Morgan Stanley 1999 Annual Report Download - page 30

Download and view the complete annual report

Please find page 30 of the 1999 Morgan Stanley annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 97

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97

existed throughout the year and attracted many issuers to the mar-
ket, as well as from periods of strong investor demand. During the
latter part of fiscal 1998, the primary market was less active, as
increased volatility in global financial markets caused an unprece-
dented widening of credit spreads and a shift of investor prefer-
ences toward financial instruments with higher credit ratings.
Principal Transactions
Principal transactions include revenues from customers’ purchases
and sales of securities in which the Company acts as principal and
gains and losses on securities held for resale. Decisions relating to
principal transactions in securities are based on an overall review
of aggregate revenues and costs associated with each transaction or
series of transactions. This review includes an assessment of the
potential gain or loss associated with a trade and the interest
income or expense associated with financing or hedging the
Company’s positions.
Principal transaction trading revenues were as follows:
FISCAL FISCAL FISCAL
(dollars in millions) 1999 1998 1997
Equities $3,065 $2,048 $1,310
Fixed income 2,090 455 1,187
Foreign exchange 397 587 500
Commodities 431 193 194
Total principal transaction
trading revenues $5,983 $3,283 $3,191
Principal transaction trading revenues increased 82% in fiscal 1999,
primarily reflecting higher fixed income, equity and commodity trad-
ing revenues, partially offset by a decline in foreign exchange trading
revenues. Principal transaction trading revenues increased 3% in
fiscal 1998, as higher equity and foreign exchange trading revenues
were partially offset by a decline in fixed income trading revenues.
Equity trading revenues increased 50% in fiscal 1999,
primarily reflecting higher revenues from equity cash products. The
increase was primarily driven by higher levels of customer trading
volumes in both listed and over-the-counter securities, particularly
in the U.S. and Europe, as generally favorable global market and
economic conditions increased investor demand for equity securi-
ties. Higher revenues from trading equity derivative products, which
benefited from strong trading volumes and periods of market
volatility, and certain proprietary trading activities also contributed
significantly to the increase. Equity trading revenues increased
56% in fiscal 1998, primarily reflecting higher revenues from
equity cash and derivative products. The increase in revenues from
equity cash products was primarily attributable to higher trading
volumes in European markets, which benefited from the Company’s
increased sales and research coverage of the region that began in
mid-1997. European equity trading revenues also benefited from
generally favorable market conditions and positive investor senti-
ment regarding EMU. Revenues from trading equity derivative prod-
ucts also increased in fiscal 1998, primarily due to increased
transaction volume and the high levels of market volatility that
existed throughout the year, particularly in technology-related securities.
Fixed income trading revenues increased 359% in fiscal
1999, primarily reflecting higher revenues from investment grade,
high-yield and securitized fixed income securities, as well as swap
transactions. Fiscal 1999’s revenues benefited from significantly
improved conditions in the global fixed income markets as com-
pared with the periods of extreme volatility and illiquidity that
existed at the end of fiscal 1998. During the first half of fiscal
1999, the continuing recovery of global economic and market con-
ditions led to strong investor demand for fixed income products and
contributed to high transaction volume. In addition, fears of accel-
erating inflation in the U.S. and the interest rate actions taken by
the Fed and the ECB resulted in periods of volatility in the global
fixed income markets, which resulted in increased trading opportu-
nities. Market conditions and trading volumes were more moderate
during the latter half of fiscal 1999, primarily reflecting a rising
interest rate environment in the U.S. and Europe. Fixed income
trading revenues decreased 62% in fiscal 1998, reflecting signifi-
cantly lower revenues from investment grade, high-yield and secu-
ritized fixed income securities. Revenues from investment grade
fixed income securities were adversely affected by the severe eco-
nomic and financial turmoil in the Far East, Russia and emerging
markets that occurred during the year. These difficult conditions
caused investor preferences to shift toward higher quality financial
instruments, principally to U.S. treasury securities. This negatively
affected the trading of credit-sensitive fixed income securities by
widening credit spreads, reducing market liquidity and de-coupling
the historical price relationships between credit-sensitive securities
and government securities. Revenues from high-yield fixed income
securities also were impacted by the turbulent conditions in the
99 AR |page 28