Morgan Stanley

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 29, 2008

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

EXCHANGE ACT OF 1934

Commission File Number 1-11758

LOGO

(Exact Name of Registrant as Specified in its Charter)

Delaware

(State or other jurisdiction of incorporation or organization)

1585 Broadway

New York, NY 10036
(Address of principal executive
offices, including zip code)

36-3145972

(I.R.S. Employer Identification No.)

(212) 761-4000

(Registrant’s telephone number,
including area code)

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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large Accelerated Filer x		Accelerated Filer ¨
Non-Accelerated Filer ¨		Smaller reporting company ¨
(Do not check if a smaller reporting company)

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, 2008, there were 1,107,158,003 shares of the Registrant’s Common Stock, par value $.01 per share, outstanding.

LOGO

QUARTERLY REPORT ON FORM 10-Q

For the quarter ended February 29, 2008


Table of Contents				Page



Part I—Financial Information
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Statements of Financial Condition—February 29, 2008 and November 30, 2007	1
	Condensed Consolidated Statements of Income—Three Months Ended February 29, 2008 and February 28, 2007	3
	Condensed Consolidated Statements of Comprehensive Income—Three Months Ended February 29, 2008 and February 28, 2007	4
	Condensed Consolidated Statements of Cash Flows—Three Months Ended February 29, 2008 and February 28, 2007	5
	Notes to Condensed Consolidated Financial Statements	6
	Note 1. Basis of Presentation and Summary of Significant Accounting Policies	6
	Note 2. Fair Value Disclosures	19
	Note 3. Collateralized Transactions	24
	Note 4. Securitization Activities and Variable Interest Entities	25
	Note 5. Derivative Contracts	31
	Note 6. Goodwill and Net Intangible Assets	32
	Note 7. Long-Term Borrowings	32
	Note 8. Commitments, Guarantees and Contingencies	33
	Note 9. Shareholders’ Equity	38
	Note 10. Earnings per Common Share	40
	Note 11. Employee Benefit Plans	41
	Note 12. Income Taxes	41
	Note 13. Segment Information	42
	Note 14. Discontinued Operations	44
	Note 15. Business Disposition	45
	Report of Independent Registered Public Accounting Firm	46
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	47
	Introduction	47
	Results of Operations	48
	Impact of Credit Market Events	62
	Other Matters	68
	Critical Accounting Policies	69
	Liquidity and Capital Resources	72
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	82
Item 4.	Controls and Procedures	91


		i


		Page

Part II—Other Information
Item 1.	Legal Proceedings	92
Item 1A.	Risk Factors	93
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	93
Item 6.	Exhibits	93


		ii

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.


		iii

Part I—Financial Information.

Item 1. Financial Statements.

MORGAN STANLEY

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(dollars in millions, except share data)


	February 29, 2008		November 30, 2007
	(unaudited)
Assets
Cash and cash equivalents	$	20,965	$	25,598
Cash and securities deposited with clearing organizations or segregated under federal and other regulations or requirements (including securities at fair value of $27,768 at February 29, 2008 and $31,354 at November 30, 2007)		60,964		61,608
Financial instruments owned, at fair value (approximately $158 billion and $131 billion were pledged to various parties at February 29, 2008 and November 30, 2007, respectively):
U.S. government and agency securities		41,028		23,887
Other sovereign government obligations		37,290		21,606
Corporate and other debt		160,773		147,724
Corporate equities		89,006		87,377
Derivative contracts		99,474		77,003
Investments		14,821		14,270
Physical commodities		3,445		3,096

Total financial instruments owned		445,837		374,963
Securities received as collateral, at fair value		49,119		82,229
Collateralized agreements:
Securities purchased under agreements to resell		143,097		126,887
Securities borrowed		243,695		239,994
Receivables:
Customers		67,793		76,352
Brokers, dealers and clearing organizations		16,219		16,011
Other loans		9,575		11,629
Fees, interest and other		9,223		8,320
Other investments		5,257		4,524
Premises, equipment and software costs, at cost (net of accumulated depreciation of $3,152 at February 29, 2008 and $3,449 at November 30, 2007)		4,548		4,372
Goodwill		3,053		3,024
Intangible assets (net of accumulated amortization of $189 at February 29, 2008 and $175 at November 30, 2007) (includes $392 at fair value at February 29, 2008 and $428 at fair value at November 30, 2007)		1,008		1,047
Other assets		10,543		8,851

