Morgan Stanley

Our goal is to be the world's pre-eminent financial services firm. To reach that goal, we must continue to grow in a growing industry.

The financial services industry is undergoing significant restructuring and consolidation, with acceleration in the growth of many players and the decline of many others. Overall, when you examine key indicators over the past five years, the industry has shown resilience and strength, as well as impressive growth. Worldwide M&A volume, worldwide debt and equity issuance, worldwide pension assets and U.S. mutual fund assets, New York Stock Exchange and NASDAQ average daily trading volumes, and credit card receivables all have shown strong growth. The long-term trends are clearly in favor of continued expansion in financial services, despite short-term cycles. The forces of technological change, deregulation and greater demands by customers are driving this growth.

Within this overall picture, when you look at market share comparisons among financial services firms, it is clear that a winnowing process is taking place. The industry continues to consolidate, and the advantage of size and scale becomes apparent in the marketplace. Customers, who have more information and access to markets and look to firms that can provide the greatest value in products and services, are driving this.

In the institutional securities business, a super-bulge bracket has emerged in many product categories, often consisting of only two or three competitors. Morgan Stanley has capitalized on this trend: Over the past three years, our global M&A market share increased from 24 percent to 36 percent, our worldwide equity underwriting market share increased from 6 percent to 13 percent and our global IPO market share increased from 7 percent to 13 percent. On the retail side of the securities business, we also have achieved significant market share gains, measured both by the number of financial advisors and by total revenues. The credit card industry is in the midst of dramatic consolidation as well, and our Discover Card franchise is a beneficiary of growth, with 1999 gains in both transaction volume and receivables.

Obviously, our plans for the future are not just to ride the wave. We have two top-priority strategic initiatives on which we made significant progress this past year:

First, as we discussed in last year's annual report, we believe the next frontier in financial services is the global distribution of securities and asset management products to individuals. In 1999, we took several significant steps toward establishing a global retail capability. We acquired AB Asesores, the largest independent financial services firm in Spain with a distribution network serving individual investors as well as leading positions in personal investment, equity research, investment banking and asset management. We also formed an alliance with Sanwa Bank to pursue retail brokerage and asset management opportunities in Japan, and in Italy we announced our intention to purchase a 15 percent stake in Area S.p.A., a leading independent retail financial advisory firm.

Second, we believe that the credit card business in markets outside the United States represents a major growth opportunity. In September, we launched a new credit card in the United Kingdom featuring a Cashback Bonus award, attractive pricing and no annual fee. The results in card acceptance and receivables growth for the first several months have been excellent.