Welcome to the Morgan Stanley conference call. The following is a live broadcast by Morgan Stanley and is provided as a courtesy. Please note that this call is being broadcast on the Internet through the company’s website at www.morganstanley.com. A replay of the call and webcast will be available through the company’s website and by phone through May 22, 2009. This presentation may contain forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made, which reflect managements’ current estimates, projections, expectations or belief and which are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of additional risks and uncertainties that may affect the future results of the company, please see the company's Annual Report on Form 10-K for the year-ended November 30, 2008 and the company's current reports on Form 8-K. The presentation may also include certain non-GAAP financial measures. The reconciliation of such measures to the comparable GAAP figures are included in our Annual Report on Form 10-K and our current reports on Form 8-K, which are available on our website www.morganstanley.com. Any recording, rebroadcast, or other use of this presentation in whole or in part is strictly prohibited without prior written consent of Morgan Stanley. This presentation is copyrighted and proprietary to Morgan Stanley. At this time, I’d like to turn the program over to Colm Kelleher for today’s call.

Good morning everyone and thank you for joining us. Today we will review our quarterly results and provide an update on our strategic initiatives. We've been firm in our view that 2009 would be a year of transition and the first quarter reflects that cautious view. For the calendar quarter ended March 31, we reported a net loss of $0.57 per share, excluding the impact of Morgan Stanley's debt related credit spreads earnings per share, would have been positive $0.37. While the rebound in our bond prices drove the loss this quarter, this movement demonstrates the market's confidence and Morgan Stanley's financial strength is an important validation of our franchise. As you know, the first quarter was punctuated by ongoing government policy to promote market stability, while these efforts have had some positive impact, economic conditions are still uncertain. Our economists forecast a base case contraction in world GDP of roughly 2% for 2009 the first decline in more than 60 years. Market conditions continue to be erratic in the quarter and real estate markets deteriorated significantly around the world. Morgan Stanley is a strong beneficiary of the changing competitive landscape as a dominant industry participant with robust capital levels. We are well positioned for recovery in the global capital markets and are not limited by a large loan portfolio or direct consumer exposure. Already we are experiencing better pricing and market share gains across our principal businesses resulting in good operating earnings this quarter. As we navigate these markets, we are executing on a number of strategic initiatives that position us for out performance. Within institutional securities, we continue to target our capital on a risk-adjusted basis, and we remain focused on reducing legacy positions. In March, we signed a memorandum of understanding with MUFG to combine our Japanese securities businesses creating the third largest brokerage franchise in Japan with dominant market presence and global reach. The MUFG joint venture will form a preeminent leader in both M&A and debt financing with full year pro forma 2008 operating revenues of $2.5 billion. This partnership underscores our strong global commitment and our goal of continuing to realize attractive growth opportunities. In January, as you are well aware we announced the formation of a joint venture with Smith Barney creating the largest wealth management firm. The integration is on schedule and we expect the deal to close in the third quarter ’09 if not sooner. Asset management continues to be constrained by poor performance and the downturn in real estate. Turning around this business remains a top priority. We are upgrading investment talent and have implemented a number of cost initiatives. In November, we committed $2 billion in firm-wide cost savings for 2009. In the first quarter, we made significant progress towards achieving this goal. Compensation expense excluding severance was down 47% from a year ago as we managed compensation to reflect the lower revenue environment as well as significant headcount reductions. We reduced non-compensation expenses by 9% from a year-ago driven by lower brokerage and clearing expenses from lower activity and tighter expense controls around professional services and business development globally. Now, turning to our consolidated results. We continue to demonstrate strength in our industry leading business including commodities, foreign exchange, interest rates, equity derivatives, investment banking, and global wealth management. In accordance with SEC guidelines, we recasted 2008 to a calendar year. This enhanced disclosure facilitates comparisons across quarters and amongst our bank holding company peers. This quarter we are providing even greater transparency in our financial supplement by including firm-wide real estate investment exposures and their corresponding P&L impact, tangible