Morgan Stanley · NYSE:MS

Morgan Stanley — Debt Investor Presentation (March 2015)

33 slides from Morgan Stanley's debt investor presentation, Mar 23, 2015

1. Slide 1: Morgan Stanley 4Q14 Fixed Income Investor Update

   Morgan Stanley 4Q14 Fixed Income Investor Update March 23, 2015

2. Slide 2: Notice

   Notice The information provided herein may include certain non-GAAP financial measures. The reconciliation of such measures to the comparable GAAP figures are included in the Company’s Annual Report on Form 10-K, Definitive Proxy Statement, Quarterly Reports on Form 10-Q and the Company’s Current Re

3. Slide 3: Agenda

   Agenda  A Business Update  B Prudent Liability Management  C Liquidity Management  D Regulatory Topics  E Capital Management 3

4. Slide 4: Strategic Moves Enhance Business Outlook and Funding Profile

   Strategic Moves Enhance Business Outlook and A Funding Profile Revenue Split (1),(2) Funding Stack(2) <1%  Repositioned Business Mix & Balance 11% Sheet… 23% 15%  Powerful set of businesses  Enhanced earnings consistency 21% 33%  Durable funding; strong balance sheet 8% 29%  …Result & Looking F

5. Slide 5: 2014 Checklist: Mark to Market

   2014 Checklist: Mark to Market (1) Continue to improve Wealth Management margins 1 On Track through cost discipline and revenue growth Improve Fixed Income and Commodities ROE: – Strategic solution for Commodities Resized, Reshaped and 2 More Being Done – “Centrally managed” Fixed Income – RWA reduc

6. Slide 6: 2015 Roll-Forward: Realizing Benefit of Strategic Initiatives

   2015 Roll-Forward: Realizing Benefit of Strategic Initiatives Ongoing Wealth Management upside through additional margin 1 improvement Continued execution of U.S. Bank strategy in Wealth Management and 2 Institutional Securities 3 Progress in Fixed Income and Commodities ROE 4 Tailwind from lower fu

7. Slide 7: Ongoing Wealth Management Upside Through Additional Margin Improvement

   1 Ongoing Wealth Management Upside Through Additional Margin Improvement (1),(2) Pre-tax Margin Target Wealth Management Pre-tax Margin (%) Includes: 30% • Revenue and operating (4) leverage from deposit 25% 22-25% deployment 20% • Continued investments in 20% 18% leading technology platform 14% (3)

8. Slide 8: Additional Drivers of Wealth Management Returns

   Additional Drivers of Wealth Management Returns • Benefitting from focus on high net worth and ultra-high net worth client segments • These segments have the broadest, most complex financial planning and investing requirements – consistent with Morgan Stanley’s strengths Meaningfully Increased Overa

9. Slide 9: NII Upside Driven by Ongoing Execution of U.S. Bank Strategy

   2 NII Upside Driven by Ongoing Execution of U.S. Bank Strategy In Wealth Management & Institutional Securities • Sizable, underpenetrated Combined U.S. Bank Assets ($Bn) (1),(2) and embedded client ~$180 base supports balanced ~$170 1% 1% 9% loan growth $151 • Higher interest rates 1% 15% (eventuall

10. Slide 10: Institutional Securities Positive Outlook, Benefitting From Leading Franchises

    Institutional Securities Positive Outlook, Benefitting From Leading Advisory and Equity Sales & Trading Franchises Industry Announced M&A Volumes(1) ($Tn) Industry Equity Underwriting Volumes(1) ($Tn) Morgan Stanley – #2 in Global Announced M&A in 2014 Morgan Stanley – #2 in Global Equity & Equity L

11. Slide 11: Drive ROE > 10% in Fixed Income & Commodities

    3 Drive ROE > 10% in Fixed Income & Commodities Fixed Income Commodities  Implemented centralized management of  Sold / Divested resources across Fixed Income − TransMontaigne Inc. – Reduced balance sheet − CanTerm Canadian Terminals Inc. – Reduced risk-weighted assets  Committed to selling – Red

