Morgan Stanley 1999 Annual Report Download - page 25

enced consolidation and convergence in recent years, as financial
institutions involved in a broad range of financial services industries
have merged. This convergence trend is expected to continue and
could result in the Company’s competitors gaining greater capital
and other resources, such as a broader range of products and ser-
vices and geographic diversity. In November 1999, the Gramm-
Leach-Bliley Act was passed in the U.S., effectively repealing
certain sections of the 1933 Glass-Steagall Act. Its passage allows
commercial banks, securities firms and insurance firms to affiliate,
which may accelerate consolidation and lead to increasing competi-
tion in markets which traditionally have been dominated by invest-
ment banks and retail securities firms.
The Company also has experienced increased competition
for qualified employees in recent years, including from companies
engaged in Internet-related businesses and private equity funds, in
addition to the traditional competition for employees from the
financial services, insurance and management consulting industries.
For a detailed discussion of the competitive factors in the
Company’s Securities, Asset Management and Credit Services
businesses, see the Company’s Annual Report on Form 10-K for the
fiscal year ended November 30, 1999.
As a result of the above economic and competitive factors,
net income and revenues in any particular period may not be rep-
resentative of full-year results and may vary significantly from year
to year and from quarter to quarter. The Company intends to man-
age its business for the long term and to mitigate the potential
effects of market downturns by strengthening its competitive posi-
tion in the global financial services industry through diversification
of its revenue sources and enhancement of its global franchise. The
Company’s overall financial results will continue to be affected by
its ability and success in maintaining high levels of profitable busi-
ness activities, emphasizing fee-based assets that are designed to
generate a continuing stream of revenues, managing risks in the
Securities, Asset Management and Credit Services businesses,
evaluating credit product pricing and monitoring costs. In addition,
the complementary trends in the financial services industry of con-
solidation and globalization present, among other things, techno-
logical, risk management and other infrastructure challenges that
will require effective resource allocation in order for the Company
to remain competitive.
The Company believes that technological advancements in
the Internet and the growth of electronic commerce will continue to
present both challenges and opportunities to the Company and
could lead to significant changes and innovations in the financial
markets and financial services industry as a whole. The Company’s
initiatives in this area have included Web-enabling existing busi-
nesses or enhancing client communication and access to informa-
tion and services and making investments, or otherwise participating,
in alternative trading systems, electronic communication networks
and related businesses or technologies. The Company expects to
continue to augment these initiatives in the future.
GLOBAL MARKET AND ECONOMIC CONDITIONS IN FISCAL 1999
Global market and economic conditions were generally favorable
during much of fiscal 1999. Financial markets within many regions
exhibited improved performance and, although experiencing peri-
ods of volatility, benefited from a succession of global interest rate
cuts which were made in late 1998. These interest rate actions
helped stabilize economies throughout the world and contributed to
the global recovery from the extremely turbulent and uncertain con-
ditions that existed during the latter half of fiscal 1998. During that
period, severe economic turmoil in Russia, Asia and certain emerg-
ing market nations adversely affected investor confidence and led
to periods of high volatility, low levels of liquidity and increased
credit spreads, creating difficult conditions in the global financial
markets. The improved global market and economic environment
contributed to the Company’s record results in fiscal 1999. The
Company’s Securities business generated record levels of net
income and net revenues and ended the fiscal year with record
levels of financial advisors, customer accounts and assets. The
Company’s Credit Services business also achieved record operating
results in fiscal 1999, reflecting a continued improvement in the
credit quality of customer receivables as well as increased cus-
tomer transaction volume. In the Company’s Asset Management
business, customer assets under management or supervision
increased to record levels at fiscal year-end.
In the U.S., market conditions benefited from robust cor-
porate earnings and the strong performance of the domestic econ-
omy, which continued to exhibit positive fundamentals and a high
rate of growth. During much of fiscal 1999, the U.S. economy was
characterized by several favorable trends, such as historically low
levels of unemployment, high levels of consumer confidence and
spending, and a high demand for imports. The domestic economy
also was positively impacted by the overall improvement in global
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