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Salomon Smith Barney Financial Services Conference Philip Purcell Chairman & CEO January 31, 2002.

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Presentation on theme: "Salomon Smith Barney Financial Services Conference Philip Purcell Chairman & CEO January 31, 2002."— Presentation transcript:

1 Salomon Smith Barney Financial Services Conference Philip Purcell Chairman & CEO January 31, 2002

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. 1 Agenda Secular Trends and Company Strategy Franchise Position and Momentum Value Proposition for Shareholders

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. 2 Secular Trends and Firm Strategy Institutional Investors Low cost positions in commodity products Highest quality in complex products Innovation of new products/services Leading intermediary across geography and products (“Flow”) Morgan Stanley Strategy Secular Trends Higher penetration of financial markets in commerce Continued growth in global trading in financial markets Pressure on margins

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. 3 Securities Trading Volume Average Combined Daily Volume for NYSE, NASDAQ and All Other U.S. Exchanges (MM of Shares) CAGR ‘95 - ‘0125.7% ‘90 - ‘0123.1% ‘85 - ‘0118.3% ‘80 - ‘0119.0% (1) Note:(1) Total for 2001 does not include regional stock exchanges. Source: Securities Industry Association.

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. 4 Efficiency in Securities Processing Morgan Stanley Institutional Securities Trading Volume and Cost per Trade (Indexed) Gross Volumes Operations Expenses Cost per Trade

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. 5 Flow Morgan Stanley OTC Market Making Total Number of Stocks

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. 6 Innovation: Prime Brokerage Business Morgan Stanley Prime Brokerage Net Revenues (Indexed) Net Revenues CAGR: 23%

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. 7 Innovation: Credit Derivatives Business Morgan Stanley Credit Derivatives Revenues (Indexed)

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. 8 Secular Trends and Firm Strategy Corporate Clients Unique global network of information/contacts for our clients Most experienced professionals to help solve complex problems and create opportunities for clients Culture and incentive system which dedicates the entire firm to client objectives Morgan Stanley Strategy Secular Trends Globalization of industry sectors Restructuring of selected economic areas Disintermediation of banks

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. 9 Disintermediation Percent of Private Nonfinancial Debt Outstanding (%) Intermediated Through Depository Institutions Intermediated Through Securities Markets Source: Federal Reserve Board

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. 10 Growth in Global Mergers & Acquisitions Total Global Announced Deals ($ Billions) Source:Thomson Financial Services. ‘95 - ‘01 ‘90 - ‘01 ‘85 - ‘ % 13.9% 12.7% CAGR

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. 11 Global Consolidation and Restructuring M&A as a Percentage of GDP – 2001E (%) Note:(1) EU15 comprises the 15 current members of the European Union. (2) Asia Pacific includes Japan, China, Hong Kong SAR, Taiwan, Indonesia, Singapore, South Korea, Australia and New Zealand. Sources: Thomson Financial Securities Data, EIU/Datastream, OECD/Factset. GDP data are nominal estimates. (2) (1) 12.6% 9.0% 4.7%

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. 12 Delivering the Firm for Corporate Clients Comcast/AT&T Broadband Merger France Telecom-Orange IPO Chalco IPO

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. 13 Secular Trends and Firm Strategy Asset Management Services Develop best advice channel for clients Further align advisor interests with client/firm interests Provide best in class product across asset classes Strengthen bonds between distribution and manufacturing Morgan Stanley Strategy Secular Trends Increasing importance of distribution Proliferation of professional management of assets Ongoing volatility in asset allocation by investors

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. 14 Growth in U.S. Asset Management Industrywide Mutual Fund Assets ($ Billions) ‘95 - ‘01 ‘90 - ‘01 ‘85 - ‘01 ‘80 - ‘01 CAGR 17.9% 27.1% 23.3% 22.9% EquityTotal 16.2% 18.6% 17.9% 20.6% ,065 2,812 6,965 6,927 (1) Note:(1) As of November Source: Investment Company Institute. Equity

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. 15 Growth in Separately Managed Accounts Total Separately Managed Account Assets Source:Cerulli Associates. ($ Billions)

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. 16 Professional Management of Assets Share of U.S. Household Securities Assets Held in Mutual Funds (%) Source: Federal Reserve Board, Morgan Stanley Research. Securities assets includes: corporate equities, fixed income, mutual funds, money market funds, and free credit balances. Mutual funds total includes money market funds. 18.7% 29.1%

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. 17 Note:(1)As of November. Source: Strategic Insight, Simfund2. A Crowded Marketplace Number of Mutual Fund Firms Number of Mutual Funds Long-Term FundsMoney Market Funds (1)

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. 18 Performance Morgan Stanley Morningstar 4 & 5 Star Rated Funds Calendar Year-End *1996 total is pro forma.