common equity, a currently popular measure and tangible book value per share. Turning to page two in our financial supplement firm-wide revenues of $3 billion including the negative impact of $1.5 billion from the tightening of Morgan Stanley’s credit spreads on certain long-term debt carried at fair value. Net losses on firm-wide real estate investments aggregated a $1 billion, which had a sizable impact in our results. Loss results in the quarter reflect mark-to-market volatility, Morgan Stanley operates and will continue to operate under fair value accounting rules using conservative assumptions. We believe fair value accounting provides the best assessment of our business both in terms of our results and balance sheet. And whilst we did not early adopt the provisions of FASB Staff Position 157-4, we do not expect any impact on our application of mark-to-market accounting upon adoption in the second quarter. Turning to page three in the financial supplement, you will see that after significantly reducing our balance sheet in 2008 total assets declined to $626 billion at March 31 of which a $152 billion is all liquidity billed. Nearly one quarter of our balance sheet was in cash and cash equivalents this quarter and although this creates a noticeable drag to our earnings, we believe that maintaining a strong liquidity position is currently the most prudent approach. Our capital ratios demonstrate the exceptional strength of our balance sheet, this quarter we moved to Basel I on the Fed guidelines. While we are still finalizing our calculations, we believe our Tier 1 ratio under Basel I will be 16.4%, excluding TARP capital, our ratio would be 12.9%. Risk-weighted assets under Basel I are expected to be approximately $287 billion, at March 31. The tangible common equity to tangible asset ratio was 4.3% in the first quarter, as you can in our supplement on page three this ratio was continually improved over the last five consecutive quarters. Additionally, our tangible common equity to risk weighted asset ratio was 9.3%. The absolute level of our level three assets are down at March 31 and represents approximately a 11% of total assets, but clearly that is on a much smaller balance sheet. Our funding strategy remains to increase the stable share of funding to roughly 50% of total assets as we further diversify both our sources of funding and our business mix. This quarter we continue to make significant progress towards achieving this goal. At the end of the first quarter, we were at 44% up from 36% at November month end. The increase was primarily driven by firm-wide deposits, which was $60 billion at quarter end up from $43 billion at November month end. Now, let's turn to the businesses. Starting with institutional securities detailed on page five of the supplement. Revenues of $1.7 billion includes the negative impact of credit spreads discussed earlier. In additional principal investment revenues were negative $791 million, the majority of which relates to write-downs in real estate limited partnership interest. Non-interest expenses were $2.1 billion in the first quarter of ’09, 34% below the average quarter in 2008. Inclusive of the impact of Morgan Stanley’s debt related credit spreads, the business reported a pre-tax loss of $434 million. Turning to investment banking on page six, notwithstanding the challenging market conditions, our franchise remained active and delivered a strong performance. We experienced a strong improvement in market share resulting in top ranking in the lead tables across a number of categories. We were number one in announced global M&A, our consistent measurement and advised the largest M&A transaction to the industry including Pfizer's acquisition of Wyeth, Merck's acquisition of Schering-Plough and Rio Tinto's strategic relationship with Chinalco. We led the reopening of the IPO market with Mead Johnson, the first since November and largest since April 2008. Significant underwriting transactions included concurrent common and convertible debt offerings for Alcoa and Autoliv and GE's capitals unsecured debt offering. The capital markets have remained active in April, we continue to lead significant deals. For instance, we led the IPO for Rosetta Stone, which is the first IPO to price above its filing range in a year. Convertible issuance has had a strong start and we are currently number one in the global convertible lead tables. In the debt markets, Morgan Stanley led offerings including Crown Castle, the largest sole managed high yield bonds since November '07 and a bond offering for Rio Tinto, which is one of the largest investment grade transactions in the second quarter thus far. First quarter investment banking revenues of $812 million were up 33% from the fourth quarter of last year, but driven by increases in all products and regions. Advisory revenues increased 12% sequentially on strength in the U.S. and Asia, even though overall market M&A volumes remained subdued. Equity underwriting revenues were up 14% from the fourth quarter, driven by rights issue activity in Europe. Fixed income underwriting revenues more than doubled on increased investment grade bond issuance and loan fees. Equity sales and trading revenue of $877 million were negatively impacted by $555 million from the narrowing of debt related credit