Morgan Stanley 1998 Annual Report Download - page 28

revenues from international equity, emerging market, and U.S.
domestic equity and fixed income products and continued growth
in customer assets under management or supervision. Revenues also
were positively impacted by the Company’s acquisition of the insti-
tutional global custody business of Barclays Bank PLC (“Barclays”)
on April 3, 1997.
As of November 30, 1998, assets under manage-
ment or supervision increased $38 billion from fiscal year-end
1997. The increase in assets under management or supervision in
both fiscal 1998 and fiscal 1997 reflected continued inflows of cus-
tomer assets as well as appreciation in the value of customer port-
folios. In both fiscal 1998 and fiscal 1997, approximately 50% of
the increase in assets under management or supervision was attrib-
utable to the acquisition of net new assets, while the remaining 50%
reflected market appreciation.
Non-Interest Expenses
FISCAL fiscal fiscal
(dollars in millions) 1998 1997 1996
Compensation and benefits $6,071 $5,475 $4,585
Occupancy and equipment 510 462 432
Brokerage, clearing and
exchange fees 538 448 317
Information processing and
communications 666 602 514
Marketing and business
development 487 393 296
Professional services 579 378 282
Other 529 511 382
Total non-interest expenses $9,380 $8,269 $6,808
Fiscal 1998’s total non-interest expenses increased 13% to $9,380
million. Within the non-interest expense category, employee com-
pensation and benefits expense increased 11%, reflecting increased
levels of incentive compensation based on record fiscal 1998 rev-
enues and earnings, as well as an increase in the number of employ-
ees. Excluding compensation and benefits expense, non-interest
expenses increased $515 million. Occupancy and equipment expense
increased 10%, principally reflecting additional office space and
higher occupancy costs in New York and Hong Kong, as well as incre-
mental rent attributable to the opening of 27 securities branch
locations. Brokerage, clearing and exchange fees increased 20%, pri-
marily reflecting increased expenses related to higher levels of trad-
ing volume in the global securities markets. Commissions paid in
connection with the Company’s launch of The Van Kampen Senior
Income Trust mutual fund also contributed to the increase. Information
processing and communications costs increased 11% due to higher
data services and communications costs related to an increased
number of employees and continued enhancements and mainte-
nance associated with the Company’s information technology infra-
structure. Marketing and business development expense increased
24%, reflecting higher travel and entertainment costs relating to
increased levels of business activity associated with active financial
markets. Higher advertising and promotional costs also contributed
to the increase. Professional services expense increased 53%, pri-
marily reflecting higher consulting costs as a result of certain infor-
mation technology initiatives, including the Company’s preparations
for EMU and Year 2000 (see also “Year 2000 and EMU” herein).
Higher levels of temporary staff and employment fees due to the
increased level of overall business activity also contributed to the
increase. Other expenses increased 4%, which reflects the impact of
a higher level of business activity on various operating expenses.
Fiscal 1997’s total non-interest expenses increased
21% to $8,269 million. Within the non-interest expense category,
employee compensation and benefits expense increased 19%,
reflecting increased levels of incentive compensation based on
then-record fiscal 1997 revenues and earnings. Excluding com-
pensation and benefits expense, non-interest expenses increased
$571 million, including $266 million of operating costs related to
VK and the global institutional custody business of Barclays.
Occupancy and equipment expense increased 7%, principally reflect-
ing the occupancy costs of VK and increased office space in London
and Hong Kong. Brokerage, clearing and exchange fees increased
41%, primarily reflecting the acquisitions of VK and the institutional
global custody business of Barclays, as well as higher levels of trad-
ing volume in the global securities markets. Information processing
and communications costs increased 17% due to higher data ser-
vices costs related to an increased number of employees, incremental
costs related to VK and continued enhancements to the Company’s
information technology infrastructure. Marketing and business devel-
opment expense increased 33%, reflecting higher travel and enter-
tainment costs relating to increased levels of business activity
associated with active financial markets. Additional advertising
costs associated with VK’s retail mutual funds also contributed to
the increase. Professional services expense increased 34%, reflect-
ing higher consulting costs as a result of information technology ini-
*THIRTY-TWO *
MORGAN STANLEY DEAN WITTER *1998 ANNUAL REPORT