. Net Revenues of $8.7 Billion and Net Income Applicable to Morgan Stanley of $0.38 per Diluted Share; Continued Improvement in Morgan Stanley's Debt-Related Credit Spreads Reduced Earnings per Diluted Share by $0.36

. Delivered Strong Results in Investment Banking, Where Morgan Stanley Ranked #1 in Global Announced and Completed M&A and #1 in Global IPOs

. Firm Also Delivered Strong Results in Investment Grade and Distressed Debt Trading; Achieved Solid Performance in Global Wealth Management, With Joint Venture Integration on Track

. Firm Announced Sale of Retail Asset Management Business, Including Van Kampen Investments, to Invesco, While Maintaining Minority Stake in Combined Firm.

NEW YORK, October 21, 2009 - Morgan Stanley (NYSE: MS) today reported income from continuing operations applicable to Morgan Stanley for the third quarter ended September 30, 2009 of $757 million, or $0.38 per diluted share,1 compared with a loss from continuing operations applicable to Morgan Stanley of $159 million, or $1.37 per diluted share for the second quarter. Net revenues for the quarter were $8.7 billion, compared with $5.4 billion in the second quarter. Net revenues in the current quarter included a loss of $0.9 billion due to the continued improvement in Morgan Stanley's credit spreads on certain of its long-term debt (debt-related credit spreads) compared with a loss of $2.3 billion in the second quarter.2 The annualized return on average common equity was 5.8 percent in the current quarter.

Income from continuing operations applicable to Morgan Stanley for the third quarter ended September 30, 2009 was $757 million, or $0.38 per diluted share, compared with income from continuing operations applicable to Morgan Stanley of $7,700 million, or $6.97 per diluted share for the same period a year ago. Net revenues were $8.7 billion in the current quarter, compared with $18.0 billion a year ago. Comparisons of current quarter results to the prior year were impacted by positive revenues of $9.7 billion3 in the comparable period last year related to the deterioration in Morgan Stanley's debt-related credit spreads, during a period of unprecedented market turmoil in September 2008,4 compared with negative revenues in the current quarter of $0.9 billion, as noted above.2

Non-interest expenses of $7.5 billion increased slightly from a year ago. Compensation expenses were $5.0 billion, compared with $5.1 billion a year ago. Non-compensation expenses were $2.5 billion, compared with $2.3 billion a year ago.

For the first nine months of 2009, income from continuing operations applicable to Morgan Stanley was $412 million, or a loss of $1.41 per diluted share,5 compared with income from continuing operations applicable to Morgan Stanley of $9,784 million, or $8.80 per diluted share, a year ago. Results for the nine months ended September 30, 2009 included negative revenues of $4.9 billion related to the improvement in debt-related credit spreads, compared with positive revenues of $11.3 billion in the prior year.

Net income applicable to Morgan Stanley for the quarter was $757 million, or $0.38 per diluted share, compared with net income applicable to Morgan Stanley of $8,151 million, or $7.38 per diluted share, in the third quarter of 2008 and net income applicable to Morgan Stanley of $149 million, or a loss of $1.10 per diluted share in the second quarter of 2009. For the first nine months of 2009, net income applicable to Morgan Stanley was $729 million, or a loss of $1.13 per diluted share, compared with net income applicable to Morgan Stanley of $10,707 million, or $9.63 per diluted share a year ago.