spreads on firm issued structured notes. Prime brokerage core revenues and paradigm client balances were relatively unchanged from the fourth quarter reflecting a stabilization of this business. Revenues were flat driven by a shift in balance mix despite a decline in average client balances. This decrease was inline with the overall contraction of the hedge fund industry. However, client balances of our top 50 accounts increased 10% in the first quarter of ’09 have continued to grow in April. Our industry leading prime brokerage platform continues to provide innovative client solutions such as our tri-party trust structures. Cash equity revenues were down 10% from last quarter, driven by low market volumes and notionals in Europe. Derivatives reported a solid quarter on continued volatility, although client activity remained lower than 2008 levels. Our quantitative strategies were a positive contributor in the quarter. Fixed income sales and trade revenues of $1.3 billion were reduced by $980 million from the narrowing of credit spreads and firm issued structured notes. Excluding this fixed income demonstrated strength across all businesses relative to 2008. Commodities reported one of its best quarters on wider margins and healthy customer activity driving broad based strength across all segments and regions. Trading revenues was strong across all desks. Interest rate growth and currency trading revenues combined were up substantially from the last quarter on strong volumes. Interest rate products reported an exceptional quarter on high volumes and wider spreads. Revenues were up over 150% from the quarterly average of last year. Currency had a strong quarter benefiting from market volatility and strong customer activity. Emerging markets recorded losses on the continued deterioration of Eastern European credit markets. Credit trading reported very strong positive results, compared to a loss in the fourth quarter reflecting higher customer activity levels and favorable positioning on credit spreads. Detailed on pages 14, 15 and 16 of the financial supplement are our mortgage related gross and net exposures. On page 14, you will see that we have streamlined our presentation given the remaining magnitude of our U.S. sub-prime exposures. Simply put, all information previously contained in this analysis, have been aggregated into one schedule. We have combined our ABS, CDO sub-prime positions, with the investment grade rated sub-prime exposures in our subsidiary banks. Our super senior mezzanine net exposure remains zero, $300 million in loss was driven entirely by the investment portfolio in our subsidiary banks included within other sales and trading. On page 15, within non-sub-prime residential mortgage, we reduced our gross exposure by 8% and our net exposure by 18% in December. These exposures include Alt-A, which declined further to $1.2 billion. Overall net write-downs and losses were $200 million. On page 16, within CMBS commercial home loans, our gross exposure remained relatively unchanged. Lastly, we reduced aggregate commercial loans, CMBS bonds and warehouse lines on a gross basis by 15%. Our total net exposure increased as we continue to take CMBS directional positioning as we have informed you in the previous two quarters. Overall, we recorded a net gain of $600 million. Other sales and trading revenues of negative $808 million were primarily driven by our lending businesses, which includes leverage acquisition, finance, and relationship lending. Net losses here were $437 million. We continue to reduce our non-investment grade leverage acquisition portfolio, which is now $4.2 billion as you can see in the footnote in page seven of the financial supplement. Also included in other sales and trading are losses of approximately $200 million from the investment portfolio in our subsidiary banks. This includes losses of $300 million related to sub-prime securities that I mentioned earlier partly offset by gains of a $100 million in non-sub-prime securities. Total average trading and non-trading Value-at-Risk, VaR increased to $142 million from a $129 million in the fourth quarter. Trading VaR increased to $115 million from $105 million primarily driven by higher levels of market volatility. Non-trading VaR increased to $83 million from $66 million driven by widening credits spreads and higher spread volatility. Turning to the page eight of supplement in our Global Wealth Management business, revenues was stable despite the slowdown in the retail market. Those revenues of $1.3 billion increased 2% from the fourth quarter of last year reflects an increase in principal trading revenues partly offset by lower commissions and fees. Principal trading revenues were higher primarily due to strong fixed income trading activity. Non-interest expenses were relative flat sequentially excluding a $177 million of expenses related to auction rate securities from the fourth quarter of last year. Progress from our cost reduction initiatives was offset by higher compensation expenses, profit before tax of $190 million and the PBT margin was 9% for the quarter, but excluding approximately $39 million on a JV related integration costs, PBT margin was actually 12%. On page nine, you can see the productivity metrics. Total client assets decreased 5% as market levels continue to