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 web cast will be available through the company’s web site and by phone through April 19, 2008. This presentation may contain forward-looking statements. You are cautioned not to place undue reliance on the forward-looking statements which speak only as of the date on which they are made which reflect management’s current estimates, projections, expectations or beliefs and which are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion on the risks and uncertainties that may affect the future results of the Company please see forward-looking statement immediately proceeding Part I, Item I; Competition and Regulation in Part I, Item I; Risk Factors in Part I, Item I A; Legal Proceedings in Part I, Item 3; Management’s Discussion and Analysis of Financial Condition and Results of Operation in Part II, Item 7; and Quantitative and Qualitative Disclosures about Market Risks in Part II, Item 7A of the Company’s Annual Report on form 10K for the fiscal year ended November 30, 2007 and other items throughout the form 10K and the Company’s 2008 current report on form 8K. 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 10K and our current reports on form 8K which are available on our website at www.MorganStanley.com. Any recording, rebroadcast or other use of this presentation in whole or in part is strictly prohibited without prior consent written of Morgan Stanley. This presentation is copywriter and proprietary to Morgan Stanley. At this time I would like to turn the program over to Colm Kelleher for today’s call. Please proceed.

Thank you for joining us today. Given this tough environment it has been difficult to follow this sector. We will continue to provide you with the information you need to understand our results. As you know, the market is in the midst of major de-leveraging following extended period of ample global liquidity and low rates. The first quarter was one of the most challenging we have seen but we have navigated it well which is a testament to the strength of Morgan Stanley’s client franchise. We generated a net income of $1.6 billion, diluted earnings per share of $1.45 and a return on equity of nearly 25%. We are pleased with these results given the macro economic turmoil and dislocations in leveraged lending, commercial real estate, sub-prime, mono lines and SIV’s. There was strength across many of our businesses including record revenues in equity derivatives, prime brokerage and interest rate products and significant growth in our non-U.S. and emerging markets business. Net revenues were $8.3 billion dollars and PVT margin was 27%. Non-interest expense was $6.1 billion, up 14% form the fourth quarter, driven by compensation that included severance expenses related to staff reductions as we resized our business to reflect the current revenue environment. On Page 3 of the Financial Supplement you can see that total global headcount decreased by 2% from the end of last year. The compensation to net revenue ratio was 49%, or 47% excluding the severance charge which is in line with our guidance last year. Non-compensation expenses were $2 billion, down 6% from the fourth quarter or 19% excluding that quarter’s Colburn Sunbeam legal accrual reversal of $360 million. The non-comp to net revenue ratio was 25%. We are focused on improving our cost base and would expect to see improvements in this ratio going forward. Before we go into the details of the businesses, I would like to highlight several key accomplishments that not only helped our results this quarter but also are helping us build for the future. We have been clear about our expectations for the environment since the market dislocation began late last summer and we have managed our exposures accordingly. We are maintaining our capital surplus. We brought leverage down and we continue to maintain a high level of liquidity. As you know, the CIC capital effusion came into effect this quarter helping to bolster our strong capital position. We reduced our adjusted leverage ratio from 17.6 times last quarter to 16 times. At the same time, we increased our total liquidity by $6 billion to $124 billion including an increase in our parent company liquidity position by $8 billion to $70 billion at quarter end. These measures put us in a solid position to take advantage of the market opportunities that will arise from the dislocations in these markets. We continue to make enhancements to our risk management organization to support our business model and growth initiatives including most recently naming Ken deRegt as our new Chief Risk Officer reporting to John Mack. We have resized our organization to better align it with the revenue environment and while we incurred severance costs or expense in the quarter, it will lead to cost benefits in both comp and non-compensation going forward. We are maintaining very tight control over expenses and we are continuing to make investments in infrastructure, technology and business expenses related to increased pipeline activity. We have continued to make leadership changes across the firm as we look to strengthen our bench of talent and Ellen [McCulgan] will