Morgan Stanley 2005 Annual Report Download - page 19

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Q1.
Morgan Stanley’s share price
has underperformed many
of its peers in recent years.
You have said correcting
that will take some time.
Why should investors stay
with Morgan Stanley, given
the firm’s recent track record
and the fact that your
peers are delivering greater
performance?
Answer:
We’re intensely focused on improving overall firm performance,
and we are moving aggressively on many fronts to do so—
reducing the number of underperforming brokers in our Retail
Brokerage business, pursuing acquisitions in key areas, expanding
our alternative investment offerings in Asset Management, expand-
ing our derivatives and mortgage businesses, pursuing a better
balance between our client and principal risk-taking businesses,
and focusing on emerging markets, among other steps. It is
true that there are no quick fixes. But given the strength of our
franchise, if we improve Morgan Stanley’s underperforming busi-
nesses, there is tremendous upside for us to create shareholder
value. While investors may not see the bottom-line impact from
some of our initiatives immediately in 2006, we will maintain
constant transparency in providing shareholders with data on key
metrics so they can accurately measure the progress we are mak-
ing toward our goals.
MORGAN STANLEY ANSWERS YOUR QUESTIONS
Q3.
What do you see as
Morgan Stanley’s competitive
advantages and in what
areas do you see the firm
getting out in front of
the market?
Answer:
We have a wide range of businesses where we are second to none.
Equity sales, prime brokerage, credit derivatives, real estate finance
and commodities are examples of businesses where we have clear
leadership positions. We also enjoy particular strength in global
transactions and are uniquely well-positioned for growth in
emerging markets like Russia and China, among others. We will
stay in front of the market by both extending and capitalizing on
these strengths, as well as by addressing those businesses where we
aren’t leaders today but have the potential to be, given the strength
of our franchise and the quality of our people.
Q2.
Why did Morgan Stanley
decide to keep Discover,
and how can the firm
grow that business ahead
of the credit card industry’s
slower pace?
Answer:
Discover is an attractive asset for Morgan Stanley. It is a unique
and successful franchise that diversifies the company’s earnings
and broadens our scale and capital base. The income before taxes
generated by Discover—more than $3 billion over the last three
years—provides a cushion for risk taking elsewhere in the firm.
And while the U.S. credit card industry is growing at only
3%-5% right now, we see opportunities to exceed this growth
rate—especially in the payments business and internationally.
Following a favorable 2004 ruling in the U.S. Department of
Justice’s antitrust suit, we have expanded our business in the
debit card market and with third-party issuers. Internationally,
we launched a strategic alliance in 2005 with China UnionPay,
that country’s only national bankcard payment network, and we
agreed to acquire the Goldfish credit card business to enhance
our business in the U.K.