First quarter net revenues (total revenues less interest expense and the provision for loan losses) were $6.2 billion — 14 percent ahead of first quarter 2003 and 23 percent ahead of fourth quarter 2003.

"We had an excellent first quarter with a return on equity of 19 percent, driven by record revenues in a number of businesses and impressive market share gains in investment banking" said Philip J. Purcell, Chairman and Chief Executive Officer. "Our sales and trading businesses continue to perform very well, retail securities and investment management posted strong results and Discover Card had a record quarter."

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INSTITUTIONAL SECURITIES

Institutional Securities reported pretax income¹ of $1,186 million, a 26 percent increase over last year's first quarter. Net revenues reached their highest level since the second quarter of 2000, driven by the Company's fixed income business and an improved environment for equity underwriting and trading.

• Fixed income sales and trading net revenues increased slightly from last year's first quarter to a record $1.7 billion. Revenues were higher in both credit products and interest rate and currency products. Credit products benefited from increased securitization flows in commercial and residential whole loans, strong customer volumes and tightening credit spreads. Interest rate and currency products benefited from favorable trading conditions in foreign exchange, tax-exempts and emerging markets debt. Commodities also had a solid quarter, reflecting volatile oil markets.
• Equity sales and trading net revenues were $1.1 billion, a 13 percent increase from a year ago and the highest total since the second quarter of 2001. The increase was driven by higher revenues in the Company's global cash business, resulting from higher market volume and a strong primary calendar. Higher revenues in the Company's Prime Brokerage business also contributed to the increase.
• Advisory revenues were $232 million, up 40 percent from first quarter 2003, even though industry-wide completed M&A transaction volume fell 13 percent over the same period.²
• Total underwriting revenues rose 51 percent from last year's first quarter to $507 million. Equity underwriting revenues increased nearly 150 percent, reflecting a surge in industry-wide equity new issuance activity from a weak first quarter 2003. Fixed income underwriting revenues declined 7 percent from a year ago, reflecting a modest decline in industry-wide activity from high levels the previous year.²
• For the calendar year-to-date, the Company ranked second in announced global M&A with a 45 percent market share; first in worldwide equity and equity-related issuances with a 14 percent market share; first in worldwide IPOs with a 29 percent market share; and fourth in global debt issuances with a 7 percent market share.³

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INDIVIDUAL INVESTOR GROUP

Individual Investor Group pretax income was $166 million, compared with $61 million in the first quarter of 2003.

• Net revenues increased 23 percent to $1.2 billion, as renewed investor interest in equities drove a 49 percent increase in commissions, and asset management, distribution and administration fees rose 22 percent on higher asset levels.
• Total client assets were $595 billion, an increase of $97 billion from the end of last year's first quarter. Approximately 15 percent of the increase was attributable to net new cash flows. Client assets in fee-based accounts increased 36 percent from a year ago to $143 billion, and the percentage of total client assets in fee-based accounts continued to increase, reaching 24 percent compared with 21 percent a year ago.
• At quarter-end, the number of global financial advisors was 10,832 — a decrease of 254 for the quarter and 1,224 over the past year.

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INVESTMENT MANAGEMENT

Investment Management pretax income increased 70 percent from last year's first quarter to $170 million. Higher revenues, reflecting both an increase in average assets under management and a more favorable asset mix due to improving equity markets, drove the increase.

• The Company's assets under management increased $91 billion, or 23 percent, from a year ago to $495 billion,⁴ primarily as a result of market appreciation. Total net fund flows were also positive over the same period.
• Retail assets were $294 billion, $17 billion above the previous quarter and $48 billion higher than last year's first quarter. Institutional assets of $201 billion increased $16 billion over the quarter and were $43 billion above a year ago.
• Among full-service brokerage firms, the Company had the highest number of domestic funds (41) receiving one of Morningstar's two highest ratings.⁵ In addition, the percent of the Company's fund assets performing in the top half of the Lipper rankings for one year was 54 percent compared to 60 percent a year ago.⁶

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CREDIT SERVICES

Credit Services pretax income rose 26 percent from first quarter 2003 to a record $365 million on a managed loan basis, driven by improved credit quality and favorable financing costs, partially offset by lower merchant and cardmember fees.

• Managed credit card loans of $47.3 billion at quarter end were 9 percent lower than a year ago, mainly due to lower balance transfer volume as the Company decreased its promotional efforts to focus on improving profitability. The interest rate spread widened 99 basis points over the same period, as the cost of funds declined and yields increased.
• Merchant and cardmember fees were $519 million, down 5 percent from last year's first quarter. An increase in cardmember rewards and a decline in cardmember late fees, reflecting lower delinquencies, was partially offset by an increase in merchant discount revenues.
• The credit card net charge-off rate was 6.31 percent, 14 basis points higher than a year ago, but 56 basis points below the fourth quarter. The increase in the net charge-off rate from last year's first quarter was driven by a $4.1 billion decline in average credit card loan balances, which more than offset a decline in net charge-off dollars. The net charge-off rate fell from the fourth quarter as Discover's bankruptcy losses dropped to their lowest level in nearly three years.
• The over-30-day delinquency rate declined 53 basis points to 5.80 percent, and the over-90-day delinquency rate declined 9 basis points to 2.86 percent from the first quarter of 2003. The decline in the over-30-day rate was the fourth consecutive quarterly decline.

The Company announced that its Board of Directors declared a $0.25 quarterly dividend per common share. The dividend is payable on April 30, 2004, to common shareholders of record on April 9, 2004.

Total capital at February 29, 2004 was $96.4 billion, including $29.0 billion of common shareholders' equity and junior subordinated debt issued to capital trusts. Book value per common share was $23.75, based on 1.1 billion shares outstanding.

Morgan Stanley is a global financial services firm and a market leader in securities, investment management and credit services. With 590 offices in 27 countries, Morgan Stanley connects people, ideas and capital to help clients achieve their financial aspirations.

Access this press release on-line @www.morganstanley.com

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