decline during the quarter. Net new assets were $3 billion our bank deposits grew substantially over the last quarter to $47 billion as clients moved more of their assets to cash. The number of FAs was down slightly for the quarter as we hired fewer trainees in anticipation of a joint venture with Smith Barney. Turning to asset management to page 10 of the supplement. Asset management was a pre-tax loss of $559 million driven by investment losses within merchant banking about $310 million pre-tax loss on credits. Core asset management revenues return to profitability in the first quarter, revenues increased substantially from last quarter due to lower investment losses and gain from sales. Management and administration fees declined resulting from lower average assets under management. Merchant banking revenues were negative, $319 million included, principle investment losses of $374 million in real estate including $99 million on Crescent financial assets and $56 million on private equity investments. Non-interest expenses for asset management decreased 24% from the fourth quarter of last year and included an $131 million impairment charge related to Crescent. Excluding Crescent impairment charges in both quarters, non-compensation expenses declined 38% sequentially driven by our cost reduction initiatives. Turning to pages 11 and 12 of the supplement you can see the assets under management and asset flow data. Total assets under management decreased 12% to $356 billion during the quarter from a continued decline in global financial markets and net asset outflows. Virtually all of the quarterly outflows were not core business, primarily from fixed income funds, which include our money market funds. Equity performance had a significant rebounce to U.S. and global growth strategies year-to-date, and we continue to see good long-term performance in small cap, large cap value and international equity. We have also seen significant improvements year-to-date in the global fixed income performance against our peer group. This improvement is largely due to restructuring of the portfolios of some key staffing changes. As I mentioned earlier, we are providing additional disclosure on our firm-wide real estate exposure on page 17 of the supplement. Our total real estate gross exposure as reflected on our statement of financial condition, which includes Crescent and another consolidated interest, direct investments and real estate and infrastructure bonds and bridge financing was $4.9 billion at the end of the quarter. Including $1.9 billion of contractual commitment, our total exposure will be $6.8 billion. This exposure excludes assets and investments for the benefit of certain deferred employee compensation or co-investment plans. On page 19 of the financial supplement, we have reported the results for the stub month of December. We reported a net loss from continuing operations of $1.62 per share. As you know, December was particularly difficult for the industry as the extreme market conditions experienced in November extended into December. The loss was principally due to fixed income sales and trading losses specifically in credit products and leverage lending. Along with extreme movements in our debt related credit spreads, trading losses in November and December drove the dramatic swing in our recast results, which you will see in the supplement during the third quarter and the fourth quarter of ’08. Q1 ’09 results include a $331 million income tax benefit resulting from the repatriation of non-U.S. earnings with tax rates lower than those previously estimated. Excluding this the effective tax rate was 41%. Preferred dividends and other related charges of $401 million reduced earnings by approximately $0.40 in the first quarter of ’09. The Board of Directors approved a reduction of our quarterly dividend of $0.05 from $0.27 enhancing our already strong capital position. Now just a few words on the outlook. Global financial markets were in the midst of a profound cyclical and structural change, which will likely continue through 2009. While banks have made significant progress in de-leveraging, the process of consumer de-leveraging will take time. In order to move towards the constructive environment we must see a deceleration in credit related losses and a significant reduction in funding costs. Government coordination globally is critical in accomplishing this. We are uniquely positioned to benefit from the changes transforming our industry. Despite near-term headwinds, we are gaining market share and executing on our strategy. Institutional securities remains core to the franchise with a range of industry-leading businesses benefiting from market share gains and improved pricing power. The Morgan Stanley-Smith Barney joint venture is a game changer, it contributes the quality and diversification of our earnings and is a significant differentiator of our distribution network and we are confident we can fix asset management. While we remain cautious we are capitalizing on our dominant position for long-term out performance. We are one of the only financial intermediaries with the scale, global footprint, and range of capital market expertise sought by institutional and retail clients worldwide. And with that, I would now take your questions. Thank you for listening.