be getting Global Wealth Management later this quarter. We are confident she will continue building on the momentum that James Gorman has built in this business. Now let me turn to the businesses. Starting with Institutional Securities Details on Page 5 of the Supplement. These results reflect continued strength in many businesses including areas with end credit. Because of these strong results we mitigated the impact of negative market valuations. Revenues of $6.2 billion, although up significantly from the fourth quarter of last year, were 13% lower than last year’s first quarter reflecting the overall ongoing challenges in structured credit and the overall market dynamic. Our core client franchise continues to deliver very strong results across all businesses within institutional securities. Non-interest expenses of $4.1 billion increased 34% from the fourth quarter of last year. This increase is magnified because last quarter included the reversal, as I said earlier, of the Coleman Sunbeam reserve while this quarter included severance charges. Excluding these items, non-interest expenses increased 16% from the fourth quarter. PBT was $2.1 billion with an ROE in this segment of 24%. In MNA and underwriting volumes dropped across all major categories. Our pipelines continue to be healthy and our clients continue to engage in strategic conversations. However, market conditions may make monetizing pipelines challenging in the near term. Looking at page 6 of the Supplement, investment banking revenues were $918 million, down 28% from the fourth quarter of last year largely reflecting lower volumes. Advisory revenues were $444 million, a 43% decrease from the record fourth quarter but up 19% from the first quarter of 2007. Underwriting revenues decreased 8% to $536 million as lower equity underwriting offset higher revenues in fixed income underwriting. Sequentially equity underwriting revenues at $261 million were down 25% driven by lower volumes of secondary offerings in IPOs and lower activity in Asia. Fixed income underwriting increased 17% from the fourth quarter of last year to $275 million predominantly reflecting activity with investment grade clients. Page 6 of the Supplement shows sales and trading revenues of $5.1 billion, up significantly from last quarter’s negative revenues of $5.6 billion. This quarter’s results reflects strong results in our client franchise across equity and fixed income sales and trading. Organizationally we have changed the way we look at our fixed income business. We view the major business cash agrees as the first interest rate credit and currencies, second commodities and the third is the mortgage proprietary trading effort. Total fixed income sales and trading revenues were $2.9 billion reflecting record results in interest rate products, strong results in commodities and a $527 million benefit from the impact of widening credit spreads on firm issued structured notes. These gains were partially offset by losses in mortgage proprietary trading. The interest rate, credit and currency area increased close to 300% from the fourth quarter. This was driven by record revenues in interest rate products reflecting higher volatility in flows, significantly improved credit trading results reflecting higher customer volume, continued volatility and favorable positioning as credit spreads widened during the quarter. Credit trading excludes leveraged lending results which are reported in other sales and trading. With an increased focus commodities rebounded from weak performance in the second half of last year producing near record results driven by particular strength in oil and liquids. We benefited from better positioning among high volatility levels and strong customer flows with strength across regions and commodity classes. We also had strength in new areas where we have been investing like agriculture where we significantly increased results from last year’s first quarter. Finally, mortgage proprietary trading which is now segregated and managed separately, significantly reduced its losses versus last quarter but still reflect the challenges of the current market environment. Reflecting our strong client franchise, our equity business produced record results this quarter with broad based gains across regions and products. The combination of high volatility, strong customer flow and excellent positioning within our trading businesses drove the record quarter. Revenues of $3.3 billion were 35% higher than last quarter reflecting record derivatives in prime brokerage and particularly strong results in quantitative strategies. This quarter’s results also benefited from a $321 million gain on firm issued structured notes. Turning to other sales and trading was a negative $1.1 billion driven primarily by write downs in our lending business and to a lesser extent the U.S. banks liquidity portfolio that we reclassified from available for sale last quarter. Our lending business includes both relationship and leveraged lending. We have made it very clear that leveraged lending was one of our biggest concerns because the markets remain severely dislocated and virtually shut down during