MORGAN STANLEY - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2004

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-11758

Morgan Stanley

(Exact Name of Registrant as Specified in its Charter)


Delaware		36-3145972
(State of Incorporation)		(I.R.S. Employer Identification No.)


1585 Broadway
New York, NY		10036
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (212) 761-4000

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

As of September 30, 2004, there were 1,094,573,359 shares of the Registrant’s Common Stock, par value $.01 per share, outstanding.

MORGAN STANLEY

INDEX TO QUARTERLY REPORT ON FORM 10-Q

Quarter Ended August 31, 2004


		Page
Part I—Financial Information
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Statements of Financial Condition—August 31, 2004 and November 30, 2003	1
	Condensed Consolidated Statements of Income—Three and Nine Months Ended August 31, 2004 and 2003	3
	Condensed Consolidated Statements of Comprehensive Income—Three and Nine Months Ended August 31, 2004 and 2003	4
	Condensed Consolidated Statements of Cash Flows—Nine Months Ended August 31, 2004 and 2003	5
	Notes to Condensed Consolidated Financial Statements	6
	Report of Independent Registered Public Accounting Firm	34
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	68
Item 4.	Controls and Procedures	73

Part II—Other Information
Item 1.	Legal Proceedings	74
Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	76
Item 6.	Exhibits and Reports on Form 8-K	77

AVAILABLE INFORMATION

The Company files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). You may read and copy any document we file with the SEC at the SEC’s public reference room at 450 Fifth Street, NW, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for information on the public reference room. The SEC maintains an internet site that contains annual, quarterly and current reports, proxy and information statements and other information that issuers (including the Company) file electronically with the SEC. The SEC’s internet site is www.sec.gov. The Company’s internet site is www.morganstanley.com. The Company makes available free of charge through its internet site, via a link to the SEC’s internet site at www.sec.gov, its annual reports on Form 10-K; quarterly reports on Form 10-Q; current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The Company also makes available, through its internet site, via a link to the SEC’s internet site, statements of beneficial ownership of the Company’s equity securities filed by its directors, officers, 10% or greater shareholders and others under Section 16 of the Exchange Act. The Company makes available on www.morganstanley.com its most recent annual report on Form 10-K, its quarterly reports on Form 10-Q for the current fiscal year, its most recent proxy statement and its most recent summary annual report to shareholders, although in some cases these documents are not available on our site as soon as they are available on the SEC’s site. You will need to have on your computer the Adobe Acrobat Reader software to view these documents, which are in PDF format. If you do not have Adobe Acrobat Reader, a link to Adobe’s internet site, from which you can download the software, is provided. In addition, the Company posts on www.morganstanley.com its Certificate of Incorporation, Bylaws, Charters for its Audit Committee, Compensation Committee and Nominating and Governance Committee as well as its Corporate Governance Policies, its Policy Regarding Shareholder Communication with the Board of Directors, its Policy Regarding Director Candidates Recommended by Shareholders and its Code of Ethics and Business Conduct for its directors, officers and employees. You can request a copy of these documents, excluding exhibits, at no cost, by writing or telephoning us at 1585 Broadway, New York, NY 10036, Attention: Investor Relations (212-761-4000). The information on the Company’s website is not incorporated by reference into this report.


		i

Item 1.

MORGAN STANLEY

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(dollars in millions, except share data)


	August 31, 2004		November 30, 2003
	(unaudited)
Assets
Cash and cash equivalents	$	46,243	$	29,692
Cash and securities deposited with clearing organizations or segregated under federal and other regulations (including securities at fair value of $35,640 at August 31, 2004 and $18,957 at November 30, 2003)		45,595		28,526
Financial instruments owned (approximately $104 billion at August 31, 2004 and $73 billion at November 30, 2003 were pledged to various parties):
U.S. government and agency securities		56,040		24,133
Other sovereign government obligations		26,260		21,592
Corporate and other debt		77,048		80,594
Corporate equities		26,407		29,984
Derivative contracts		49,633		44,652
Physical commodities		932		671
Securities purchased under agreements to resell		92,816		78,205
Securities received as collateral		33,251		27,278
Securities borrowed		202,863		153,813
Receivables:
Consumer loans (net of allowances of $954 at August 31, 2004 and $1,002 at November 30, 2003)		18,738		19,382
Customers, net		40,081		37,321
Brokers, dealers and clearing organizations		6,649		5,563
Fees, interest and other		4,799		4,349
Office facilities, at cost (less accumulated depreciation of $2,791 at August 31, 2004 and $2,506 at November 30, 2003)		2,530		2,433
Aircraft under operating leases (less accumulated depreciation of $1,156 at August 31, 2004 and $1,041 at November 30, 2003)		4,028		4,407
Goodwill and intangible assets		2,191		1,523
Other assets		8,929		8,725

