*
(8%)

$

15,749
5,597
1,678
(143)
22,881

$

$

$
$

4,979
1,209
(592)
12
5,608
3,960

40%
-40%

$
$
$

39%
-39%

$
$
$

$

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

(20%)
16%
(60%)
18%
(20%)

$
$

7,296
777
1,173
(1)
9,245
6,747

(32%)
56%
(150%)
*
(39%)
(41%)

3.83
3.83

$
$
$

6.08
0.65
6.73

(37%)
*
(43%)

3.72
3.72

$
$
$

5.79
0.61
6.40

(36%)
*
(42%)

$

1,042,541,501
1,072,015,729
1,109,155,431

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

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

1,033,829,591
1,065,689,131
1,109,155,431

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

16.5%
16.5%

17.2%
17.1%

12.3%
12.3%

16.1%
16.1%

25.5%
24.9%

(1)

The quarters ended May 31, 2008 and August 31, 2008 include pre-tax gains of $744 million and $745 million, respectively, related to the follow-on offerings of MSCI Inc.

(2)

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.
The quarter ended August 31, 2008 includes a charge of $277 million related to the auction rate securities settlement.

(3)

Represents consolidated income / (loss) from continuing operations before gain / (loss) from unconsolidated investees, taxes and gain / (loss) from discontinued operations.

(4)

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.
2007 is also affected by the loss reported for the quarter ended November 30, 2007. As a result of this loss, basic and diluted shares outstanding are equal for this period.

(5)

All periods have been restated to include the results of Discover Financial Services in discontinued operations.

Note:

Certain reclassifications have been made to prior period amounts to conform to the current presentation.
8

Percentage
Change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

Aug 31, 2008

Quarter Ended
Aug 31, 2007

May 31, 2008

$

$

$

1,146

1,659

Percentage Change From:Aug 31, 2007
May 31, 2008

1,049

(31%)

9%

89%
(181%)
(15%)
(16%)
(32%)
*
(21%)
(35%)
1%

86%
2%
(7%)
(3%)
(3%)
(38%)
1%
(14%)
24%

Nine Months Ended
Aug 31, 2008
Aug 31, 2007
$

3,304

$

Percentage
Change

4,799

(31%)

7,397
(1,263)3,424
4,437
33,874
3,233
54,406
31,52522,881

10,377
2,442
3,392
4,776
43,976855
70,61742,141
28,476(29%)(152%)
1%
(7%)
(23%)
*
(23%)
(25%)
(20%)

2,604
(453)
1,070
1,423
9,792
1,117
16,699
8,650
8,049

1,381
558
1,264
1,701
14,405262
21,23013,272
7,958

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

Compensation and benefits

3,695

3,596

2,960

3%

25%

10,726

13,365(20%)

Occupancy and equipment
Brokerage, clearing and exchange fees
Information processing and communications
Marketing and business development
Professional services
(2)
Other
Total non-compensation expenses

309
378
302
168
457
792
2,406

279
459
302
190
507
360
2,097

329
448
312
207
472
336
2,104

11%
(18%)
-(12%)
(10%)
120%
15%

(6%)
(16%)
(3%)
(19%)
(3%)
136%
14%

924
1,270
919
558
1,308
1,568
6,547

818
1,186
865
542
1,436
1,019
5,866

13%
7%
6%
3%
(9%)
54%
12%

Total non-interest expenses

6,101

5,693

5,064

7%

20%

17,273

19,231

(10%)

1,948
8
531
1,425

2,265
(19)
772
1,474

1,446
19
439
1,026

(14%)
142%
(31%)
(3%)

35%
(58%)
21%
39%

5,608
29
1,635
4,002

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

(39%)
145%
(46%)
(35%)

0
0
0
1,425
11
1,414

111
42
69
1,543
17
1,526

0
0
0
1,026
14
1,012

*
*
*
(8%)
(35%)
(7%)

---39%
(21%)
40%

0
0
0
4,002
42
3,960

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

*
*
*
(41%)
(16%)
(41%)

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(3)
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
Pre-tax profit margin (4)Compensation and benefits as a % of net revenues
Non-Compensation expenses as a % of net revenues

16.5%
16.5%
24%
46%
30%

17.2%
17.1%
29%
45%
26%

12.3%
12.3%
22%
46%
32%

16.1%
16.1%
25%
47%
29%

25.5%
24.9%
33%
47%
21%

Effective tax rate

27.1%

34.4%

30.0%

29.0%

33.0%

(1)

The quarter ended May 31, 2008 includes a pre-tax gain of $744 million related to the follow-on 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). The quarter ended August 31, 2008
includes a pre-tax gain of $745 million related to the follow-on offering of MSCI, Inc. (reported in Institutional Securities).
(2)
The quarter ended August 31, 2008 includes a charge of $288 million related to the auction rate securities settlement.
All periods have been restated to include the results of Discover Financial Services in discontinued operations.
(3)(4)
Income / (loss) from continuing operations before gain / (loss) from unconsolidated investees, as a % of net revenues.
Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation.
9