cs first boston third annual financial services conference stephen crawford chief financial officer...
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CS First Boston Third Annual FinancialServices Conference
Stephen Crawford
Chief Financial Officer
February 11, 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 and has not been updated since it was originally presented on February 11, 2001.
Agenda
Secular Trends and Company Strategy
Franchise Position and Momentum
Value Proposition for Shareholders
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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 February 11, 2001.
Secular Trends and Firm StrategyInstitutional 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
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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 February 11, 2001.
Securities Trading Volume
83 218 326
813
3,0043,203
1980 1985 1990 1995 2000 2001
Average Combined Daily Volume for NYSE,NASDAQ and All Other U.S. Exchanges
(MM of Shares)
CAGR
‘95 - ‘01 25.7%‘90 - ‘01 23.1%‘85 - ‘01 18.3%‘80 - ‘01 19.0%
(1)
Note: (1) Total for 2001 does not include regional stock exchanges.Source: Securities Industry Association.
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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 February 11, 2001.
Efficiency in Securities ProcessingMorgan Stanley Institutional Securities
Trading Volume and Cost per Trade
(Indexed)
0
100
200
300
400
500
600
1997 1998 1999 2000 2001
GrossVolumes
OperationsExpenses
Cost per Trade
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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 February 11, 2001.
Flow
Morgan Stanley OTC Market Making
Total Number of Stocks
650
1,500
4Q2000 4Q2001
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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 February 11, 2001.
Innovation: Prime Brokerage Business
Morgan Stanley Prime Brokerage Net Revenues
(Indexed)
0
100
200
300
400
500
1995 1996 1997 1998 1999 2000 2001
Net Revenues
1995-2001 CAGR: 23%
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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 February 11, 2001.
Innovation: Credit Derivatives Business
Morgan Stanley Credit Derivatives Revenues
100%
254%
2000 2001
(Indexed)
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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 February 11, 2001.
Secular Trends and Firm StrategyCorporate 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
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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 February 11, 2001.
Disintermediation
Percent of Private Nonfinancial Debt Outstanding
(%)
25
30
35
40
45
50
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Intermediated Through Depository InstitutionsIntermediated Through Securities Markets
Source: Federal Reserve Board
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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 February 11, 2001.
Growth in Global Mergers & Acquisitions
235 382
837
3,263
1,598
1985 1990 1995 2000 2001
Total Global Announced Deals
($ Billions)
Source: Thomson Financial Services.
‘95 - ‘01‘90 - ‘01‘85 - ‘01
11.4%13.9%12.7%
CAGR
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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 February 11, 2001.
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.
U.S. EU15 Asia Pacific(2)(1)
12.6%
9.0%
4.7%
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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 February 11, 2001.
Delivering the Firm for Corporate Clients
Comcast/AT&T Broadband Merger
France Telecom-Orange IPO
Chalco IPO
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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 February 11, 2001.
Secular Trends and Firm StrategyRetail Investors
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 and has not been updated since it was originally presented on February 11, 2001.
1980 1985 1990 1995 2000 2001
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%
Equity Total
16.2%18.6%17.9%20.6%
135495
1,065
2,812
6,965 6,927
(1)
Note: (1) As of November 2001.Source: Investment Company Institute.
Equity
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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 February 11, 2001.
70 7493
113
149
191
249
298275
1993 1994 1995 1996 1997 1998 1999 2000 3Q 01
Growth in Separately Managed Accounts
Total Separately Managed Account Assets
Source: Cerulli Associates.
($ Billions)
’93 - 3Q’01
CAGR
19%
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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 February 11, 2001.
Professional Management of Assets
1992 2000
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%
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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 February 11, 2001.
Note: (1) As of November.Source: Strategic Insight, Simfund2.
A Crowded Marketplace
344
646
1992 2001
Number of Mutual Fund Firms
2,846
7,083
1992 2001
Number of Mutual Funds
Long-Term Funds Money Market Funds
(1) (1)
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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 February 11, 2001.
Percentage of Net Flows into Equity Funds
38%62%
-57%
157%
1994 2000
Source: Morningstar.
Morningstar 4/5 Star fundsAll other funds
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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 February 11, 2001.
Performance
35
58
1996* 2001
Morgan Stanley Morningstar 4 & 5 Star Rated Funds
Calendar Year-End
*1996 total is pro forma.
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 February 11, 2001.
Product Breadth
Large
Mid
Small
Value Blend Growth
3 10 1
3 0 8
3 0 2
ConvertiblesDomestic HybridSpecialty – FinancialSpecialty – HealthSpecialty – Natural ResourcesSpecialty – Real EstateSpecialty – TechnologySpecialty – Utilities
27111123
Specialty
Large
Mid
Small
Value Blend Growth
6 15 9
3 2 9
3 1 4
ConvertiblesDomestic HybridSpecialty – FinancialSpecialty – HealthSpecialty – Natural ResourcesSpecialty – Real EstateSpecialty – TechnologySpecialty – Utilities
27111443
Specialty
1997 Morningstar Style Boxes –Morgan Stanley Domestic Equity Funds
2001 Morningstar Style Boxes –Morgan Stanley Domestic Equity Funds
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 February 11, 2001.