Business Highlights
Investment banking delivered strong results, with underwriting revenues up 74 percent from last year amidst higher levels of market activity. Morgan Stanley ranked #1 in global announced and completed M&A and #1 in global IPOs.6
Fixed income sales and trading net revenues of $2.1 billion reflected a loss of $0.6 billion related to the continued improvement in debt-related credit spreads noted above.2, 3 Results for the quarter also reflected strong net revenues in investment grade and distressed debt trading.
Equity sales and trading net revenues of $1.1 billion reflected a loss of $0.2 billion related to the continued improvement in debt-related credit spreads noted above.2, 3 In addition, results for the current quarter in derivatives and the cash businesses, including prime brokerage, primarily reflected lower levels of market volume and market volatility.
Global Wealth Management delivered solid results, with client assets of $1.5 trillion and total assets per global representative increasing to $84 million. The Firm also continued to make progress in integrating and executing the Morgan Stanley Smith Barney joint venture (MSSB).
In Asset Management, the Core business7 was profitable for the third consecutive quarter. These positive results, however, were more than offset by real estate-related losses in the Merchant Banking business.
As part of a restructuring of its investment management division, Morgan Stanley announced the sale of its retail asset management business, including Van Kampen Investments, which will allow Morgan Stanley to sharpen its focus on its institutional client base in asset management.
Firm-wide results reflected net losses on investments in real estate of $0.4 billion, amidst the ongoing industry-wide decline in this market.
Following the Company's previous repurchase of capital issued under the government's Capital Purchase Program (TARP), the Company repurchased, in the current quarter, the warrant received under that program for $950 million, providing U.S. taxpayers a 20 percent annualized return on their investment in Morgan Stanley.
Non-compensation expenses continue to reflect the firm-wide efficiency initiatives. Year-to-date savings total nearly $1 billion on a normalized basis over the prior year, exceeding our previously disclosed full year target of $800 million.
John J. Mack, Chairman and CEO, said, "Morgan Stanley continued to build momentum across our business this quarter, as we made important progress in executing key strategic initiatives. Our investment banking business delivered particularly strong results, ranking #1 in global announced and completed M&A and showing strong performance in underwriting for both debt and equity, where we ranked #1 in global IPOs. We also saw improvements from the prior quarter in fixed income sales and trading, commodities, prime brokerage and our wealth management business. Although we still have work to do in sales and trading, it offers our single biggest opportunity for growth as we build out our client flow business and pursue disciplined risk-taking. As we look to realize the full benefits of our strategic initiatives - including the addition of new talent in our trading businesses, the continued integration of the Morgan Stanley Smith Barney joint venture, and the execution of our Mitsubishi UFJ alliance - I am confident that we are well positioned to serve our clients and realize new opportunities as markets continue to recover."


Institutional Securities posted pre-tax income of $1.3 billion, compared with pre-tax income of $11.0 billion in the third quarter of last year. Net revenues were $5.0 billion, compared with $16.0 billion a year ago.2, 3 The quarter's pre-tax margin was 26 percent and return on average common equity was 19 percent. The following discussion for fixed income and equity sales and trading focuses on the current quarter results, since the comparisons to the prior year are not meaningful due to the revenue impact from changes in debt-related credit spreads.2, 3
Advisory revenues were $279 million, a decrease of 44 percent from last year's third quarter, reflecting lower levels of market activity.
Underwriting revenues of $760 million increased 74 percent from last year's third quarter on higher levels of market activity. Equity underwriting revenues more than doubled from the prior year to $457 million. Fixed income underwriting revenues increased 25 percent to $303 million from last year's third quarter.
Fixed income sales and trading net revenues of $2.1 billion reflected a loss of $0.6 billion related to the continued improvement in debt-related credit spreads noted above.2, 3 Results for the current quarter reflect solid performance in interest rate, credit & currency products (IRCC). Within IRCC, net revenues in interest rates and credit products primarily reflected strong investment grade and distressed debt trading, partly offset by lower levels of client activity and market volatility. Results for the quarter also include a net gain of approximately $0.3 billion related to the sale of the participating interests in the Company's claim against a derivative counterparty that filed for bankruptcy protection. Commodities net revenues reflected reduced levels of client activity and unfavorable market conditions.
Equity sales and trading net revenues of $1.1 billion reflected a loss of $0.2 billion related to the continued improvement in debt-related credit spreads noted above.2, 3 Results for the current quarter in derivatives and the cash businesses, including prime brokerage, primarily reflected lower levels of market volume and market volatility.
Other sales and trading net revenues of $0.7 billion included net mark-to-market gains of $0.5 billion on loans and lending commitments, largely related to acquisition financing to non-investment grade companies, partly offset by losses of $0.1 billion related to the improvement of debt-related credit spreads.2, 3
Investment gains were $37 million compared with losses of $390 million in the third quarter of last year, primarily reflecting reduced losses on investments in real estate.
The Company's average trading VaR measured at the 95 percent confidence level was $118 million compared with $96 million in the third quarter of 2008 and $113 million in the second quarter of 2009. Average aggregate trading and non-trading VaR was $168 million, compared with $126 million in the third quarter of 2008 and $154 million in the second quarter of 2009. Average aggregate trading and non-trading VaR increased from last quarter primarily reflecting increased foreign exchange rate and interest rate exposure. At quarter-end, the Company's trading VaR was $123 million, compared with $114 million in the second quarter of 2009, and the aggregate trading and non-trading VaR was $175 million, compared with $173 million in the prior quarter.
Non-interest expenses were $3.7 billion, a decrease of 27 percent from the third quarter of last year. Compensation expenses were $2.6 billion, compared with $3.8 billion a year ago. Non-compensation expenses of $1.1 billion decreased 14 percent from a year ago, resulting from lower levels of business activity and the Company's ongoing initiatives to reduce costs.

