Morgan Stanley 2009 Annual Report Download - page 61

loaned transactions. Net interest revenues decreased 29% in 2009 compared with fiscal 2008. The decrease was
primarily due to the change in classification of the bank deposit program noted above, a decline in customer
margin loan balances and increased funding costs.
Non-interest Expenses. Non-interest expenses increased 51% in 2009 and included the operating costs of
MSSB, the amortization of MSSB’s intangible assets, and deal closing costs of $221 million and integration costs
of $280 million for MSSB. Deal closing costs included a one-time expense of $124 million primarily for
replacement deferred compensation awards. The cost of these replacement awards was fully allocated to Citi
within non-controlling interests. Compensation and benefits expense increased 60% in 2009, primarily reflecting
MSSB and the replacement awards noted above. Non-compensation expenses increased 32%. Occupancy and
equipment expense increased 91%, primarily due to the operating costs of MSSB and real estate abandonment
charges. Information processing and communications expense increased 70% and professional services expense
increased 54% in 2009, primarily due to the operating results of MSSB. Other expenses decreased 7% in 2009,
primarily due to the charge of $532 million for the ARS repurchase program in fiscal 2008 (see Note 11 to the
consolidated financial statements), partially offset by operating costs of MSSB and a charge related to an FDIC
assessment on deposits.
Fiscal 2008 Compared with Fiscal 2007
Investment banking revenues decreased 32% in fiscal 2008, primarily due to lower underwriting activity across
equity and unit trust products, partially offset by an increase in fixed income underwriting activity. Principal
transactions trading revenues increased 3% in fiscal 2008, primarily due to higher revenues from municipal,
corporate and government fixed income securities, partially offset by $108 million in writedowns on $3.8 billion
of ARS repurchased from clients and previously held on the Company’s consolidated statement of financial
condition and losses associated with investments that benefit certain employee deferred compensation plans.
Principal transactions net investment losses were $54 million in fiscal 2008 compared with net investment gains
of $29 million in fiscal 2007. The results in fiscal 2008 reflected net losses associated with investments that
benefit certain employee deferred compensation plans. Commission revenues decreased 2% in fiscal 2008,
reflecting lower client activity.
Asset management, distribution and administration fees decreased 11% in fiscal 2008. The decrease was driven
by a change in the classification of sub-advisory fees due to modifications of certain customer agreements, the
discontinuance of the Company’s fee-based brokerage program in the fourth quarter of fiscal 2007 and asset
depreciation. Client assets in fee-based accounts decreased 32% to $136 billion as of November 30, 2008 and
represented 25% of total client assets versus 27% at November 30, 2007. Total client asset balances decreased to
$546 billion as of November 30, 2008 from $758 billion as of November 30, 2007, primarily due to asset
depreciation. Client asset balances in households greater than $1 million decreased to $349 billion as of
November 30, 2008 from $522 billion at November 30, 2007.
Net interest revenues increased 32%, primarily due to increased customer account balances in the bank deposit
program. Balances in the bank deposit program rose to $36.4 billion as of November 30, 2008 from $26.2 billion
at November 30, 2007. Other revenues were $965 million in fiscal 2008 and $163 million in fiscal 2007. Fiscal
2008 included $743 million related to the sale of MSWM S.V. and Global Wealth Management Group’s share
($43 million) of the Company’s repurchase of debt.
Non-interest expenses increased 7% in fiscal 2008, primarily reflecting the charge of $532 million for the ARS
repurchase program. Compensation and benefits expense remained flat in fiscal 2008, as severance-related
expenses of $41 million and investment in the business were offset by lower incentive-based compensation
accruals. Non-compensation expenses increased 25%. Occupancy and equipment expense increased 8%,
primarily due to an increase in space costs and branch renovations. Professional services expense decreased 40%,
primarily due to the change in the classification of sub-advisory fees due to modifications of certain customer
agreements and lower legal costs. Other expenses increased 206%, primarily resulting from the charge of $532
million related to ARS as previously mentioned and higher litigation costs.
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