Thank you. (Operator Instructions). And your first question will come from the line of Mike Mayo. Please proceed.

Good morning.

Hi Mike.

Could you comment on your appetite on returning TARP capital if you are able to do it are you ready to do it and do you think you'll be able to do it?

First let me say that our Tier 1 capital ratio on the Basel I is 16.4%, excluding TARP capital is 12.9%. Our tangible common equity to risk weighted asset ratio is 9.3%. We're more than comfortable with all these numbers. Having said that, we await the results of the stress test and guidance from our regulators as to what they will permit us to do. This is a topic of great debate at this point by many parties and much comment has been made. All that we will say is that after the completion of the stress assessment if permitted and supported by our supervisors, we would like to consider the repayment of TARP capital, we would like to repay TARP capital.

And then a separate question on kind of potential structural changes that you have, you ramped up deposits you said from $43 billion to $60 billion, what's your appetite in buying say a regional bank and then separately your joint venture with Smith Barney it looks like Smith Barney had $40 billion of client outflows in the first quarter. How do you think about that if your partner might not to be as strong as you thought before?

Well, there are two very different questions there, Mike. So, let me deal with them. Our retail banking strategy is very much a function of being supplementary and complementary to what we do in Global Wealth Management, it needs to feed into a high network strategy, which we are being consistent. So, of course we will look at things that fit into that strategy, right? So, I think that answers the question one and we have been quite clear on it. On the Smith Barney, they clearly are having some attrition, but if I look at the Barron's survey of the top 100 FAs we have, a huge amount of those, 33 of those are actually Morgan Stanley and Smith Barney I think of the top 10, eight are Morgan Stanley and Smith Barney. So, there will be some attrition at the lower levels. We look at the top quintiles and so on. What we are absolutely confident about is that when you merge these institutions together, you will get the synergies and economies that we spoke about and you’ll get incremental profit margin because it is a scale business. So, you would expect some attrition in the merger, but the attrition we are seeing is not a concern to us.

Thank you.

Your next question will come from the line of Kian Abouhossein from JPMorgan.

Yes. Hi. The first question is regarding your number of shares, can you just explain the increase quarter-on-quarter?

I don’t think it's significant at all, there will be some employee, let me just have a look at that, period end shares was a little bit from the ICP programs that were coming through, but I have its 1074 with December ’08 and 1081 now. So, its all ICP related.

Okay. On the mark-to-market of the, your real estate write-downs, can you discuss how we should look at that going forward?

Well mark-to-market as you know, Kian is mark-to-market I can't give particular evaluations. So, the only way I would discuss it is, is that there are few issues, first of all Crescent is a fully consolidated subsidiary, our results include all of the revenues and expenses there that includes impairments, sales of certain assets and so on. Remember that I previously told you that approximately $0.90 loss of Crescent, which is in the schedule, their assets are held at cost, which is subject to depreciation unless we have impairments on sales and so on. On the rest of it, which is fair value, we do that on, test disposals and so on. So, we are giving you a schedule that gives you all of those real estate exposures in terms of all I can say about I’m confident with evaluations at March 31 are inline with what we have given you, the exposure we are giving you, you then make your own assessments going forward.

And on the movement of revenues, can you talk a little bit about months-on-months in fixed income and equity?

Sure. You mean the trend of revenues.

Yes, please.

Okay. Look January was the strong month. February was less strong, but pretty fine and we were not comfortable predicting the quarter at that point because we've seen volatility in the past and March was a weak month and as you know, you tend to get a pact of things being said at the end of certain months. In this case at the end of March, we have some recovery on the back of Fed TALF announcements, but up to that point it was very thin volume. What I do can say is that our customer volumes were robust across most asset classes and showed signs of increasing market share through the period.

And can you give us an idea of how much of the first quarter revenues in fixed income equities was related to hedging or prop gains and some of it I assume coming back from the fourth quarter?

Nothing came back from the fourth quarter. As far as I’m concerned, our core operating revenues are very much a function of flow, and I didn’t get anything specific from hedging gains.

Okay. Thank you very much.

Thank you.

Your next question will come from the line of Guy Moszkowski from Banc of America Securities.

Yes, good morning.

Hi, Guy.

You talked a little bit about the CMBS revenues, but I just wanted to drill in on that a bit more, you generated about $1.5 billion in net revenues from your hedges in the quarter it looked like, if I interpret the table correctly, after making about 2.5 billion on that last year, clearly good risk management results, which made the CRE P&L positive in both periods, but I also noticed that you reduced your overall hedging in the quarter by about 2 billion and as a result I think you alluded to your net CRE positions did bump up at the end of the period. Maybe you can talk a little bit about in particular the reduction in hedges?

Well that’s interpretive, as I said you in previous quarters, while we are actually managing down our gross exposure in CMBS with bond, loans, and the warehouse line is down 15% at March 31. With the widening spreads and the volatility we saw in the marketplace, we have actually acted upon opportunities within these asset classes to take directional positions from which we benefited and I think I alerted you last year to the fact that that schedule would show trading activity and you'd have to look it on a line-by-line item.

Yeah. No, fair enough. Just wanted to follow-up on that and make sure that I understood that correctly?

It is true, Guy, yeah.

Okay. I also noticed that real estate equity exposure on the P&L, sorry I noticed that your real estate equity exposure only fell by about $200 million even though the P&L was a negative $1 billion are you actively adding to your exposure in funds in Crescent or is there something else that would explain that?

I think the combination of losses recognized partly offset by additional investments, we disclosed our commitments during the quarter. Principally those committed capital caused by the funds has kept that balance relatively consistent between December 31 and March 31. So, we actually do show you the disclosure and the commitments. Yeah.