GLOBAL WEALTH MANAGEMENT GROUP
Global Wealth Management Group posted pre-tax income of $280 million, compared with a pre-tax loss of $1 million in the third quarter of last year. Comparisons of current quarter results to prior periods were impacted by the results of MSSB, which closed on May 31, 2009. Net profit after the non-controlling interest allocation to Citigroup Inc. and before taxes was $197 million.8 The quarter's pre-tax margin was 9 percent and return on average common equity was 5 percent.
Net revenues were $3.0 billion, up 91 percent from a year ago reflecting higher net revenues related to MSSB.
Non-interest expenses of $2.7 billion increased 74 percent from a year ago, primarily reflecting the operating results of MSSB and $65 million in integration costs. Compensation expenses were $1.9 billion, compared with $0.9 billion a year ago. Non-compensation expenses were $0.8 billion, compared with $0.6 billion a year ago. The increase in non-interest expenses primarily reflects the operating results of MSSB and integration costs noted above.
Total client assets were $1,532 billion at quarter-end. Client assets in fee-based accounts were $365 billion and represent 24 percent of total client assets.
The 18,160 global representatives at quarter-end achieved average annualized revenue per global representative of $662,000 and total client assets per global representative of $84 million.

ASSET MANAGEMENT
Asset Management posted a pre-tax loss of $356 million, compared with a pre-tax loss of $310 million in last year's third quarter, as losses in the Merchant Banking business were partly offset by results in the Core business,7 which was profitable for the third consecutive quarter. Asset Management recorded a net loss of $294 million after the non-controlling interest allocation and before taxes.9
Net revenues were $698 million, compared with $449 million a year ago.
Net revenues in the Core business7 were $600 million, up from $308 million in the prior year. The increase in net revenues was primarily driven by principal investment gains compared with losses a year ago. This increase was partly offset by lower management and administrative fees, primarily resulting from lower assets under management.
Net revenues in the Merchant Banking business were $98 million, compared with $141 million in last year's third quarter. The decrease in net revenues was primarily driven by lower operating revenues associated with the Crescent real estate subsidiary.
Non-interest expenses of $1.1 billion increased 39 percent from a year ago. Compensation expenses of $0.4 billion increased 27 percent from a year ago. Non-compensation expenses of $0.6 billion increased 49 percent from a year ago and included an impairment charge of $251 million associated with the Crescent real estate subsidiary.
Assets under management or supervision at September 30, 2009 were $386 billion, compared with $483 billion a year ago. The decline reflects net customer outflows of $79.4 billion since the third quarter of last year, primarily in the Company's money market and long-term fixed income funds.

OTHER MATTERS
The effective tax rate from continuing operations for the quarter was 34.7 percent, up from 27.8 percent a year ago. The increase in the rate primarily reflected the change in the geographic mix of earnings between domestic and foreign sources.

As of September 30, 2009, the Company's Tier 1 capital ratio, under Basel I, is approximately 15.3 percent and Tier 1 common ratio, under Basel I, is approximately 8.2 percent.10

The Company announced that its Board of Directors declared a $0.05 quarterly dividend per common share. The dividend is payable on November 13, 2009 to common shareholders of record on October 30, 2009.

Total capital as of September 30, 2009 was $217.0 billion, including $57.1 billion of common equity, preferred equity and junior subordinated debt issued to capital trusts. During the quarter, common equity was reduced by $950 million reflecting the Company's repurchase of the warrant previously issued under TARP.

As of September 30, 2009, the Company has not repurchased any shares of its common stock during this year as part of its capital management share repurchase program. Book value per common share was $27.05, based on 1.4 billion shares outstanding, and reflected a reduction of $0.70 related to the repurchase of the TARP warrant noted above.

Morgan Stanley is a leading global financial services firm providing a wide range of investment banking, securities, investment management and wealth management services. The Firm's employees serve clients worldwide including corporations, governments, institutions and individuals from more than 1,200 offices in 36 countries. For further information about Morgan Stanley, please visit www.morganstanley.com.

A financial summary follows. Financial, statistical and business-related information, as well as information regarding business and segment trends, is included in the Financial Supplement. Both the earnings release and the Financial Supplement are available online in the Investor Relations section at www.morganstanley.com