12. Slide 12: Reduction and Optimization of Risk-Weighted Assets in Fixed Income and Commodities

    3 Reduction and Optimization of Risk-Weighted Assets in Fixed Income and Commodities • On track to achieve year end 2015 target of <$180Bn • Optimize ~$25Bn of RWAs beyond $180Bn target, primarily passive roll-down • RWAs to be redeployed to maximize returns, either within Fixed Income or across the

13. Slide 13: Tailwind from Lower Funding Costs

    4 Tailwind from Lower Funding Costs • Meaningful reduction in funding costs due to spread tightening and roll-off of older more expensive debt Issuance and New Issue Levels Weighted Average Cost of Unsecured Funding ($Bn) (Spread to UST, bps) Peak Cost 50 400 Projected of Funding 40 300 ~25% 30 from

14. Slide 14: Ongoing Focus on Expense Management, Resulting in Greater Efficiency

    5 Ongoing Focus on Expense Management, Resulting in Greater Efficiency Compensation Expenses Non-Compensation Expenses Non-Compensation Efficiency Ratio(1) Recent change to compensation structure: • Reflects the stability of the franchise • Reduces the overhang of prior year deferrals • Thus, provid

15. Slide 15: Prudent Liability Management: Centralized Structure and Strict Governance

    B Prudent Liability Management: Centralized Structure and Strict Governance Prudent Liability Management & Funding Durability – Setting the Stage  A prudent liability management framework supported by centralized, strong governance ensuring funding durability, providing critical stability in all en

16. Slide 16: Prudent Liability Management: Illustrative Asset-Liability Funding Model

    Prudent Liability Management: Illustrative Asset-Liability Funding Model (1)  Funding governance requires alignment of more liquid assets with shorter-term liabilities and less liquid assets with longer-term liabilities and equity Liabilities & Assets Equity Bank Deposits Assets(2) Deposits Equity

17. Slide 17: Prudent Liability Management: Maturity Profile of Long-Term Debt

    Prudent Liability Management: Maturity Profile of Long- Term Debt Total Short-Term and Long-Term Maturities(1),(2),(3) ($Bn) 40 35 34 30 26 25 24 23 23 20 20 19 17 17 15 9 10 8 7 7 6 5 5 5 3 2 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026- 2031- 2036+ 30 35 2011 –

18. Slide 18: Four Pillars of Secured Funding Ensure Durability and Stability

    Four Pillars of Secured Funding Ensure Durability and Stability 1 Significant Weighted Average Maturity  Enhances durability 2 Maturity Limit Structure  Reduces roll-over risk 3 Investor Limit Structure  Minimizes concentration with any single investor, in aggregate and in any given month 4 Spare

19. Slide 19: Strict Governance Framework Ensures Appropriate Term Consistent with Asset Fundability

    Strict Governance Framework Ensures Appropriate Term Consistent with Asset Fundability Rules-Based Criteria Determine Asset Fundability… Highly Liquid (Governments, Fundability Criteria Agencies, Open Market Operations and Central  Eligible for financing through Open Market Operations (OMO) and/or

20. Slide 20: Secured Funding Pillar 1: Longer WAM Provides Appropriate Flexibility

    Secured Funding Pillar 1: Longer WAM Provides Appropriate Flexibility …Fundability Category Determines Required Weighted Average Maturity: >120 Days(1)  Criteria-based model sources appropriate term funding consistent with liquidity profile of underlying assets  Assets tiered by fundability  Matu

21. Slide 21: Weighted Average Maturity: Importance of Durability – Morgan Stanley Early Leader

    Weighted Average Maturity: Importance of Durability – Morgan Stanley Early Leader  The Federal Reserve Bank of New York published a study(1) in June 2014 on weighted average maturity (WAM) of risk assets(2) within the U.S. tri-party repo market  The study concluded that while the maturity in tri-p

22. Slide 22: Secured Funding Pillar 2: Monthly Maturity Target; Pillar 3: Investor Concentration Target

    Secured Funding Pillar 2: Monthly Maturity Target Secured Funding Pillar 3: Investor Concentration Target  Monthly Maturity Target: Target less than 15% of non-Super Green liabilities maturing in any given month  Investor Concentration Target: Maximum total exposure per investor of 15% of non-Supe