Okay. That makes sense. On fixed-income and maybe I'm not really looking at this the right way, but if I do a quick adjustment of your fixed-income revenues by aggregating the other, which as I think you pointed out is largely credit portfolio. And then adding back the related fair value of the debt mark and all the other identified marks that you gave us in the quarter

Yeah.

And if I compare it to similarly adjusted figures for your main competitors, it still seems like you are running significantly lower than Goldman, Citi or JPMorgan. And I am wondering despite the fact that you say that you're seeing improvement in market share, whether there is something in terms of risk appetite or something else, which might be driving that?

Yeah, definitely it is about risk appetite look at our VaR numbers, which is significantly lower, look at our balance sheet, I mean we did not see on a risk adjusted return basis this quarter the sort of opportunities that others may or may not have seen. We have been clear that we will take risk, when we take the risk adjusted return appetite is a warrant to that and that is reflected in VaR numbers, balance sheet, and position. What I can tell you is we know, what our market shares are and we feel comfortable in making the statements we've made.

Okay, that's fair. And then just finally one update, do you have an update on the pro forma impact of the Smith Barney joint venture on book value and tangible book value per share?

Yeah. Well we are currently at the end of the quarter, tangible book value per share at $24.65. We think that tangible book pro forma would be $22.20, but our value per share would go from $27.35 to $28.99.

Great. Thank you so much.

Your next question will come from the line of Howard Chen from Credit Suisse.

Good morning, Colm.

Good morning, Howard.

Thanks for taking my questions. First, could you provide us with where your marks stands for commercial real estate, residential real estate, and leveraged loans at the end of the March quarter?

Sure. Well, CMBS bonds will trade are marked in the mid-40s, mezzanine commercial loans are marked in the low-50s, Alt-As are marked in the mid-20s, sub-prime maybe as CDO mezzanine in the low teens and legacy last leverage finance, acquisition finance, portfolio loans are valued in the low 60s. Have I missed anything?

No. I think that covers it all from my end, thanks. And then Colm, could you provide us with respect to the December stub months in more detail on magnitude of the debt spread gains and potential write putdowns that you may have taken in that month?

Sure, basically it’s a $1 billion of write-downs in leveraged lending write-downs and resi and commercial mortgage loan write-downs, then we have the best part of $300 million in DVA.

Okay. And then finally from my end, how should we think about competition accrual going forward I know there is a bunch of moving parts to the P&L this quarter and just wanted to get your sense of how that maybe smooths out or changes over the course of the year?

Sure. Well I mean in compensation we look at a predictive basis on how we are going to pay people during the year right. So, consistent with our policy our compensation accrual is a result of our best estimate of compensation at year-end considering our results, market environment and accrued based upon quarterly revenue. Now, so this quarter we are expecting the trajectory of our revenues to improve during the year, we are comfortable that we will pay competitively based on the market obviously estimating compensation have been difficult. So, yeah, away from that is there anything else you want to know?

No, I think that covers it. Thanks Colm.

Thank you very much.

Your next question will come from the line of Steve Stelmach from Friedman, Billings, and Ramsey. Please proceed.

Hi good morning.

Good morning.

Just real quick, you've indicated in the past that you may contemplate issuing non-guaranteed debt?

Yes.

Is that a condition of repaying TARP?

No.

No. Okay. And then secondly, why would you issue the non-guaranteed debt presumably if that is a higher cost of funding. Are you running out of capacity there or is that just… [Multiple Speakers]

No, not actually there is anything I have excess liquidity Steve, the issue is really a signaling thing, we need to get the unsecured markets reopened, there are really being two deals done by two competitors and, obviously people are paying as you’re intimating relatively high spreads for that, but I think its important to show that the unsecured markets will reopen.

Okay, great. And then in your prepared remarks just lastly, you mentioned the de-leveraging of the consumer and presumably that’s baked into, your expectations for the joint venture. How should we think about that impact on the retail brokerage unit, is it just a matter of the mix of assets, what investors will choose to invest in or is it lower assets under management, how should we think about that phenomenon?

Well I think it is baked, it is certainly baked into the consideration we paid as a price, but actually the attraction of the Global Wealth Management business is that it's an economy of scale the more scale you have the more you can reduce your cost basis and you can actually get attractive PBT margins on that base. So, we have a forecast reduction in revenues, but it is more than offset by the economies of scale itself.

Perfect. Great. Thank you very much.

Your next question will come from the line of Chris Kotowski from Oppenheimer. Please proceed.

