1. RCMP Gleb Zarkh - Dave Wetherell - Kate Dong April 10 th, 2007 Morgan Stanley

2. RCMP Outline Introduction Economics Equity Analysis

3. RCMP Introduction History Business Holdings

4. RCMP History 1934: Glass- Steagell Act: Morgan Stanley  I-Bank 1971: Establish M&A Division: Enter Sales & Trading 1977: Establish Private Wealth Mgmt. Division : Merge with Shuman (Brokerage firm) 1986: Sears launches Discover Card 1997: Merger with Dean Witter and Discover 2002: Prices largest Russian stock offering 2005: Advises largest Chinese IPO to date 2006: Opens office in Dubai (First in Middle East)

5. RCMP Management CEO Philip J. Purcell (1997- 2005): Former Dean Witter Discover CEO -Underperformed expectations as merged firm -Eight former executives send letter to Board to replace Purcell CEO John Mack (2005- Present): President 1997- 2001 - Long career (about 30 years) at Morgan Stanley -Investment banking background

6. RCMP Management (2) April 1 st 2007: Corporate Governance Quotient (CGQ) is better than 65.2% of S&P 500 companies and 90.6% of Diversified Financials companies. CSQ: 1.Board of Directors 2.Audit 3.Anti- takeover provisions 4.Executive compensation

7. RCMP Introduction History Business Holdings

8. RCMP Business Segments Institutional Securities Global Wealth Management Asset Management Discover

9. RCMP Breakdown

10. RCMP Investment banking -Capital raising -Corporate lending -Financial advisory (M&A, restructuring,real estate, project finance) Sales,trading,financing and market-making activities -Equity securities and related products -Fixed income securities and related products Other activities -Benchmark indices and risk management analytics -Research -Investments Institutional Securities

11. RCMP Investment Banking Rankings

12. RCMP Global Wealth Management Clients -Individuals -Small-to-medium size business and institutions Products and Services -Brokerage and investment advisory services -Financial and wealth planning services -Annuity and insurance products -Credit and other lending products -Banking and cash management -Retirement plan services -Trust services

13. RCMP Asset Management Global asset management products and services - Equity - Fixed income - Alternatives - Private Equity Three principal distribution channels - Proprietary channel  MS representatives - Non-proprietary channel  third-party broker- dealers,banks, financial planners and other intermediaries - Institutional sales

14. RCMP Asset Management Rankings

15. RCMP Discover Discover financial services -Discover@-branded cards -Related consumer finance products and services Discover network - A network of merchants and cash access locations primarily in the U.S. -transaction network for Discover @ Network branded cards PULSE@EFT association LP (PULSE) - An automated teller machine /debit and electronic funds transfer network Consumer banking group international -MS –branded and affinity credit cards and other consumer finance products and services in the U.K. -Credit cards issued on the mastercard network * Spin off in 3Q 2007: Tax- free dividend to shareholders

16. RCMP Strong Financial Performance

17. RCMP Business Global Distribution Over 600 Offices in 31 Countries

18. RCMP Global Breakdown

19. RCMP Introduction History Business Holdings

20. RCMP Holdings 400 Shares Bought: April 11 th, 2001 Paid : $57.19 Initial Value: $22,876 Current % of Portfolio: ~ 10% Current Price: $80.30 Gain: $9,244 (40.4 %)

21. RCMP Portfolio Composition Total Financials: 23%

22. RCMP Correlation Matrix AEEAEOCPRTFRJKHYJPMKMBMSMVSNSRCLSRZ AEE10.0487230.0819750.367574-0.019010.1161340.2693180.05955-0.00805-0.082090.18692 AEO0.04872310.11757-0.050870.0323370.411586-0.004390.369120.2884820.0319830.220978 CPRT0.0819750.1175710.2065540.3550210.257050.1621580.4946380.2983560.0978950.209306 FR0.367574-0.050870.20655410.1154710.0730810.2537990.1716350.1720260.0891230.074113 JKHY-0.019010.0323370.3550210.11547110.1006460.0240660.2159320.3615870.0825070.317867 JPM0.1161340.4115860.257050.0730810.10064610.0901470.4890520.525371-0.04632-0.03424 KMB0.269318-0.004390.1621580.2537990.0240660.09014710.025011-0.018720.126343-0.05782 MS0.059550.369120.4946380.1716350.2159320.4890520.02501110.4746030.118360.084887 MVSN-0.008050.2884820.2983560.1720260.3615870.525371-0.018720.4746031-0.050480.059827 SRCL-0.082090.0319830.0978950.0891230.082507-0.046320.1263430.11836-0.0504810.06491 SRZ0.186920.2209780.2093060.0741130.317867-0.03424-0.057820.0848870.0598270.064911 WAG0.0151720.05226-0.050250.0076670.191207-0.085970.2161480.033172-0.008570.1804120.069583 Market Correlation:

23. RCMP Outline Introduction Economics Equity Analysis

24. RCMP Economics 75% of Profit from Institutional Securities –60% from Americas Fragmented industry –MS 2nd largest w/ 6.7% Global Market Share Maximize margins by “Streamlining” –MS outsourcing Source: Datamonitor

25. RCMP Drivers Key players are in U.S. and driven by current M&A activity & Equity Segment U.S. contributes approximately 53% of sector’s value Asia expected to increase in importance Expansion slowing down Still expected to be about 12.5% Source: Datamonitor

26. RCMP Smaller Segment Global Wealth/Asset Management –Roughly 10% of BT Profits Growth forecasted to “decelerate” –E(g) 2007 = 4.2% Source: Datamonitor

27. RCMP “The case for global decoupling concludes that world GDP growth – which surged at a 30-year high of 4.9% over the past four years – will barely skip a beat in 2007.” --- Stephen Roach, Chief Economist of MS

28. RCMP Expect IPO market to be active esp. in Fixed Income IPOs –48% of Institutional Securities Revenue Overall outlook good for big players Sources: Valueline Industry Reports MS Presentation – Credit Suisse Financial Markets Conference

29. RCMP Outline Introduction Economics Equity Analysis

30. RCMP Equity Analysis Multiples Approach Modeling and Forecasting Recommendation

31. RCMP Multiples P/E in line DY low but expected to grow after spin-off

32. RCMP Valuations Dividends and Earnings growing faster than price P/E & DY – Reflect ST

33. RCMP Position HOWEVER! Sell off, not good.

34. RCMP Equity Analysis Introduction Modeling and Forecasting Recommendation

35. RCMP Modeling and Forecasting(1) With Discover Assumptions –Beta: 1.38 –Risk Free Rate: 4.55% –Market Risk Premium: 6% –CAPM: 12.83% –Growth Rate: 3.5% Value per share (with Discover): + 10% 89.11 =Price Per Share 81.00 - 10% 72.90

36. RCMP Modeling and Forecasting(2) Without Discover Assumptions –Beta: 1.20 –Risk Free Rate: 4.55% –Market Risk Premium: 6.% –CAPM: 11.75% –Growth Rate: 3.5% Value per share (without Discover): + 10% 109.69 =Price Per Share 99.72 - 10% 89.75

37. RCMP Recommendation Hold Discover Spin-off will add value Shift to Focus on Investment Banking Good Future Business Prospects Good Global Positioning Strong Management

38. RCMP Q & A?

39. RCMP RCMP: Gleb Zarkh email:gzarkh2@uiuc.edu David Wetherell Bo (Kate) Dong Email :katedong@gmail.com

40. RCMP Citations Yahoo Finance. April 7 th, 2007. http://finance.yahoo.com/q/pr?s=MShttp://finance.yahoo.com/q/pr?s=MS Thompson Financial. April 8 th, 2007. http://www.thomson.com/solutions/financial/investbank/leaguetable_home/http://www.thomson.com/solutions/financial/investbank/leaguetable_home/ 2006 Morgan Stanley Annual Report. April 8 th, 2007. http://www.morganstanley.com/about/ir/shareholder/10k2006/10k11302006.pdf http://www.morganstanley.com/about/ir/shareholder/10k2006/10k11302006.pdf Global – Investment Banking & Brokerage, Datamonitor, (Apr. 2006), available at (last visited Apr. 8, 2007).http://www.datamonitor.com/ Global – Asset Management & Custody Banks, Datamonitor, (Apr. 2006), available at (last visited Apr. 8, 2007).http://www.datamonitor.com/ Stephen S. Roach, Spillovers versus Linkages, Morgan Stanley – Global Economic Forum, (Apr. 9, 2007), available at (last visited Apr. 9, 2007).http://www.morganstanley.com/views/gef/archive/2007/20070409-Mon.html Tom Nikic, Securities Brokerage Industry, Value Line Publishing, Inc., (Jan. 26, 2007), available at (last visited Apr. 8, 2007). http://www.valueline.com/ Tom Nikic, Morgan Stanley, Value Line Publishing, Inc., (Jan. 26, 2007), available at (last visited Apr. 8, 2007).http://www.valueline.com/ David H. Sidwell & John A. Shapiro, Credit Suisse Financial Services Conference, Morgan Stanley, (Feb. 7, 2007), available at (last visited Apr. 8, 2007).http://www.morganstanley.com/about/ir/02072007disc.html Reuters Research Inc., Morgan Stanley – Competitors Report, OneSource Information Services, Inc., (Apr. 2007), available at (last visited Apr. 8, 2007).http://businessbrowser.onesource.com/HomePage.asp