Morgan Stanley

Morgan Stanley to Acquire Residential Mortgage Servicer and Originator Saxon Capital for $706 Million

Aug 9, 2006

Acquisition Supports Morgan Stanley's Long-Term Strategy of Building a Global, Vertically Integrated Residential Mortgage Business

New York —

Morgan Stanley (NYSE: MS) announced today that it has reached a definitive agreement to acquire Saxon Capital, Inc. (NYSE: SAX), a premier servicer and originator of residential mortgages, for $706 million, or $14.10 per share in cash for Saxon stock. Pending customary regulatory and shareholder approvals, the acquisition is expected to be completed by the end of 2006.

The transaction supports Morgan Stanley's strategy of building a global, vertically integrated residential mortgage business. Saxon adds a premier servicing operation with a scalable U.S. origination platform to Morgan Stanley's substantial existing residential mortgage franchise.

"The acquisition of Saxon is another important step in our long-term strategy of broadening the Firm's global franchise in the critical residential mortgage business, which represents the single largest segment of the global debt market," said Anthony Tufariello, Global Head of the Securitized Products Group. "Saxon builds on our existing origination and securitization capabilities by providing us with an extremely strong servicing platform. This is an important part of the residential mortgage business, and the addition of Saxon will further enhance our risk management of mortgage portfolios. This deal also provides Morgan Stanley with new origination capabilities in the non-prime market, which we can build upon to provide access to high-quality product flow across all market cycles."

The acquisition of Saxon will complement the other initiatives that Morgan Stanley has undertaken to strengthen its mortgage franchise in the U.S., Europe and Asia over the past eight months. In June, the Firm hired Wes Iseley and Arvin Wijay, two experienced executives who successfully built one of the leading mortgage originators in the U.S., to help grow Morgan Stanley's own world-class mortgage origination platform. It also recently hired industry veteran David Spector, who will help build out the Firm's European mortgage franchise, as well as Aaron Goodman, who will help develop a best-in-class mortgage origination and capital markets technology platform.

Morgan Stanley also recently acquired two mortgage businesses in Europe as the Firm builds its residential mortgage platform there. In December 2005, the Firm purchased Advantage Home Loans, a U.K. based mortgage packager, which is providing Morgan Stanley with accelerated access to direct distribution and serving as a key platform within the Firm's broader U.K. residential business. In June 2006, the Firm's Securitized Products Group acquired an Italian mortgage bank and servicer.

Richard A. Kraemer, Saxon's Chairman of the Board, said, "Saxon is very pleased to be joining forces with Morgan Stanley, which is a leader in the securitization of residential mortgages. Morgan Stanley's scale, access to funding and strong mortgage franchise will all help to enhance Saxon's business, particularly as we see increased competition in a consolidating market. Our board and management strongly believe that this acquisition is in the best long-term interests of our shareholders, clients and employees."

Mr. Tufariello said, "The addition of Saxon to Morgan Stanley's global mortgage franchise will help us to capture the full economic value inherent in this business, and put the Firm in a better position to leverage our competitive advantages in trading, risk transfer, credit and structuring as well as our deep expertise in hedging mortgage credit risk. This acquisition facilitates our goal of achieving vertical integration in the residential mortgage business, with ownership and control of the entire value chain, from origination to capital markets execution to active risk management."

Saxon Capital was ranked the nation's 14th-largest non-prime servicer by managed assets in 2005, and services approximately $26 billion of non-prime residential mortgage loans. Saxon also purchases, originates and securitizes non-prime residential mortgages; its mortgage loan portfolio totaled $6.5 billion at March 31, 2006. Headquartered in Glen Allen, Virginia, Saxon Capital has additional primary facilities in Fort Worth, Texas and Foothill Ranch, California.

Morgan Stanley was the lead adviser on the transaction and was also advised by Milestone Merchant Partners, LLC.

Morgan Stanley is a global financial services firm and a market leader in securities, investment management and credit services. With more than 600 offices in 30 countries, Morgan Stanley connects people, ideas, and capital to help clients achieve their financial aspirations.

# # #

Forward-Looking Statements

Statements about the expected effects, timing and completion of the proposed transaction and all other statements in this release, other than historical facts, constitute forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made and which reflect current estimates, projections and expectations. In making any such statements, Morgan Stanley believes that its expectations are based on reasonable assumptions. However, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected or anticipated. These forward-looking statements are subject to numerous risks and uncertainties. There are various important factors that could cause actual results to differ materially from those in any such forward-looking statements, many of which are beyond the control of Morgan Stanley and Saxon, including: whether or not the conditions to the completion of the transaction are satisfied, the possibility that the transaction will not close due to a number of factors (including the failure to obtain stockholder approval and regulatory approvals), risks associated with business combinations, the impact of general economic conditions in regions in which either such company currently does business, industry conditions (including competition, fluctuations in interest rates and residential and commercial real estate values), capital expenditure requirements, legislative or regulatory requirements, changes in the tax laws and access to capital markets. The actual results or performance by Morgan Stanley and/or Saxon could differ materially from those expressed in, or implied by, these forward-looking statements. Accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what impact they will have on the results of operations or financial condition of Morgan Stanley or Saxon. For a discussion of additional risks and uncertainties that may affect the future results of Morgan Stanley's Institutional Securities business segment, which includes the Securitized Products Group, please see "Forward-Looking Statements" immediately preceding Part I, Item 1, "Competition" and "Regulation" in Part I, Item 1, "Risk Factors" in Part I, Item 1A and "Certain Factors Affecting Results of Operations" in Part II, Item 7 of Morgan Stanley's Annual Report on Form 10-K for the fiscal year ended November 30, 2005, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Morgan Stanley's 2006 Quarterly Reports on Form 10-Q and in other items throughout the Form 10-K, Forms 10-Q and the Morgan Stanley's 2006 Current Reports on Form 8-K.