Morgan Stanley · NYSE:MS
Morgan Stanley — Investor Presentation (August 2005)
31 slides from Morgan Stanley's investor presentation, Aug 17, 2005
Slide 1: John Mack, Chairman and Chief Executive Officer David H. Sidwell, Chief Financial Officer David
John Mack, Chairman and Chief Executive Officer David H. Sidwell, Chief Financial Officer David W. Nelms, Chairman & CEO, Discover Financial Services August 17, 2005
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 Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on 8-K, including any amendments th
Slide 3: Agenda
Agenda • Introduction • Initial Actions • Discover opportunities • Q&A • Appendix This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any mate
Slide 4: Introduction
Introduction This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. No representation is made that it is ac
Slide 5: Morgan Stanley Strategic Direction
Morgan Stanley Strategic Direction To be the clear leader in offering premier, innovative service to GOAL To be the clear leader in offering premier, innovative service to clients,while clients, whiledelivering deliveringsuperior superiorreturns returnsto toshareholders shareholders • Relentless foc
Slide 6: Initial Actions
Initial Actions • Retain Discover to create value for shareholders • Exit non-core aircraft leasing business • New management and new initiatives in Retail Brokerage business • Appoint new Directors This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that p
Slide 7: Discover Potential Spin-Off Evaluation Process
Discover Potential Spin-Off Evaluation Process • In April, Board authorized exploration of potential Discover spin-off • Investment Banking team and management subsequently performed significant analysis − Determination of capital structure − Financial projections of spin-off vs. subsidiary − Rating
Slide 8: Benefits of Retaining Discover
Benefits of Retaining Discover • Earnings diversification − Strong ROE and capital generation − Reduced volatility • Broader capital base • Financial synergies − Lower funding costs − Shared corporate functions • Enhanced Discover growth prospects post-DOJ suit − Payments opportunities (PULSE debit
Slide 9: Aircraft Leasing Divestiture Evaluation Process
Aircraft Leasing Divestiture Evaluation Process • AWAS remains non-core to Morgan Stanley − Without viable exit alternatives, AWAS was retained through period of unprecedented decline in aircraft industry following September 11 − Significant concentration in aircraft asset class has inhibited invest
Slide 10: Aircraft Leasing Business Snapshot
Aircraft Leasing Business Snapshot • Third largest aircraft lessor − 155 planes, 4 engines − Average age of 12.1 years • Expertise in aircraft trading and lease remarketing • Geographically diverse – 75 customers in 45 countries • Improving lease rates • No planes on the ground • Book value of aircr
Slide 11: Retail Brokerage: New management, new initiatives
Retail Brokerage: New management, new initiatives New management: • James P. Gorman hired as new President and Chief Operating Officer of the Individual Investor Group − Brings unmatched breadth and depth of experience − Record of successfully building retail financial services businesses • Uniquely
Slide 12: New Additions to the Board of Directors
New Additions to the Board of Directors • Three new directors − Roy J. Bostock • Former Chairman of B|Com3 Group, one of the world’s leading advertising agencies − Charles H. Noski • Former senior executive of Northrop Grumman, AT&T and Hughes Electronics − O. Griffith Sexton • Economics and finance
Slide 13: Discover Opportunities
Discover Opportunities This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. No representation is made tha
Slide 14: Discover Profile
Discover Profile • 50MM+ cardmembers, $47Bn managed credit card loans • 4MM+ merchants and cash access locations • Record $1.3Bn PBT in 2004(1) (ROE in excess of 19%(2)), consistent earnings and capital generation (cumulative net income of $3.7Bn over past 5 years) • America’s #1 cash rewards progra
Slide 15: Consistent Profits and Returns
Consistent Profits and Returns Profit Before Tax (1) Return on Managed Receivables (1) (2) $MM % 1,272 1.71 1,178 1.61 1,127 1.52 1,093 1.42 1.35 610 615 496 618 622 297 242 310 304 279 365 380 230 253 293 2001 2002 2003 2004 2005 2001 2002 2003 2004 1H05 1Q 2Q 2nd Half Source: Morgan Stanley Notes:
Slide 16: Step Change Improvement in Credit Risk Profile
Step Change Improvement in Credit Risk Profile Charge-off Rate (Managed) 30+ Day Delinquency Rate (Managed) % % 7.5 7.5 Lowest 30+ Day Delinquency Rate Since 1988 7.0 7.0 6.5 6.5 6.0 6.0 5.5 5.5 5.0 5.0 4.5 4.5 4.0 4.0 3.5 3.5 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 1Q03 2Q03 3Q03 4Q03 1Q0
Slide 17: Attractive Discover Growth Trends
Attractive Discover Growth Trends Change in U.S. Credit Card Receivables Discover Sales Growth (Year/Year) (1) by FICO Score (2Q05 vs. 2Q03) % % 8.1 14 9 5.5 5.7 5.2 (11) 1.7 1.4 (28) 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 <660 660–700 700–760 760+ Source: Morgan Stanley Note: (1) Sales represent U.S. and U.
