Morgan Stanley 2001 Annual Report Download - page 6

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>Our market share in retail securities increased in terms
of number of financial advisors, but our percentage of
industry-wide revenues decreased.
>In 2001, Discover®Card again increased market share
measured by percentage of total receivables.
In summary, we increased market shares in our trading
businesses and maintained market shares in most of our
other major businesses.
CHALLENGES OF 2001
The year was not an easy one in which to achieve a 19 per-
cent ROE. Most markets were down significantly from 2000.
>M&A activity declined by 51 percent.
>IPOs globally were down 57 percent.
>Retail securities activity in the U.S. was off at least
25 percent.
>Equity prices in the U.S. were down 13 percent for S&P
500 and 21 percent for the NASDAQ Composite.
European markets suffered from similar declines.
>The U.S. officially slipped into a recession, leading the
Federal Reserve to reduce interest rates 11 times during
the year. In Europe, gross domestic product (GDP) annual
growth fell from 3.3 percent to 1.6 percent.
>Technology and telecom stocks and bonds were partic-
ularly hard hit with stocks off over 50 percent, sharp
declines in most bonds and many bankruptcies.
The impact of a difficult economic environment in 2001
reaffirmed the wisdom of focusing on our clients as well
as our strategy of diversification by both products and
markets. In general, certain businesses in which we car-
ried “proprietary positions,” such as high yield and private
equity, experienced write-downs. Through sales and write-
downs, however, we significantly reduced the size of both
our high-yield and private equity portfolios in 2001. Our
restructured high-yield business focuses on servicing
client flows, and private equity is concentrated on the fund
business where we invest alongside our clients in vehi-
cles that we manage. While it represents a small part of
our business currently, we also continue to invest in our
commercial lending business. Disciplined underwriting,
advantageous collateral arrangements, increased diversi-
fication and an increased investment in distribution
infrastructure will help us to better manage these portfolios
in the future.
2001
2000
1999
1998
30.9
18.5
32.6
24.5
2001
2000
1999
1998
4.40
5.36
5.42
6.76
RETURN ON COMMON EQUITY
(In Percent)
DISCOVER FINANCIAL SERVICES NET CHARGE-OFF RATE
(In Percent)
4MORGAN STANLEY ANNUAL REPORT 2001