23. Slide 23: Secured Funding Pillar 4: Spare Capacity Provides Flexibility

    Secured Funding Pillar 4: Spare Capacity Provides Flexibility in Both Favorable and Stressed Markets  Spare Capacity is equivalent to total non-Super Green liabilities in excess of non-Super Green inventory  Spare Capacity has created excess contractual term-funding, which provides valuable flexib

24. Slide 24: More Durable Liquidity: Significant Global Liquidity Position

    C More Durable Liquidity: Significant Global Liquidity Position Highly Liquid and Unencumbered - Changes in bank liquidity levels reflect execution of U.S. Bank strategy Period End Liquidity Composition of the Liquidity Reserve ($Bn) at 4Q14 $198 $202 $203 $ 200 $192 $193 Type of Investment ($Bn) $1

25. Slide 25: More Durable Liquidity: Build and Stress Test Liquidity on a Legal Entity Basis

    More Durable Liquidity: Build and Stress Test Liquidity on a Legal Entity Basis • Stress testing sizes contingency outflow requirements at a legal entity level (1),(2) Liquidity (% of Total) Contingent cash outflows are (1),(2) measured independently from the Parent 28% inflows resulting from mitig

26. Slide 26: Estimated LCR Reflects Benefits of Funding Governance & Liquidity Risk Management

    D Estimated LCR Reflects Benefits of Funding Governance & Liquidity Risk Management Liquidity Coverage Ratio (LCR)(1) • Morgan Stanley’s Position: LCR based on the final Federal Reserve Bank rule is >100% • Key Drivers: – Proactive management of the Firm’s secured vs. unsecured funding mix – Extensi

27. Slide 27: Capital Management: Optimizing Capital Stack Under Basel III

    E Capital Management: Optimizing Capital Stack Under Basel III Morgan Stanley Total Capital 4Q12 4Q14(1)  Issued ~$1.7Bn of preferred stock in 2013 and ~$2.8Bn in 2014 <1% <1% 4% 10% 5% 1%  TruPS qualify as either Tier 6% 2% 6% 1 or Tier 2 capital in 2014; 7% TruPS phase-out of capital over time 

28. Slide 28: Strong Risk-Based And Leverage Capital Ratios

    Strong Risk-Based And Leverage Capital Ratios Risk-Based & Leverage Capital Ratios(1) 4Q14 Basel III CET1 Under Advanced Approach  Fully Phased-in (Pro-forma): 10.7%(2)  Transitional: 12.6% 4Q14 Basel III CET1 Under Standardized Approach  Fully Phased-in (Pro-forma): 10.9%(2)  Transitional: 14.7

29. Slide 29: Appendix

    Appendix Morgan Stanley

30. Slide 30: Pro-Forma Top U.S.-Based Depository Institution With Remaining Deposits

    Pro-Forma Top 10 U.S.-Based Depository Institution With Remaining Deposits Top U.S.-Based Depositories as of 4Q14(1),(2) ($Bn) 1. JPMorgan Chase & Co. $1,363 2. Wells Fargo & Company 1,168 3. Bank of America Corporation 1,119 4. Citigroup Inc. 899 5. U.S. Bancorp 283 6. Bank of New York Mellon Corpo

31. Slide 31: Investment Securities

    Investment Securities At December 31, 2014 ($MM) Gross Gross Other-than- Amortized Unrealized Unrealized Temporary Cost Gains Losses Impairment Fair Value Available for Sale Debt Securities Total U.S. Government and Agency Securities $53,885 $119 $139 – $53,865 Corporate and Other Debt Commercial mo

32. Slide 32: Loans and Lending Commitments

    Loans and Lending Commitments Quarter Ended Percentage Change From: Dec 31, 2014 Sept 30, 2014 Dec 31, 2013 Sept 30, 2014 Dec 31, 2013 Institutional Securities Corporate Funded Loans Loans held for investment, net of allowance $ 8.0 $ 8.2 $ 7.8 (2%) 3% Loans held for sale 7.8 5.9 6.2 32% 26% Loans h

33. Slide 33: Morgan Stanley 4Q14 Fixed Income Investor Update

    Morgan Stanley 4Q14 Fixed Income Investor Update March 23, 2015

Morgan Stanley — Debt Investor Presentation (March 2015) on 6ix