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Goldman Sachs & Co. Financial Services Conference Philip J. PurcellStephen S. Crawford Chairman & CEOChief Financial Officer May 13, 2002.

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Presentation on theme: "Goldman Sachs & Co. Financial Services Conference Philip J. PurcellStephen S. Crawford Chairman & CEOChief Financial Officer May 13, 2002."— Presentation transcript:

1 Goldman Sachs & Co. Financial Services Conference Philip J. PurcellStephen S. Crawford Chairman & CEOChief Financial Officer May 13, 2002

2 1 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, Sales and Trading Sales and Trading Net Revenues ($MM, % Total) % of Firm Revenues 27% 31%34%37%39% CAGR: 20%

3 2 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, Diversification Sales and Trading Net Revenues ($MM, % Total) EquityFixed Income

4 3 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, Balance Sheet (1) $MMs Note:(1) As of February 28, 2002 Total Assets Cash and cash equivalents Financing transactions, including: Reverse repos and securities borrowed Financial instruments, including: Cash products ($118,770) Derivative products ($31,814) Receivables, net of allowances: Other assets, primarily includes: Aircraft, cash collateral, goodwill, office facilities etc. Asset Class $491,651 74, , ,846 47,885 16,400 Balance $MMs 15% 40% 32% 10% 3% % of Total

5 4 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, Financial Instruments – Cash (1) Bank Loans: $4.9Bn Private Equity: $900MM (2) High Yield: $1.6Bn Loans and Commitments Investment Grade Non-Investment Grade 75% 25% Note:(1) As of February 28, 2002 (2) Of which only $250 MM is in inventory Selected Financial Instruments Total: $10.2Bn

6 5 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, Financial Instruments – Derivatives (1) Maturity Profile by Counterparty Rating ($MMs) Counterparty Rating by Product ($MMs) AAA AAA BBB NIG Note:(1) As of February 28, 2002

7 6 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, Revenue Drivers Trading Volumes Volatility Primary Activity Market Direction

8 7 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, Business Model Increase Flow Lowers Risk Strengthens Client Relationships

9 8 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, Consolidation and Fragmentation 2001 Mutual Funds 2001 Passive Funds Top 15 Complexes (Cumulative Share %)(%) 2001 Separately Managed Accounts (Cumulative Share %) Fidelity Vanguard Cap Research Putnam Funds Franklin Templeton Morgan Stanley Janus TIAA-CREF MFS Oppenheimer AIM American Express T. Rowe Price American Century PIMCO All Others 2001 Hedge Funds (%) BHTSSGAVanguardDeutscheMellonOther BrandesRittenhouseAlliance1838 Advisors LazardOther Top 20Next 20Next 60Next 535 Source for above charts: Morgan Stanley/Freeman Securities Research

10 9 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, Client Service Model Three customer segments Mutual funds Hedge funds Asset owners Different value chains Best execution Enhanced services Advice Capital One prerequisite: Scale operations

11 10 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, Execution Applied OTC market making technology and strategy to options business Making markets in 40,000 instruments, representing 435 names – from standing start in August 1999 Largely automated operations – handful of traders OTC Market Making Automated Options Market Making Total Number of Stocks

12 11 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, Services and Advice Analytics Financing Settlement Securities lending Dedicated trading Tax and regulatory advice Technology

13 12 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, Scale Morgan Stanley Institutional Securities Trading Volume and Cost per Trade (Indexed) Gross Volumes Operations Expenses Cost per Trade

14 13 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, Research Japan II First Teams 2002 Chemicals Construction Metals Software/Business Autos & Auto Parts Insurance Telecommunications Equipment Equity Strategy Global II First Teams 2001 Top Ranked Analysts by Institutional Investor Morgan Stanley Proprietary Research Ratings System Ratings as of 3/18/2002: O or Over = Overweight E or Equal = Equal-weight U or Under = Underweight Pre- 3/18/2002 Ratings: SB = Strong Buy O = Outperform N = Neutral U = Underperform Currently 19% of stocks are ranked Underweight by MWD Analysts North America II First Teams 2001 Medical Supplies & Devices Cable Publishing & Information Services Radio & TV Broadcasting Enterprise Software Internet Infrastructure Services Specialty Chemicals Data Networking Autos & Auto Parts Brokers & Asset Managers Insurance/Nonlife Europe II First Teams 2002 Autos & Auto Parts Luxury Goods Telecommunications Equipment Tobacco Convertibles Economics/Developed Markets Equity Strategy/Developed Markets

15 14 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, Relative Returns Annual ROE Comparison (Indexed to MWD) MWD LEH GS MER JPM C Source: Company filings and Morgan Stanley Research

16 15 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, Provisions Address: New NASD and NYSE Rules Promises of Favorable Research Limitations on Relationships and Communications Analyst Compensation Firm Compensation Restrictions on Personal Trading by Analysts Disclosures of Financial Interests in Covered Companies Disclosures in Research Reports Regarding the Firm's Ratings Disclosures During Public Appearances by Analysts

17 16 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, Value Added By Morgan Stanley Percent of Analysts Beating Passive Portfolio Passive Portfolio Note:Active: Portfolio weighted by Morgan Stanley research recommendations (prior to 3/18/02) Passive: Equal-weighted performance (%)

18 17 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, Average Return (1) For All IPOs Source: Thomson Financial Note:(1)Based on difference between offer price and price on 5/7/02 Jan 1, 1999 to May 7, 2002 (%)

19 18 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, Disciplined Underwriting MWD IPO Market Share ($ volume) (1) : Internet Industry Total IPO Market Share Source: Thomson Financial Note: (1)Deals of $10MM or more

20 19 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, Disciplined Underwriting Passed On The IPO Flowers Buy.com Earthlink Excite Exodus GeoCites Infospace Internet Capital Group IXL Lycos Network Solutions NetZero Pets.com Startmedia Theglobe.com UUNet USWeb VerticalNet Webvan Yahoo!

21 20 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, An Analyst Stands His Ground Qwest Stock Price ($) Qwest Communications June 20, 2001 Morgan Stanley Downgrade Report Qwest: Report is Hogwash June 25, 2001 Other Analysts Defend Qwest; Dismiss Accounting Esoterics Aug. 14, 2001 Qwest Reports 12% Increase in Revenues for Quarter Nov. 14, 2001 Qwest Reports Revenue Flat, But Key Areas Growing Feb. 13, 2002 Company Announces It will Draw Down $4Bn Bank Loan Apr. 4, 2002 SEC Announces It Has Begun Formal Investigation of Qwest Jan. 25, 2001 Morgan Stanley Downgrades

22 21 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, Not Linked to Investment Banking Revenue

23 22 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, Note:(1)Competitors include Bernstein, CSFB, Deutsche Banc, Goldman Sachs, Merrill Lynch, Prudential Securities, and UBS Warburg A More Robust Ratings System Revised stock rating system March 18th, 2002 based on intensive client survey No other firm has made similar wholesale changes in their ratings Number of stocks rated Underweight is more than 2x major competitors combined (1) Overweight 34% Underweight 19% Equal-Weight 47%


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