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For Immediate Release

Morgan Stanley Reports Record First Quarter Results
Record Quarterly EPS from Continuing Operations of $2.40, Up 59%
Record Net Revenues of $11.0 Billion, Up 29%
ROE from Continuing Operations of 29%
NEW YORK, March 21, 2007 - Morgan Stanley (NYSE: MS) today reported record income fromcontinuing operations for the first quarter ended February 28, 2007 of $2,559 million, an increase of
60 percent from $1,602 million in the first quarter of 2006. 1 Diluted earnings per share fromcontinuing operations were a record $2.40 compared with $1.51 a year ago. Net revenues were arecord $11.0 billion, 29 percent above last year’s first quarter. Non-interest expenses of $7.1 billion
increased 17 percent from last year. The annualized return on average common equity fromcontinuing operations was 28.8 percent in the current quarter, compared with 21.9 percent in the firstquarter of 2006.

Net income was a record $2,672 million, an increase of 70 percent from $1,574 million in the firstquarter of 2006. This quarter’s results included an after-tax gain of $109 million reported indiscontinued operations related to the sale of Quilter Holdings Ltd. Record diluted earnings per share
were $2.51, compared with $1.48 in the first quarter of 2006, and the annualized return on averagecommon equity for the first quarter was 29.9 percent compared with 21.3 percent a year ago.

Business Highlights•

Institutional Securities achieved record net revenues of $7.6 billion, up 37 percent from lastyear. Pre-tax income rose 71 percent to a record $3.0 billion and return on average common
equity was 40 percent.

•

Equity sales and trading delivered record revenues of $2.2 billion, up 36 percent from lastyear. These results reflect record revenues in derivatives and Prime Brokerage, two key areasthat the Company has invested in as part of its growth plans.

1

The results for the first quarter of 2006 included $395 million of incremental compensation expense related toequity awards to retirement-eligible employees under SFAS 123R. These costs were allocated to the businesssegments as follows: Institutional Securities, $270 million; Global Wealth Management Group, $80 million;
Asset Management, $28 million; and Discover, $17 million.

•

Fixed income sales and trading achieved record revenues of $3.6 billion, up 31 percent fromlast year. These results reflect record revenues in credit products, up 94 percent, and strength
across our interest rate & currency and commodities businesses.

•

Global Wealth Management Group delivered a pre-tax margin of 15 percent and its highest
quarterly revenues since 2000, as financial advisor productivity and client assets per global
representative reached all time highs and client assets in our bank deposit sweep program
exceeded $16 billion.

•

Asset Management continued to make good progress in its plan for growth. The businessdelivered its second consecutive quarter of positive net flows and posted long-term inflows forthe first time in two years, driven, in part, by new products launched during the past year.

•

Discover delivered strong results, including record transaction volume and the fifth
consecutive quarter of managed receivables growth, and it continues to be well-positioned forsuccess as a stand-alone company. The spin-off of Discover remains on track for the third
quarter of this year.

John J. Mack, Chairman and CEO, said, “Morgan Stanley delivered outstanding results this quarter with record revenues and earnings along with ROE of more than 20 percent for the sixth quarter in arow. This strong performance was in large part the result of effective, disciplined risk-taking by ourteam in Institutional Securities, which helped deliver record results across our sales and tradingbusinesses. Our Global Wealth Management business this quarter delivered its highest revenues since2000 and we continued to make substantial progress in executing our growth plan in AssetManagement. We see many opportunities to further improve our performance, and remain intensely
focused on helping our clients navigate the constantly changing markets and leveraging our global
franchise to create additional value for our shareholders.”

INSTITUTIONAL SECURITIESInstitutional Securities posted record pre-tax income2 of $3.0 billion, up 71 percent from $1.8 billion
in the first quarter of 2006. Record net revenues of $7.6 billion were 37 percent higher, driven byrecord results in fixed income and equities. The quarter’s pre-tax margin was 40 percent, comparedwith 32 percent in last year’s first quarter. The quarter’s return on average common equity was 40
percent compared with 29 percent a year ago.
•

Advisory revenues were $390 million, a 10 percent increase from last year’s first quarter.