Secular Trends and Firm StrategyConsumer 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
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 and has not been updated since it was originally presented on February 11, 2001.
Growth in U.S. Credit Cards
70
173
359
579 565
1985 1990 1995 2000 2001*
Total Receivables
($ Billions)
‘95 - ’00‘90 - ’00‘85 - ’00
10.0%12.8%15.1%
CAGR
Source: Faulkner & Gray, Nilson, SEC Filings. *Data for 2001 is as of end of June.
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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 February 11, 2001.
Growth in U.S. Credit Cards
167337
701
1,249
1985 1990 1995 2000
Total Charge Volume
($ Billions)
‘95 - ’00‘90 - ’00‘85 - ’00
12.2%14.0%14.4%
CAGR
Source: Faulkner & Gray, Nilson, SEC Filings.
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 and has not been updated since it was originally presented on February 11, 2001.
Merchant Acceptance
Merchant Acceptance
1.0
2.0
3.0
4.0
5.0
1995 1996 1997 1998 1999 2000
Visa MasterCard American Express Discover
Source: Nilson
(Millions of merchant outlets)
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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 February 11, 2001.
0
1
2
3
4
5
6
7
8
Q100 Q200 Q300 Q400 Q101 Q201 Q301 Q4010%
100%
200%
300%
400%
500%
600%
Internet Penetration
Discover Online Card Usage
Millions ofAccounts %
Discover Card Online Registered AccountsDiscover Card Online Payments (Indexed)
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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 February 11, 2001.
Morgan Stanley
A Value proposition for shareholders built on 3 goals1) Higher market share2) Disciplined risk management3) Differentiated financial returns
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 and has not been updated since it was originally presented on February 11, 2001.
Market Conditions - 2001 vs. 2000
Volume:
NYSE
NASDAQ
Volatility:
VIX
QQV
Crude Oil (WTI)
Total Underwriting Activity
InstitutionalInvestors
19%
8%
27%
32%
12%
M&A Announced
Equity Underwriting
IPO's
Fixed Income Issuance
CorporateMarket
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%
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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 February 11, 2001.
Morgan Stanley Market Share
Corporate Clients(2)
Equity IssuanceIPOsFixed Income IssuanceHigh YieldM&A Announced
19.015.9
6.69.2
34.5
17.314.4
6.810.134.1
18.514.5
5.67.7
28.7
Institutional Clients(1)
Research (# of positions)Listed EquitiesOTCEurope EquitiesFixed Income TradingHigh Yield Trading
1 (22)4.88%3.14%4.03%
5NA
1 (20)5.41%3.88%5.76%
57
3 (18)6.26%5.25%6.50%
58
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.
1999 2000 2001Up/Flat
Off
Down
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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 February 11, 2001.
Morgan Stanley Market Share
Retail Clients(1)
FA Market ShareMutual Fund FlowsEquity Fund Flows
21.2%3.2%3.1%
21.6%3.8%6.0%
21.4%0.8%0.7%
Credit Cards(2)
Receivables ShareNetwork Volume Share
7.7 6.4
8.37.2
8.66.9
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. 2001 data is as of end of June.
Up/Flat
Off
Down
1999 2000 2001
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 and has not been updated since it was originally presented on February 11, 2001.
Selected Assets
($ in Millions)
$4,300$3,000
Risk Management
Year-Over-YearChange (36)% (33)% (46)%
Portfolio/Inventory 4Q00 Portfolio/Inventory 4Q014Q00 - Loans 4Q01 - Loans
High Yield Private Equity Commercial Loansand Commitments
$2,200$1,400 $1,200 $800
$18,800
$10,100$14,500
$7,100
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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 February 11, 2001.
Flexible Expense Structure
Net Revenue/Expense Growth
(Indexed)
90%
110%
130%
150%
170%
190%
210%
230%
1996* 1997 1998 1999 2000 2001
Net Revenue Compensation & Benefits Non-Comp*1996 data is pro forma.
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 and has not been updated since it was originally presented on February 11, 2001.
13.0%
17.0%
21.0%
25.0%
29.0%
33.0%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Above Average Historic Returns
Morgan Stanley Historic ROE* vs. Cyclical Goal
Cyclical Goal18-20%
Morgan StanleyDean 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.
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 and has not been updated since it was originally presented on February 11, 2001.
Growth in Morgan Stanley Book Value
$9.22$11.06 $11.94
$14.85$16.91
$18.64
1996* 1997 1998 1999 2000 2001
Book Value per Share
CAGR: 15%
*Book value for 1996 is pro forma
35
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 February 11, 2001.
Relative Returns
Annual ROE Comparison
(Indexed to MWD)
30%
45%
60%
75%
90%
105%
120%
135%
1996 1997 1998 1999 2000 2001
MWD
LEH
GSMER
JPM
C
Source: Company filings and Morgan Stanley Research
CS First Boston Third Annual FinancialServices Conference
Stephen Crawford
Chief Financial Officer
February 11, 2002