Form 10-Q

UNITED STATES

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 February 28, 2007

¨	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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):


Large Accelerated Filer x		Accelerated Filer ¨		Non-Accelerated Filer ¨

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

As of March 31, 2007, there were 1,053,930,564 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 February 28, 2007


		Page
Part I—Financial Information
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Statements of Financial Condition—February 28, 2007 and November 30, 2006	1
	Condensed Consolidated Statements of Income—Three Months Ended February 28, 2007 and 2006	3
	Condensed Consolidated Statements of Comprehensive Income—Three Months Ended February 28, 2007 and 2006	4
	Condensed Consolidated Statements of Cash Flows—Three Months Ended February 28, 2007 and 2006	5
	Notes to Condensed Consolidated Financial Statements	6
	Report of Independent Registered Public Accounting Firm	42
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	81
Item 4.	Controls and Procedures	88

Part II—Other Information
Item 1.	Legal Proceedings	89
Item 1A.	Risk Factors	90
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	90
Item 6.	Exhibits	91


		i

AVAILABLE INFORMATION

Morgan Stanley 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 100 F Street, NE, Washington, DC 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 Morgan Stanley) file electronically with the SEC. Morgan Stanley’s electronic SEC filings are available to the public at the SEC’s internet site, www.sec.gov.

Morgan Stanley’s internet site is www.morganstanley.com. You can access Morgan Stanley’s Investor Relations webpage at www.morganstanley.com/about/ir. Morgan Stanley makes available free of charge, on or through our Investor Relations webpage, its proxy statements, 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. Morgan Stanley also makes available, through its Investor Relations webpage, via a link to the SEC’s internet site, statements of beneficial ownership of Morgan Stanley’s equity securities filed by its directors, officers, 10% or greater shareholders and others under Section 16 of the Exchange Act.

Morgan Stanley has a Corporate Governance webpage. You can access information about Morgan Stanley’s corporate governance at www.morganstanley.com/about/company/governance. Morgan Stanley posts the following on its Corporate Governance webpage:

•

Composite Certificate of Incorporation;

•

Bylaws;

•

Charters for our Audit Committee, Compensation, Management Development and Succession Committee and Nominating and Governance Committee;

•

Corporate Governance Policies;

•

Policy Regarding Communication with the Board of Directors;

•

Policy Regarding Director Candidates Recommended by Shareholders;

•

Policy Regarding Corporate Political Contributions;

•

Policy Regarding Shareholder Rights Plan;

•

Code of Ethics and Business Conduct; and

•

Integrity Hotline.

Morgan Stanley’s Code of Ethics and Business Conduct applies to all directors, officers and employees, including its Chief Executive Officer, its Chief Financial Officer and its Controller and Principal Accounting Officer. Morgan Stanley will post any amendments to the Code of Ethics and Business Conduct and any waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange, Inc. (“NYSE”) on its internet site. You can request a copy of these documents, excluding exhibits, at no cost, by contacting Investor Relations, 1585 Broadway, New York, NY 10036 (212-761-4000). The information on Morgan Stanley’s internet site is not incorporated by reference into this report.


		ii

Item 1.

MORGAN STANLEY

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(dollars in millions, except share data)


	February 28, 2007		November 30, 2006
	(unaudited)
Assets
Cash and cash equivalents	$	16,636	$	20,606
Cash and securities deposited with clearing organizations or segregated under federal and other regulations or requirements (including securities at fair value of $10,189 at February 28, 2007 and $8,648 at November 30, 2006)		35,739		29,565
Financial instruments owned (approximately $136 billion and $125 billion were pledged to various parties at February 28, 2007 and November 30, 2006, respectively):
U.S. government and agency securities		42,569		39,352
Other sovereign government obligations		32,349		27,305
Corporate and other debt		181,963		169,664
Corporate equities		97,082		86,058
Derivative contracts		50,952		55,443
Physical commodities		2,839		3,031

Total financial instruments owned		407,754		380,853
Securities received as collateral		82,684		64,588
Collateralized agreements:
Securities purchased under agreements to resell		192,038		174,866
Securities borrowed		277,093		299,631
Receivables:
Consumer loans (net of allowances of $790 at February 28, 2007 and $831 at November 30, 2006)		22,429		24,173
Customers		90,320		82,931
Brokers, dealers and clearing organizations		14,426		7,633
Fees, interest and other		11,087		9,700
Office facilities and other equipment, at cost (net of accumulated depreciation of $3,790 at February 28, 2007 and $3,645 at November 30, 2006)		4,313		4,086
Goodwill		3,131		2,792
Intangible assets (net of accumulated amortization of $137 million at February 28, 2007 and $109 million at November 30, 2006)		1,131		651
Other assets		23,280		19,117