•

Underwriting revenues were $659 million, a 20 percent increase from last year’s first quarter.
Fixed income underwriting revenues were $359 million, a 2 percent increase from the prior year’s

2

Represents income from continuing operations before losses from unconsolidated investees.
2

first quarter, and equity underwriting revenues increased 52 percent to $300 million over the same
period.
•Fixed income sales and trading net revenues were a record $3.6 billion, a 31 percent increase overthe previous record in the first quarter of 2006. Performance was broad based across credit
products, interest rate & currency products and commodities. Credit products had record results
driven by a significant increase in revenues from securitized products. Trading revenues weresignificantly higher, driven by favorable positioning in the residential mortgage markets, robust
performance in corporate credit trading, and strong customer flows. Interest rate & currency
products benefited from improved results in interest rate trading and record revenues in emerging
markets. Commodities, although down from last year’s record first quarter, produced its second
best quarter ever, benefiting from trading results in electricity, natural gas and oil liquids.

•

Equity sales and trading net revenues were a record $2.2 billion, an increase of 36 percent fromlast year’s first quarter. Increased client flows and trading across both the cash and derivatives
markets drove revenues higher. Rising stock market indices in the quarter fueled growth in client
volumes across all regions. Prime Brokerage financed higher client balances for the 16th
consecutive quarter, which contributed to record revenues for the business.

•

Investment revenues were $801 million compared with $312 million in the first quarter of lastyear. The increase was driven by significant gains from investment banking’s interest in realestate funds and $237 million of investment revenue associated with returns in our employee
deferred compensation and co-investment plans that are substantially offset by increased
compensation expense related to these plans.3 The quarter also included gains on fixed income’s
investments in Grifols S.A. and IntercontinentalExchange.

•

The Company’s aggregate average trading VaR measured at the 95 percent confidence level was$90 million compared with $58 million in the first quarter of 2006 and $61 million in the fourth
quarter of 2006. Total aggregate average trading and non-trading VaR was $92 million comparedwith $65 million in the first quarter of 2006 and $67 million in the fourth quarter of 2006. The
overall increase from last year was due, in part, to increases in the equities price and commodities
price VaR. At quarter end, the Company’s aggregate trading VaR was $76 million, and theaggregate trading and non-trading VaR was $78 million.

•

Non-interest expenses were $4.6 billion, an increase of 22 percent from the first quarter of lastyear. Compensation costs were higher compared with a year ago as increases resulting from3

The Company maintains various deferred compensation plans for the benefit of certain employees. Beginningin the quarter ended February 28, 2007, increases or decreases in assets or earnings associated with such plans
are reflected in net revenues, and increases or decreases in liabilities associated with such plans are reflected incompensation expense. Previously, the increases or decreases in assets and liabilities associated with these plans
were both recorded in net revenues. Prior period activity has been reclassified to conform to the current
presentation.
3

higher revenues 3 were partly offset by the incremental compensation charges recorded in the firstquarter of 2006.1 In addition, non-compensation expenses increased as a result of higher levels of
business activity.

For the first two months of calendar 2007, the Company ranked second in global completed M&A
with a 34 percent market share, sixth in global announced M&A with a 26 percent market share, fifthin global IPOs with a 7 percent market share, eighth in global equity and equity-related issuances witha 6 percent market share and sixth in global debt issuance with a 6 percent market share.4

GLOBAL WEALTH MANAGEMENT GROUP
Global Wealth Management Group’s pre-tax income for the first quarter was $220 million, comparedwith $15 million in the first quarter of last year. The quarter's pre-tax margin was 15 percent
compared with 1 percent in last year’s first quarter. The quarter’s return on average common equity
was 32 percent compared with 1 percent a year ago, reflecting the increase in net income and lower
capital allocated to the business.
•

Net revenues of $1.5 billion were up 18 percent from a year ago reflecting stronger transactional
revenues due to increased underwriting activity, higher asset management revenues reflecting
growth in fee-based products and higher net interest revenue from the bank deposit sweep
program.

•Non-interest expenses were $1.3 billion, up 2 percent from a year ago. Compensation costs
increased from a year ago, due to higher revenues and investment in the business. This increase
was partly offset by the incremental compensation charges recorded in the first quarter of 2006.1
Non-compensation expenses declined reflecting lower charges for legal and regulatory matters.

•

Total client assets were $690 billion, an 11 percent increase from last year’s first quarter. Client
assets in fee-based accounts rose 17 percent to $202 billion over the last 12 months and represent
29 percent of total client assets.

•

The 7,993 global representatives at quarter-end achieved record average annualized revenue andtotal client assets per global representative of $748,000 and $86 million, respectively.

In addition, included in the Company’s discontinued operations is a $168 million pre-tax gain on thesale of Quilter Holdings Ltd.

