Morgan Stanley 1999 Annual Report Download - page 29

Securities net revenues and net income increased 15% and 22%,
respectively, from fiscal 1997. In both fiscal 1999 and fiscal 1998,
the levels of net revenues and net income in the Company’s
Securities business reflected a strong global market for mergers and
acquisitions and securities underwritings, higher principal trading
and commission revenues primarily driven by generally favorable
market and economic conditions, high levels of customer trading
volume and the continued increase in the level of client accounts
and asset balances. The results of both years were partially offset by
increased costs for incentive-based compensation, as well as
increased non-compensation expenses associated with the
Company’s higher level of global business activities.
Investment Banking
Investment banking revenues are derived from the underwriting of
securities offerings and fees from advisory services. Investment
banking revenues were as follows:
FISCAL FISCAL FISCAL
(dollars in millions) 1999 1998 1997
Advisory fees from merger,
acquisition and restructuring
transactions $1,886 $1,322 $ 920
Equity underwriting revenues 1,272 815 888
Fixed income underwriting
revenues 1,272 1,177 852
Total investment banking
revenues $4,430 $3,314 $2,660
Investment banking revenues increased 34% to record levels in
fiscal 1999, surpassing the Company’s previous record attained in
fiscal 1998. Revenues in fiscal 1999 reflect higher advisory fees
from merger, acquisition and restructuring transactions, as well as
increased revenues from underwriting both equity and fixed income
securities. In fiscal 1998, higher revenues from merger, acquisition
and restructuring transactions and fixed income underwritings were
partially offset by lower equity underwriting revenues.
The worldwide merger and acquisition markets remained
robust for the fifth consecutive year with more than $3.4 trillion of
transactions (per Thomson Financial Securities Data) announced
during calendar year 1999, including record volume in the U.S.,
Europe and the Far East. During calendar year 1999, the
Company’s dollar volume of announced merger and acquisition
transactions surpassed $1.1 trillion, an increase of more than 77%
over the comparable period of 1998. The high level of transaction
activity reflected the continuing trends of consolidation and global-
ization across many industry sectors, as companies attempted
to expand into new markets and businesses through strategic
combinations. In fiscal 1999, merger and acquisition transaction
volume was particularly strong in the telecommunications and
technology sectors and also reflected a significant increase in the
level of European merger and acquisition activity. The sustained
growth of the merger and acquisition markets, coupled with the
Company’s global presence and strong market share, had a positive
impact on advisory fees, which increased 43% in fiscal 1999.
Higher advisory fees from real estate transactions also contributed
to the increase. The 44% increase in advisory fees in fiscal 1998
was primarily due to high transaction volumes resulting from the
strong global market for merger, acquisition and restructuring activ-
ities, as well as increased revenues from real estate advisory trans-
actions.
Equity underwriting revenues increased 56% in fiscal
1999 and continued to reflect a high volume of equity offerings
and the Company’s strong global market share. In fiscal 1999, the
Company’s equity underwriting revenues benefited from favorable
global economic conditions, which led major equity market indices
higher and new issue activity to record levels. The primary market
for equity issuances was particularly strong in the U.S. and in
Europe and reflected the Company’s participation in some of the
year’s largest transactions and its leadership in the underwriting of
technology-related issuances. Equity underwriting revenues
decreased 8% in fiscal 1998, reflecting reduced activity in the pri-
mary market in the second half of the fiscal year due to the signif-
icant uncertainty and volatility in global financial markets that
existed during that period.
Revenues from fixed income underwriting increased 8% in
fiscal 1999. The volume of fixed income underwriting transactions
was generally strong during much of fiscal 1999, reflecting favor-
able global market conditions. In addition, the relatively low levels
of interest rates in the U.S. during much of the year allowed issuers
to take advantage of lower borrowing costs. EMU, which has per-
mitted many corporate issuers to access the euro-denominated
credit market, and the need for strategic financing in light of the
robust global market for mergers and acquisitions also had a favor-
able impact on the volume of fixed income underwriting transac-
tions. Higher revenues from underwriting derivative fixed income
products also contributed to the increase. Fixed income underwrit-
ing revenues increased 38% in fiscal 1998, primarily driven by
higher revenues from issuances of global high-yield and investment
grade fixed income securities. The primary market for these
securities benefited from relatively low nominal interest rates which
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