Slide 18: Discover Has Leading Brand and Attractive Customer Profile
Discover Has Leading Brand and Attractive Customer Profile Credit Card Brand Unaided Awareness December 2004 Survey Discover Card Customer Profile % % 88 93 82 89 74 72 60 55 11 6 Visa Amex Cap One 50+K Income Homeowner MasterCard Discover Citigroup Credit Card Composite (1) Discover Card Source: C&
Slide 19: Discover Card's Cashback Bonus Is America's #1 Cash Rewards Program
Discover Card’s Cashback Bonus Is America’s #1 Cash Rewards Program • Industry’s largest cash rewards program − 50MM Cardmember base − $550MM cash rewards earned in 2004 • Leading structure − Up to 1% earnings with no expiration − Full 5% on Get More purchases − 50 Cashback Bonus partners − Highly f
Slide 20: Acceptance Leadership With Largest Merchants
Acceptance Leadership With Largest Merchants Credit Network Acceptance (1) by 100 Largest U.S. Retailers % 97 95 92 Discover Visa / MC Amex Source: Top 100 U.S. retailers from Triversity (www.stores.org) Note: (1) Chart reflects Discover estimate of credit network acceptance at majority of in-store
Slide 21: Third Party Issuers Are Being Signed
Third Party Issuers Are Being Signed Consumer and Business Credit Cards 4Q04 DOJ suit conclusion allows Discover to sign third party financial institution issuers Mall Cards • Over 2MM cards issued • 7 third party issuers to date Experiential Cards This slide is part of a presentation by Morgan Stan
Slide 22: Addition of PULSE Debit Network Broadens Product Set and Customer Base
Addition of PULSE Debit Network Broadens Product Set and Customer Base PIN Debit Market Share PULSE Transactions % MM of Transactions Others Others Accel/ Exchange 1999–2004 1,423 8Others CAGR 28% NYCE 3 8% (Metavante) 1,115 11 914 STAR 47 (First Data) 681 PULSE 11 (Discover) 529 416 20 Interlink (V
Slide 23: China UnionPay Agreement – Greater Acceptance and Volume
China UnionPay Agreement – Greater Acceptance and Volume • Agreement signed May 2005 − Long term − Exclusive component • Provides acceptance in China through largest domestic network − 130+ bank issuers − 400,000+ merchants − 60,000+ ATMs − Approximately 3 times greater acceptance in China versus Vi
Slide 24: Current Credit Card Industry Risks
Current Credit Card Industry Risks • Rising cost of funds pressuring spreads • Slow industry loan growth / rising payment rates • Future loan loss rate uncertainty, especially given bankruptcy reform and changing minimum payment requirements • Consolidating industry / competitive pressures • Increas
Slide 25: New Era for Discover Financial Services
New Era for Discover Financial Services Post- “DOJ vs. Visa/MC” Strong Discover Card New Era for Network Credit Quality • Third Party Issuers • Increased Growth Initiatives • Third Party Acquirers • Leading Brand • Debit (PIN & Signature) • Leading Reward Program • International (CUP) • Leading Cust
Slide 26: Discover Financial Services Strategy
Discover Financial Services Strategy • Deliver sustained growth in revenues and profits by promoting the virtuous circle of merchant acceptance and cardmember usage − Increasing Discover Card usage and credit balances, leveraging our #1 cash rewards program, top-rated customer service, and leading b
Slide 27: Q&A
Q&A This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. No representation is made that it is accurate or
Slide 28: Appendix
Appendix This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. No representation is made that it is accura
Slide 29: Implications of AWAS Divestiture
Implications of AWAS Divestiture Accounting • Aircraft business will be classified as Held for Sale in 3Q05 • Results of operations for Held for Sale assets and liabilities will be reported as discontinued operation (prior periods will be restated) • After-tax loss currently estimated at $1.0Bn • As
Slide 30: Retail Brokerage Business: Client Segmentation
Retail Brokerage Business: Client Segmentation Retail Brokerage Assets by Client Segment ($Bn) % Change 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 2Q05/2Q04 $10MM or more 111 106 105 111 117 117 11 $1MM – $10MM 173 167 174 188 196 196 17 $100K – $1MM 194 190 186 188 186 184 (3) < $100K 45 43 40 39 37 35 (18) Tot
Slide 31: John Mack, Chairman and Chief Executive Officer David H. Sidwell, Chief Financial Officer David
John Mack, Chairman and Chief Executive Officer David H. Sidwell, Chief Financial Officer David W. Nelms, Chairman & CEO, Discover Financial Services August 17, 2005