Total assets	$	745,033	$	602,843


		1

MORGAN STANLEY

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION—(Continued)

(dollars in millions, except share data)


	August 31, 2004			November 30, 2003
	(unaudited)
Liabilities and Shareholders’ Equity
Commercial paper and other short-term borrowings	$	30,417		$	28,386
Deposits		12,392			12,839
Financial instruments sold, not yet purchased:
U.S. government and agency securities		26,139			17,072
Other sovereign government obligations		21,891			17,505
Corporate and other debt		11,869			10,141
Corporate equities		30,651			25,615
Derivative contracts		39,425			36,242
Physical commodities		2,643			4,873
Securities sold under agreements to repurchase		195,739			147,618
Obligation to return securities received as collateral		33,251			27,278
Securities loaned		84,079			64,375
Payables:
Customers		119,438			96,794
Brokers, dealers and clearing organizations		6,748			5,706
Interest and dividends		3,091			2,138
Other liabilities and accrued expenses		13,771			12,918
Long-term borrowings		86,003			65,600

		717,547			575,100

Capital Units		66			66

Preferred securities subject to mandatory redemption		—			2,810

Commitments and contingencies
Shareholders’ equity:
Common stock, $0.01 par value;
Shares authorized: 3,500,000,000 at August 31, 2004 and November 30, 2003; Shares issued: 1,211,701,552 at August 31, 2004 and 1,211,699,552 at November 30, 2003; Shares outstanding: 1,096,707,183 at August 31, 2004 and 1,084,696,446 at November 30, 2003		12			12
Paid-in capital		3,865			4,028
Retained earnings		30,500			28,038
Employee stock trust		2,839			3,008
Accumulated other comprehensive income (loss)		(140	)		(156	)

Subtotal		37,076			34,930
Note receivable related to ESOP		(3	)		(4	)
Common stock held in treasury, at cost, $0.01 par value;
114,994,369 shares at August 31, 2004 and 127,003,106 shares at November 30, 2003		(6,155	)		(6,766	)
Common stock issued to employee trust		(2,839	)		(2,420	)
Unearned stock-based compensation		(659	)		(873	)

Total shareholders’ equity		27,420			24,867

Total liabilities and shareholders’ equity	$	745,033		$	602,843

See Notes to Condensed Consolidated Financial Statements.


		2

MORGAN STANLEY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(dollars in millions, except share and per share data)


	Three Months Ended August 31,				Nine Months Ended August 31,
	2004		2003		2004		2003
	(unaudited)				(unaudited)
				(As Restated, See Note 19)
Revenues:
Investment banking	$	783	$	608	$	2,595	$	1,733
Principal transactions:
Trading		695		1,818		4,591		5,200
Investments		125		38		345		75
Commissions		768		775		2,546		2,157
Fees:
Asset management, distribution and administration		1,088		956		3,273		2,733
Merchant and cardmember		349		340		992		1,042
Servicing		459		462		1,516		1,532
Interest and dividends		5,410		3,821		12,855		11,059
Other		177		108		416		305

Total revenues		9,854		8,926		29,129		25,836
Interest expense		4,189		3,367		10,111		9,111
Provision for consumer loan losses		240		310		702		955

Net revenues		5,425		5,249		18,316		15,770

Non-interest expenses:
Compensation and benefits		2,347		2,287		7,982		6,763
Occupancy and equipment		228		191		634		582
Brokerage, clearing and exchange fees		231		212		692		605
Information processing and communications		326		315		964		945
Marketing and business development		279		197		796		711
Professional services		400		283		1,074		767
Other		332		236		1,176		1,143

Total non-interest expenses		4,143		3,721		13,318		11,516

Income from continuing operations before losses from unconsolidated investees, income taxes and dividends on preferred securities subject to mandatory redemption		1,282		1,528		4,998		4,254
Losses from unconsolidated investees		77		105		251		175
Provision for income taxes		343		342		1,392		1,175
Dividends on preferred securities subject to mandatory redemption		—		47		45		109

Income from continuing operations		862		1,034		3,310		2,795