Hi, a couple of little questions. First, as I noticed there are sort of a shift out of net interest income into trading income it looks like and I was wondering especially with, the extra free funds as it were from the preferred going up I would have thought net interest income all things being equal should have been higher and I was wondering is there something to that, is there a fundamental reason for that?

Well I think it's really the problem is that we're a strange animal we're not a bank. And, as we are moving towards being a bank, I mean we are a bank that can be wrong, we are a bank holding company, but the core of our business is institutional securities, so you would not see similar trends from a commercial bank. And I think that's something we just have to try and explain a bit more, but nothing untoward in that at all Chris.

Okay. And then also you talked before about interest in acquiring a branch system. Can you talk about your appetite for assuming credit risk in a big loan portfolio in any kind of acquisition like that?

Sure, we haven't spoken about an interest in acquisitions of branches. We actually have a branch system of a 1,000 branches in a pro forma basis with Smith Barney, what we spoken about is that we will acquire things in so far as they add to our high network strategy within Global Wealth Management. We're really not in the business of adding to loan exposures, except for what will support our existing business and clearly defined strategy.

Okay, good. And then finally the tax rate of 41% is that something we should be using going forward or is – was that abnormally high and why?

Well, it is our best guess of where we are at the moment based upon our regional split of revenues and other tax planning strategies we have been doing.

Okay. Thank you.

Your next question will come from the line of Roger Freeman from Barclays Capital.

Hi, good morning Colm.

Hi Roger. How are you?

Good, thanks. Just wanted to come back to elaborate on a few other questions that have asked. So, I guess first within fixed-income trading, how do you think about sort of your risk taking appetite going forward, it sounds like, you may move to more risk loving position, which you always stay in subsequent quarters if markets improve, but actually, just the question here is how much risk actually had to be taken this quarter to make money because lot of what we hear is that, which is a wide bid add spreads and descent client flow generated pretty healthy profit and it really wasn’t about taking a lot of risk, so any thoughts around that?

Well, look I mean I would just repeat what I've said earlier, Roger, and I don't want to call anybody else it's a question of interpretation. If I look at our market share, which we can measure on various markets, we gain market share into markets broadly, I mean we see that in investment grade credits, we see that in interest rate flow, we see that in commodities and so on. Right. So, we certainly are getting our share and increasing share in the flow businesses. We are prepared to take more risk to support our client businesses, but it has not impacted our share of the flow in our opinion. So, moving forward when we feel on a risk-adjusted basis if warrants taking more risk we will do that.

Okay. That’s helpful. Thanks. And then I guess in the equities business, can you comment on some of things that contributed to some weaker spots there, you mentioned equity volumes being down, I mean actually equity volumes were up 4% sequentially from the fourth quarter, I guess is that a comment about the flow you saw across your desk? I know more flows…

I think it’s more about the flow across our desk. It's also really a comment on the absence of hedge funds in the market to a large extent and the prime brokerage revenues. Prime brokerage revenues have traditionally been a reasonable chunk of our business, as you know we’re resizing that business, our market share has slipped we said at the end of the third quarter earnings call we were moving away from a market share strategy to a much more contiguous strategy and that's what we’re doing. And as I’ve said we seen evidence that our balances from our strategic or contiguous clients are coming back up. So, I expect that that will improve over time within a resized prime brokerage business, given the constraints of our balance sheet, which you have also been clear about.

Did you say the balances there earlier were actually flat sequentially and primarily…

Yeah pretty much flat sequentially, but what's interesting is in the end of March and beginning of April, we've started seeing increases in those balances from our major accounts. Now, our balances were flat, but you go to see that in the context of a market, during the first quarter there were significant redemptions from hedge funds that would seem to imply that relative to the market we were increasing share from our low point.

Okay. And then, given the marks that you just disclosed in I think Howard's question. What are your thoughts about selling into the [People's] securities program if I get that off the ground it looks to me like you can make some money off of that, most people in the industry are saying they're not going to fell into this?

Well we don't know at the moment, we want to do because we're unclear with circumstances and conditions surrounding those programs.

Right.

And we actually applaud the initiatives of the regulators and the Treasury to get these programs up and running, but there has been a certain degree of confusion coming into the market about what are the implications I have used in the program either as a buyer or seller. So frankly, we have to wait and see what those implications are.