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. 19 Product Breadth Large Mid Small Value Blend Growth Convertibles Domestic Hybrid Specialty – Financial Specialty – Health Specialty – Natural Resources Specialty – Real Estate Specialty – Technology Specialty – Utilities Specialty Large Mid Small Value Blend Growth Convertibles Domestic Hybrid Specialty – Financial Specialty – Health Specialty – Natural Resources Specialty – Real Estate Specialty – Technology Specialty – Utilities Specialty 1997 Morningstar Style Boxes – Morgan Stanley Domestic Equity Funds 2001 Morningstar Style Boxes – Morgan Stanley Domestic Equity Funds

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. 20 Secular Trends and Firm Strategy Consumer Credit Parity on merchant acceptance Leading customer service platform: emphasis on the Internet Competitive product offering for mass market customers (CashBack Bonus) Customer rewards strategy vs. price strategy Morgan Stanley Strategy Secular Trends Continued shift in consumer payments from cash/check to credit cards Pricing pressure remains intense; utility increasingly important Consolidation of consumer relationships with fewer financial service firms

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. 21 Growth in U.S. Credit Cards Total Receivables ($ Billions) ‘95 - ’00 ‘90 - ’00 ‘85 - ’ % 12.8% 15.1% CAGR Source:Faulkner & Gray, Nilson, SEC Filings. *Data for 2001 is as of end of June.

23 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. 22 Growth in U.S. Credit Cards Total Charge Volume ($ Billions) ‘95 - ’00 ‘90 - ’00 ‘85 - ’ % 14.0% 14.4% CAGR Source:Faulkner & Gray, Nilson, SEC Filings.

24 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. 23 Merchant Acceptance VisaMasterCardAmerican ExpressDiscover Source: Nilson (Millions of merchant outlets)

25 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. 24 Internet Penetration Discover Online Card Usage Millions of Accounts % Discover Card Online Registered Accounts Discover Card Online Payments (Indexed)

26 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. 25 Morgan Stanley A Value proposition for shareholders built on 3 goals 1) Higher market share 2) Disciplined risk management 3) Differentiated financial returns

27 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. 26 Market Conditions vs Volume:  NYSE  NASDAQ Volatility:  VIX  QQV  Crude Oil (WTI) Total Underwriting Activity Institutional Investors 19%8% 27%32% 12% M&A Announced Equity Underwriting IPO's Fixed Income Issuance Corporate Market 50%20%60% 20% Margin Debits Fund Flows:  Total Long-Term Fund Flows  Equity Fund Flows Market Performance: S&P Nasdaq Retail Investors 32%90%43% Unemployment rate Bankruptcy filings Interest Rates:  2-Year Treasury Retail Sales Credit Cards 40% 3.3% Sources: NYSE, NASDAQ, SIA, Thomson Financial Securities Data, Investment Company Institute, Bloomberg 13%21%45%20%18%

28 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. 27 Morgan Stanley Market Share Corporate Clients (2) Equity Issuance IPOs Fixed Income Issuance High Yield M&A Announced Institutional Clients (1) Research (# of positions) Listed Equities OTC Europe Equities Fixed Income Trading High Yield Trading 1 (22) 4.88% 3.14% 4.03% 5 NA 1 (20) 5.41% 3.88% 5.76% (18) 6.26% 5.25% 6.50% 5 8 Notes:(1)Sources: Research Ranking: Institutional Investor; Listed and OTC: Autex; Europe Equities: Local Exchanges; Fiscal year basis. (2)Source: Thomson Financial Securities, Calendar year basis Up/Flat Off Down

29 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. 28 Morgan Stanley Market Share Retail Clients (1) FA Market Share Mutual Fund Flows Equity Fund Flows 21.2% 3.2% 3.1% 21.6% 3.8% 6.0% 21.4% 0.8% 0.7% Credit Cards (2) Receivables Share Network Volume Share Notes:(1)Sources: FA Market Share: Company Reports and SIA Yearbook (2001 share data is as of 3Q); Long-term and Equity Fund Flows: Strategic Insight (2001 data is year-to-date through November). (2)Sources: Nilson, Faulkner and Gray data is as of end of June. Up/Flat Off Down

30 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. 29 Flexible Expense Structure Net Revenue/Expense Growth (Indexed) Net RevenueCompensation & BenefitsNon-Comp *1996 data is pro forma.

31 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. 30 Selected Assets ($ in Millions) Risk Management Year-Over-Year Change (36)%(33)%(46)% Portfolio/Inventory 4Q00Portfolio/Inventory 4Q01 4Q00 - Loans4Q01 - Loans High YieldPrivate EquityCommercial Loans and Commitments $2,200 $1,400 $1,200 $800 $18,800 $10,100 $14,500 $7,100

32 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. 31 Above Average Historic Returns Morgan Stanley Historic ROE* vs. Cyclical Goal Cyclical Goal 18-20% Morgan Stanley Dean Witter merger Average ‘90-’01: 21% Average ex-’99-’00: 19% ROE *ROE prior to 1997 merger is pro forma and calculated using annual reports.

33 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. 32 Growth in Morgan Stanley Book Value Book Value per Share CAGR: 15% *Book value for 1996 is pro forma

34 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. 33 Relative Returns Annual ROE Comparison (Indexed to MWD) MWD LEH GS MER JPM C Source: Company filings and Morgan Stanley Research

35 Salomon Smith Barney Financial Services Conference Philip Purcell Chairman & CEO January 31, 2002


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