4

Source: Thomson Financial – for the period January 1, 2007 to February 28, 2007.
4

ASSET MANAGEMENT
Asset Management reported pre-tax income of $236 million, 37 percent higher than last year's $172
million. The quarter’s pre-tax margin was 26 percent compared with 24 percent a year ago and thereturn on average common equity was 20 percent compared with 21 percent in last year’s first quarter.
•

Net revenues increased 28 percent to $905 million primarily reflecting higher management andadministration fees due to an increase in assets under management and higher performance feesfrom the alternatives business, including FrontPoint Partners. Higher investment revenues were
driven by gains in private equity and alternative investments.

•

Non-interest expenses increased 26 percent to $669 million driven by higher compensation costs
resulting from increased revenues and business investment, particularly in the alternatives
business, including operating expenses associated with FrontPoint Partners.

•

Assets under management or supervision at February 28, 2007 were $500 billion, up $58 billion,or 13 percent, from a year ago. The increase resulted from market appreciation, acquisitions andminority interest investments, as inflows from the Americas Intermediary, Non-U.S. andInstitutional Liquidity products were offset by Morgan Stanley Brand, U.S. Institutional, andRetail Money Market outflows.

•

Asset Management recorded net customer inflows of $4.3 billion for the quarter compared with
$6.9 billion of outflows a year ago.

•

The percent of the Company’s long-term fund assets performing in the top half of the Lipper
rankings was 48 percent over one year, 63 percent over three years, 73 percent over five years and82 percent over 10 years.

DISCOVER
Discover’s first quarter pre-tax income was $372 million on a managed basis, a 22 percent decline
compared with $479 million in last year’s first quarter. Net revenues of $1,025 million were 6 percent
lower than a year ago, which included an increase in the valuation of the Company's residual interests
in securitized receivables following changes in federal bankruptcy legislation in 2005. The quarter’s
pre-tax margin was 36 percent compared with 44 percent a year ago. The quarter’s return on averagecommon equity was 17 percent compared with 26 percent a year ago.
•

Transaction volume increased 13 percent from a year ago to a record $30.3 billion, primarily
driven by higher sales volume resulting from increased cardmember usage and the acquisition of
the Goldfish credit card business.

•

Managed credit card loans of $50.7 billion were up 6 percent from a year ago and up 1 percent
from the end of last year.

5•Managed merchant, cardmember and other fees were $552 million, up 6 percent from a year ago.
The increase was primarily due to higher merchant discount revenues driven by higher sales
activity and higher cardmember related fee revenue, partly offset by higher cardmember rewards.

•

Other non-interest revenue was $5 million compared with $143 million in last year’s first quarter,
which benefited from the increase in the valuation of the Company's residual interests insecuritized receivables discussed above.

•

The provision for consumer loan losses on a managed basis was $482 million, down 5 percent
from last year, reflecting continued strong credit quality in the domestic portfolio, partially offset
by increased credit losses in the U.K.

•

Managed net interest income of $950 million increased $16 million, or 2 percent, reflecting an 8
percent increase in average credit card loans, partially offset by a narrowing of the interest rate
spread as a higher yield was more than offset by a higher cost of funds.

•

Non-interest expenses increased 7 percent to $653 million, primarily due to higher marketing andprofessional services and the inclusion of operating expenses associated with the Goldfish credit
card business.

•

The managed credit card net charge-off rate was 4.05 percent, 101 basis points lower than last
year's first quarter. The managed credit card over-30-day delinquency rate was 3.45 percent,unchanged from the first quarter of 2006, and the over-90-day delinquency rate increased 8 basis
points over the same period to 1.69 percent.

OTHER MATTERS
Effective December 1, 2006, the Company elected early adoption of SFAS No. 157, "Fair Value
Measurements," and SFAS No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities - Including an amendment of FASB Statement No. 115." As a result of the adoption of
SFAS No. 157 and SFAS No. 159, the Company recorded an after-tax cumulative effect adjustment of$186 million as an increase to the opening balance of retained earnings as of December 1, 2006. The
adoption of these two standards had an immaterial impact in the first quarter.

As of February 28, 2007, the Company repurchased approximately 15 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 April 30, 2007, to common shareholders of record on April 13,
2007. The Company also announced that its Board of Directors declared a quarterly dividend of$378.75 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 a6dividend of $0.37875) to be paid on April 16, 2007 to preferred shareholders of record on April 1,
2007.

Total capital as of February 28, 2007 was $177.3 billion, including $42.8 billion of commonshareholders' equity, preferred equity and junior subordinated debt issued to capital trusts. Book value
per common share was $34.71, 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, wealth management and credit services. The Company’s
employees serve clients worldwide including corporations, governments, institutions and individuals
from more than 600 offices in 31 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.

