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Morgan Stanley

Morgan Stanley Presented by: Abe Khorshid Ronnie Ng (Presented 4-10-2001) Recommendation: BUY The Morgan Stanley Vision To be the world’s first choice in achieving financial aspirations.

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Morgan Stanley

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  1. Morgan Stanley Presented by: Abe Khorshid Ronnie Ng (Presented 4-10-2001) Recommendation: BUY

  2. The Morgan Stanley Vision To be the world’s first choice in achieving financial aspirations.

  3. Morgan Stanley is a preeminent global financial services firm that maintains market positions in each of its businesses — Securities, Asset Management, and Credit Services. The company combines leadership in investment banking (including underwriting public offerings of securities and mergers and acquisitions advice) and institutional sales and trading, with strengths in providing investment and global asset management services as well as quality consumer credit products. Overview

  4. Profile • NYSE symbol: MWD • Recent Price: $54.77 • 52 week low/high: $44.10 - $110.00 • P/E: 11.63 • Shares Outstanding: 1.11 billion • Market Cap.: $60.9 billion • 2000 Div. Per Share: $.80 • 2000 ROE: 31% • Historical 5 Year Net Revenue CAGR: 21.8% • Historical 5 Year Net Income CAGR: 28.8%

  5. 1Q 2001 Earnings • Reported EPS of $.94, which is down 30% from 1Q 2000 • Securities business net income dropped 37% - Reflects the impact of difficult markets for equity underwriting, and principal investment activity — partially offset by strong performances in fixed income and equity sales and trading. -1st in announced global M&A deals (39% market share) • Achieved ROE of 23% for the quarter • Declared quarterly dividend of $.23 per share • The Company has repurchased approximately 9 million shares of its common stock since the end of fiscal 2000 • Non-staff costs fell 7.5% between 4Q 2000 and 1Q 2001

  6. Securities • Includes Investment Banking, Institutional Sales & Trading, Full-Service Brokerage, and Principal Investing Activities • Comprises 81% of total sales and 74% of total profit • Net revenue and net income grew at 22% and 10%, respectively, in 2000 • #1 in Institutional Investor’s Yr 2000 Global Research Poll for 4th straight year

  7. Securities - Investment Banking • 2000 Total Fees: $4.88 billion - Comprises 18.5% of total net revenues • M&A fees account for 43.8% of total fees • Equity Underwriting fees account for 35.7% • Debt Underwriting fees account for 20.5% • #1 in U.S. announced M&A deals for 2000 • #1 in global M&A deals for Q1 of 2001 • #1 in European M&A deals for Q1 of 2001

  8. Securities - Principal Transaction • Includes Equity, Fixed Income, Foreign Exchange, and Commodities trading • Total revenues for 2000: $7.4 billion - Comprises 28.7% of total net revenues • Revenues increased 27% in 2000 - fueled by 54% increase in equity trading revenues • Includes private equity arm

  9. Asset Management • Provide wide range of investment products for institutions and individual investors - Van Kampen Mutual Funds - Unit Trusts - Insurances and Annuities • Net Revenues of $2.5 billion in 2000 - Comprises 9.6% of total net revenues - Grew at 20% from 1999 • Ranks among the top eight global active asset managers with over $500 billion of assets under management

  10. Credit Services • Operated by Discover Financial Services • Includes Discover Card, MS Card, and other proprietary general purpose credit cards • Net Revenues of $3.9 billion in 2000 - Comprises 14.8% of total net revenues - Grew at 11.3% from 1999 • Only top-tier investment bank with credit card business

  11. Current Economic Environment • Unemployment rose to 4.3%, higher than projections • Consumer confidence was up for the first time in the past five months • Deteriorating economic environment - Fear of recession in US and Japan - Falling corporate earnings - Corporate layoffs across the board • Interest rate friendly environment • Equity bubble has popped in the US - Hard to raise capital through equity markets - M&A slowdown

  12. Employment Data

  13. Industry Environment • Firms are focusing on controlling costs - Recent layoffs in many brokerages • M&A deal flows are slowing down • Deteriorating equity backlog of underwriting • Consumer credit is an increasing concern • Increased fixed income liquidity in wake of fed easing

  14. U.S. Announced M&A Advisor Rankings Rank Advisor Amt.($bln) # ofDeals 1 Morgan Stanley Dean Witter 542.56 197 2 Credit Suisse First Boston 517.51 398 3 Goldman Sachs 513.27 255 4 Salomon Smith Barney 408.47 209 5 Merrill Lynch 264.54 165 Position In IndustryIB League Tables 2000 Source: CommScan M&ADeskPeriod: January 1, 2000 - November 30, 2000Criteria: Excludes withdrawn deals, Includes all M&A deals involving either a US target, divestor or acquiror, spin-offs and split-offsCredit: Full credit to both acquiror and target advisor

  15. Global Equity and Equity-linked Underwriter Rankings Rank Underwriter TotalAmt.($mm) # ofDeals 1 Goldman Sachs 80,776.85 184 2 Morgan Stanley Dean Witter 58,715.64 166 3 Merrill Lynch 56,257.99 154 4 Credit Suisse First Boston 35,376.05 171 5 Citigroup 34,153.65 161 6 Deutsche Bank 27,403.54 101 Position In IndustryIB League Tables 2000 Source: CommScan EquiDesk/CapitalDataPeriod: January 1, 2000 - September 30, 2000Credit: Total deal size is apportioned to bookrunner (minimum of 3 deals)

  16. Historic Performance

  17. Historic Performance

  18. Historic Performance

  19. 1 Year Stock Performance

  20. Excel Spreadsheet • Financials • Revenue Composition • Ratios and Comparisons • Valuation Model

  21. Relative Price-to-Book

  22. Relative Price-to-Earnings

  23. What Analysts Say… • “MWD should be trading at a premium, given its leadership in M&A and equity underwriting.” -- Goldman Sachs • Smith Barney rates MWD as a BUY with a target price of $90 • “The top franchises in global finance, with a breadth of competencies and product offerings to which every bank aspires to have.” – CSFB • First Union reiterates STRONG BUY rating and target price of $90, 20x 2001 EPS estimate • “MWD remains the most attractively valued traditional broker dealer. Rated BUY rating with a $75 target.” --Merrill Lynch

  24. Why Morgan Stanley? • Leading share in M&A and equity underwriting • Ahead of competition in cost reduction • Diversification of revenue sources • Unbeatable capability/financial strength - Larger asset base than other top tier IBs • Solid track record - Consistent growth in EPS and ROE • Trading at a very attractive value • Adds diversification to our client’s portfolio

  25. Recommendation • BUY 400 shares at the market! • Total projected market value: $22,000

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