Total assets	$	1,182,061	$	1,121,192


		1

MORGAN STANLEY

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION—(Continued)

(dollars in millions, except share data)


	February 28, 2007			November 30, 2006
	(unaudited)
Liabilities and Shareholders’ Equity
Commercial paper and other short-term borrowings	$	33,829		$	29,092
Deposits		37,313			28,343
Financial instruments sold, not yet purchased:
U.S. government and agency securities		18,062			26,168
Other sovereign government obligations		26,192			28,961
Corporate and other debt		8,436			10,336
Corporate equities		52,086			59,399
Derivative contracts		51,574			57,491
Physical commodities		1,457			764

Total financial instruments sold, not yet purchased		157,807			183,119
Obligation to return securities received as collateral		82,684			64,588
Collateralized financings:
Securities sold under agreements to repurchase		288,672			267,566
Securities loaned		161,839			150,257
Other secured financings		51,594			45,556
Payables:
Customers		132,980			134,907
Brokers, dealers and clearing organizations		8,806			7,635
Interest and dividends		4,687			4,746
Other liabilities and accrued expenses		24,063			24,975
Long-term borrowings		159,833			144,978

		1,144,107			1,085,762

Capital Units		—			66

Commitments and contingencies
Shareholders’ equity:
Preferred stock		1,100			1,100
Common stock, $0.01 par value;
Shares authorized: 3,500,000,000 at February 28, 2007 and November 30, 2006;
Shares issued: 1,211,701,552 at February 28, 2007 and November 30, 2006;
Shares outstanding: 1,061,644,077 at February 28, 2007 and 1,048,877,006 at November 30, 2006		12			12
Paid-in capital		2,084			2,213
Retained earnings		43,975			41,422
Employee stock trust		5,773			4,315
Accumulated other comprehensive loss		(127	)		(35	)
Common stock held in treasury, at cost, $0.01 par value;
150,057,475 shares at February 28, 2007 and 162,824,546 shares at November 30, 2006		(9,090	)		(9,348	)
Common stock issued to employee trust		(5,773	)		(4,315	)

Total shareholders’ equity		37,954			35,364

Total liabilities and shareholders’ equity	$	1,182,061		$	1,121,192

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 February 28,
	2007			2006
	(unaudited)
Revenues:
Investment banking	$	1,227		$	982
Principal transactions:
Trading		4,158			3,086
Investments		920			349
Commissions		1,005			920
Fees:
Asset management, distribution and administration		1,479			1,268
Merchant, cardmember and other fees, net		297			289
Servicing and securitization income		556			596
Interest and dividends		14,814			10,544
Other		222			134

Total revenues		24,678			18,168
Interest expense		13,485			9,461
Provision for consumer loan losses		195			155

Net revenues		10,998			8,552

Non-interest expenses:
Compensation and benefits		4,992			4,242
Occupancy and equipment		280			230
Brokerage, clearing and exchange fees		361			292
Information processing and communications		369			346
Marketing and business development		294			238
Professional services		499			433
Other		339			311

Total non-interest expenses		7,134			6,092

Income from continuing operations before losses from unconsolidated investees and income taxes		3,864			2,460
Losses from unconsolidated investees		44			69
Provision for income taxes		1,261			789

Income from continuing operations		2,559			1,602
Discontinued operations:
Gain/(loss) from discontinued operations		174			(48	)
Income tax (provision)/benefit		(61	)		20

Gain/(loss) on discontinued operations		113			(28	)

Net income	$	2,672		$	1,574

Preferred stock dividend requirements	$	17		$	—

Earnings applicable to common shareholders	$	2,655		$	1,574

Earnings per basic common share:
Income from continuing operations	$	2.52		$	1.57
Gain/(loss) on discontinued operations		0.11			(0.03	)

Earnings per basic common share	$	2.63		$	1.54

Earnings per diluted common share:
Income from continuing operations	$	2.40		$	1.51
Gain/(loss) on discontinued operations		0.11			(0.03	)

Earnings per diluted common share	$	2.51		$	1.48

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