Okay. And then just lastly around the come back to commercial real estate. So, I’m a little confused I guess Crescent is where most of your actual equity in real estate investments is like, office, multi-family, et cetera is and the marks there are very light, it sounds like because you carry investments at cost. So, I guess my question there is, I mean tell me if I’m wrong about that, but I guess my question is, would you think the difference in the value on a fair market basis is from what you're carrying at and are there refinancings coming up inside those portfolios on those properties this year that would force you to take impairments?

Well, I can't foresee those possibly number one, Crescent remember has, we've shown you the growth, it's a non-recourse financing against that. So, our net exposure will allow to speak in those terms is significantly smaller and we have taken impairments and write-downs where we can in our LP commitments, they are what they are, $1.9 billion we referred to and everything else we've disclosed you the gross and as always with real estate you've got to be aware or one has to be aware that there's always refinancing risk. So, we're dealing with those accordingly and we're disclosing as much as we can.

Okay. All right. Thanks.

Thank you very much.

Your next question will come from the line of Meredith Whitney from Meredith Whitney Advisory Group.

Hi Colm.

Meredith, how are you?

I am very good. Thank you. Roger asked a lot of my questions, but I wanted to take an opportunity to ask you about the wealth management division. Do you have an option to buy original bank or are you fully at maximum capacity with respect to your wealth management business, because there are going to be obviously assets for sale that's another way of generating deposits. And then as a follow on to that is are you gaining share there and does anything have to do with the Switzerland U.S. tax issues and can you elaborate on the competitive market specifically to attracting brokers?

Well on the tax issues, we have none of those issues.

Yeah, I know. But you benefit from the fact that you don't have any and others may?

I think, look yes. I think first of all let's begin we are going to be the largest wealth manager, by certain measures anyway and we think that that will give us significant profitability. So, if you remember in the fourth quarter, we lost some FAs its clear now that we got net new money coming in $3 billion its clear that we are attracting high-quality people and you see the from the Barron's survey of our quality people that we have. So, we actually think that we are very well positioned as I said in my comments it's a game changer and we are now getting a lot of interest in people coming to us. You're absolutely right it was a period where one of the firms was attracting headcount on various deals. I think that that has stopped or slowed and I think the market is in flux, but we're pretty comfortable with our dominant position where we are and what we now need to do is to optimize it. In terms of deposits as you know in a pro forma basis slewing off a significant amount of deposit, and we’ve given the liability strategy about how much deposits feed into our network. But I want to repeat something on deposits again. Deposits are only useful in so far as you can use them, all right, so what we have to do is to continue to convert grow our bank, move eligible activities into our bank and that will dictate the pace in which we can grow further deposits.

Okay, I guess I'm just going to re-ask my question, which is it seems that the economics of a wealth management model?

Meredith, hello? Are we lost? Sorry, Meredith, you went dead there sorry.

One moment. Your next question will come from the line of Richard Ramsden from Goldman Sachs.

Hi, guys. Good morning.

Hi Richard

I just have a question on the structured credit notes, which you're getting marked. Can you give us the size of the portfolio that is getting marked and how that's changed since the start of the year?

Well the portfolio is continuing to run-off in our level 3 disclosure at the end of November. I think we showed you a growth size for memory of about $28 billion, and not all of those are fair valued, but a great majority of them are, the average duration is about 3.5 years and I think we can probably work it from that if that's okay, Richard.

Yeah. That’s very helpful. And is there a specific hedging policy as well in place.

We have looked at hedging DVA its as you know, its GAAP earnings, I don't think there is any real correlation for that, the problem is…

All right.

That our spread is being very volatile and that's why we don’t hedge it, which is why we have always disclosed this.

Okay. That’s great. Thanks.

Your final question comes from James Mitchell from Buckingham Research.

Hi good morning. One just, most of my questions have been asked and answered, but maybe just follow-up on the DVA is there any ability to buyback debt at discounts to kind of lock in the gains that we saw in the fourth quarter, obviously they’ve recovered in value of a decent amount, but I still think they're trading below par, or are you kind of constrained by TARP and other things from doing buybacks like that?

Well it’s a very good question, you are constrained under the terms of TLGP from buying back debt other than from normal debt defense and so on. But also you got to look at these structured notes, you have to make a market in terms of debt defense. The nature of these structured notes are primarily small investors, who buy them with embedded options and so on, it's not like doing a tender for a public bond issue.

Right. Fair enough. Okay, thanks.

Well that’s the last question. Well thank you very much everybody. Appreciate the time. Thanks.

Ladies and gentlemen thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.