7

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

Quarter Ended
Feb 28, 2006

Feb 28, 2007
Net revenues
Institutional Securities
Global Wealth Management Group
Asset Management
DiscoverIntersegment Eliminations
Consolidated net revenues

$

$

7,631
1,490
905
1,025
(53)
10,998$$

Nov 30, 2006

5,551
1,266
705
1,089
(59)
8,552

$

$

$

1,775
15
172
479
19
2,460

$

Percentage Change From:Feb 28, 2006
Nov 30, 2006

5,702
1,430
728
963
(59)
8,764

37%
18%
28%
(6%)
10%
29%

34%
4%
24%
6%
10%
25%

$

2,297
165
190
199
12
2,863

71%
*
37%
(22%)
(74%)
57%

32%
33%
24%
87%
(58%)
35%

$

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

$

3,031
220
236
372
5
3,864

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

$
$
$

2.52
0.11
2.63

$
$
$

1.57
(0.03)
1.54

$
$
$

2.19
2.19

61%
*
71%

15%
*
20%

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

$
$
$

2.40
0.11
2.51

$
$
$

1.51
(0.03)
1.48

$
$
$

2.08
2.08

59%
*
70%

15%
*
21%

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

(1)
Note:

$

1,009,186,993
1,057,912,545
1,061,644,077

1,020,041,181
1,061,764,798
1,070,407,513

997,892,310
1,052,831,345
1,048,877,006

28.8%
29.9%

21.9%
21.3%

26.1%
26.0%

Represents consolidated income from continuing operations before losses from unconsolidated investees, taxes
and gain/(loss) from 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
Fees:
Asset management, distribution and admin.
Merchant, cardmember and otherServicing and securitizations income
Interest and dividends
Other
Total revenues
Interest expense
Provision for consumer loan losses
Net revenues

Feb 28, 2007

Quarter Ended
Feb 28, 2006

Nov 30, 2006

$

$

$

Compensation and benefits (1)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 losses
from unconsolidated investees and taxes
Losses from unconsolidated investees
Provision for income taxes
Income from continuing operations
Discontinued operations (2)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
Pre-tax profit margin (3)Compensation and benefits as a % of net revenues
(1)

(2)
(3)
Note:

$
$
$

1,227

982

Percentage Change From:Feb 28, 2006
Nov 30, 2006

1,503

25%

(18%)

4,158
920
1,005

3,086
349
920

2,317
567
976

35%
164%
9%

79%
62%
3%

1,479
297
556
14,814
222
24,67813,485
195
10,998

1,268
289
596
10,544134
18,168
9,461
155
8,552

1,337
289
526
11,880228
19,623
10,620
239
8,764

17%
3%
(7%)
40%
66%
36%
43%
26%
29%

11%
3%
6%
25%
(3%)
26%
27%
(18%)
25%

4,992
280
361
369
294
499
339
7,134

4,242
230
292
346
238
433
311
6,092

3,506
274
334
384
418
724
261
5,901

18%
22%
24%
7%
24%
15%
9%
17%

42%
2%
8%
(4%)
(30%)
(31%)
30%
21%

3,864
44
1,261
2,559

2,460
69
789
1,602

2,863
54
607
2,202

57%
(36%)
60%
60%

35%
(19%)
108%
16%

174
(61)
113
2,672
17
2,655

(48)
20
(28)
1,574
1,574

6
(2)
4
2,206
19
2,187

*
*
*
70%
*
69%

*
*
*
21%
(11%)
21%

28.8%
29.9%
35%
45%

$
$
$

21.9%
21.3%
29%
50%

$
$
$

26.1%
26.0%
33%
40%

The Company maintains various deferred compensation plans for the benefit of certain employees. Beginning in the quarter ended Feb 28, 2007,
increases or decreases in assets or earnings associated with such plans are reflected in net revenues, and increases or decreases in liabilities
associated with such plans are reflected in compensation expense. For the quarter ended Feb 28, 2007, such net revenues and compensation
expense totaled approximately $300 million and $280 million, respectively. Previously, the increases or decreases in assets and liabilities
associated with these plans were both recorded in net revenues. Prior period activity has been reclassified to conform to the current presentation.
Gain/(loss) from discontinued operations for the quarter ended Feb 28, 2007 reflects the operating results for Quilter Holdings Limited and thegain related to the sale of this business.
Income before taxes, excluding losses from unconsolidated investees, as a % of net revenues.
Certain reclassifications have been made to prior period amounts to conform to the current presentation.
9