Total assets	$	1,090,896	$	1,045,409


		1

MORGAN STANLEY

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION—(Continued)

(dollars in millions, except share data)


	February 29, 2008			November 30, 2007
	(unaudited)
Liabilities and Shareholders’ Equity
Commercial paper and other short-term borrowings (includes $2,750 at fair value at February 29, 2008 and $3,068 at fair value at November 30, 2007)	$	25,952		$	34,495
Deposits (includes $1,444 at fair value at February 29, 2008 and $3,769 at fair value at November 30, 2007)		35,687			31,179
Financial instruments sold, not yet purchased, at fair value:
U.S. government and agency securities		9,530			8,221
Other sovereign government obligations		21,211			15,627
Corporate and other debt		9,041			7,592
Corporate equities		41,240			30,899
Derivative contracts		89,392			71,604
Physical commodities		697			398

Total financial instruments sold, not yet purchased		171,111			134,341
Obligation to return securities received as collateral, at fair value		49,119			82,229
Collateralized financings:
Securities sold under agreements to repurchase		160,492			162,840
Securities loaned		86,890			110,423
Other secured financings (includes $34,821 at fair value at February 29, 2008 and $27,772 at fair value at November 30, 2007)		40,753			27,772
Payables:
Customers		249,711			203,453
Brokers, dealers and clearing organizations		13,745			10,454
Interest and dividends		3,095			1,724
Other liabilities and accrued expenses		20,745			24,606
Long-term borrowings (includes $42,784 at fair value at February 29, 2008 and $38,392 at fair value at November 30, 2007)		200,316			190,624

		1,057,616			1,014,140

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 29, 2008 and November 30, 2007;
Shares issued: 1,211,701,552 at February 29, 2008 and November 30, 2007;
Shares outstanding: 1,105,301,550 at February 29, 2008 and 1,056,289,659 at November 30, 2007		12			12
Paid-in capital		—			1,902
Retained earnings		38,852			38,045
Employee stock trust		7,468			5,569
Accumulated other comprehensive loss		(138	)		(199	)
Common stock held in treasury, at cost, $0.01 par value;
106,400,002 shares at February 29, 2008 and 155,411,893 shares at November 30, 2007		(6,546	)		(9,591	)
Common stock issued to employee trust		(7,468	)		(5,569	)

Total shareholders’ equity		33,280			31,269

Total liabilities and shareholders’ equity	$	1,090,896		$	1,045,409

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 29, 2008			February 28, 2007
	(unaudited)
Revenues:
Investment banking	$	1,109		$	1,227
Principal transactions:
Trading		3,390			4,158
Investments		(346	)		880
Commissions		1,199			1,005
Asset management, distribution and administration fees		1,550			1,479
Interest and dividends		13,965			14,171
Other		317			272

Total revenues		21,184			23,192
Interest expense		12,862			13,198

Net revenues		8,322			9,994

Non-interest expenses:
Compensation and benefits		4,071			4,775
Occupancy and equipment		286			260
Brokerage, clearing and exchange fees		444			361
Information processing and communications		305			277
Marketing and business development		183			153
Professional services		379			419
Other		440			293

Total non-interest expenses		6,108			6,538

Income from continuing operations before gains (losses) from unconsolidated investees and income taxes		2,214			3,456
Gains (losses) from unconsolidated investees		2			(26	)
Provision for income taxes		665			1,116

Income from continuing operations		1,551			2,314
Discontinued operations:
Net gain from discontinued operations		—			564
Provision for income taxes		—			206

Net gain on discontinued operations		—			358

Net income	$	1,551		$	2,672

Preferred stock dividend requirements	$	17		$	17

Earnings applicable to common shareholders	$	1,534		$	2,655

Earnings per basic common share:
Income from continuing operations	$	1.50		$	2.28
Gain on discontinued operations		—			0.35

Earnings per basic common share	$	1.50		$	2.63

Earnings per diluted common share:
Income from continuing operations	$	1.45		$	2.17
Gain on discontinued operations		—			0.34

Earnings per diluted common share	$	1.45		$	2.51

Average common shares outstanding:
Basic		1,020,802,234			1,009,186,993

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