the quarter. Similar to the third quarter last year liquidity disappeared from the market and as a result we have taken additional write downs on our lending business of $2.1 billion gross or $910 million debt of hedges with 50% of the gross write down attributable to our leveraged acquisition finance pipeline and closed deals. While we employ a variety of hedging strategies including macro hedges and various parts of this portfolio, market liquidity was pronounced and evaluations reflect that. One page 7 of the Financial Supplement you can see that our total non-investment grade loans commitments decreased from $30.9 billion at the end of the fourth quarter of last year to $26 billion this quarter. Specifically within the $26 billion is the total leveraged acquisition finance portfolio of both pipeline commitments and closed hung deals of $15.9 billion. This is down from $20 billion last quarter as you can see in the footnote. At this stage I would like to give you key updates on our marks and exposures hit hardest by the credit cycle. In CNBS, commercial home loans, we continue to get observable market prices from executed trades. We have $23.5 billion on our balance sheet down from $31.5 billion at the end of the fourth quarter and $11.6 billion in net exposure down from $17.5 billion at the end of the fourth quarter. This repositioning was done across all regions without incurring any significant net losses or write downs. Our residual exposures remain geographically diversified. At the end of the first quarter non-sub prime residential mortgages which include RMBS bonds, residential AltA loans and European mortgage loans were $14.5 billion on our balance sheet, down from $16.5 billion at the end of the fourth quarter. Total net exposure was $8.7 billion down from $10.9 billion last quarter. Included in that net $8.7 billion AltA net exposure of $4.6 billion was reduced from $5.3 billion at year end through executed trades and corresponding marks calibrated to those trades. The total write downs here were $600 million. RMBS bonds and European mortgage loans that make up the remaining net exposure to the non-sub prime residential category were reduced without incurring any significant net losses or write downs. You can see on page 15 of the Financial Supplement that our direct U.S. sub prime net exposure at the end of the first quarter remained at $1.8 billion, the same level as at year end. However, we reduced our super senior mezzanine net exposure by $1.1 billion through dispositions and additional write downs of $700 million. We also wrote down our residuals by $300 million. Our hedges performed well resulting in an overall PNL of zero for this position. Our aggregate direct exposure to mono lines at the end of the first quarter was $4.7 billion, up from $3.7 billion at year end. This increase in net exposure reflects the current environment and our continued support for selected municipal client transactions. The net exposure includes $1.3 billion of AVS rack bond held by our subsidiary banks, $2.6 billion of insurance municipal bond securities and net counter party exposure to mono lines of $800 million consistent with year end. During the quarter we took a credit valuation adjustment, a write down, of approximately $600 million reflecting the widening of credit spreads experienced by the mono lines. So while we expect the industry to see further mark downs as the credit cycle unwinds, we understand our exposures well and we continue to work to reduce them. Turning to capital and liquidity there are three key tenets that I want to emphasize. The first is we are maintaining a strong capital position. The second is we are maintaining very high levels of liquidity and finally we are maintaining a balance sheet with judicious leverage ratios and capacity. Page 4 of the Supplement highlights our current capital position. At the end of last year while our regular capital was always in a surplus position our period end internal economic capital model calculation showed a shortfall which we disclosed and addressed. During the first quarter we earned a 20% return on equity, received the benefit from the CIC investment and we suspended our share buyback program temporarily. So we are very well capitalized and clearly have excess capital. Despite stronger results this quarter we are still placing a significant emphasis on our capital and liquidity to ensure we have enough dry powder to continue investing in our businesses and to take advantage of opportunities. Since last summer when I said we expected the credit market dislocations to continue for some time we took the following actions to strengthen our liquidity position. We raised a significant amount of liquidity in the capital markets through the issuance of long-term debt and structured notes at every opportunity at reasonable levels. We actively managed down positions requiring significant cash funding such as event loans, commercial real estate loans for the peak in the third quarter. This freed up a sizeable amount of liquidity. In the trading business we focused on reallocating balance sheet to liquid assets with significant two-way customer flows. In the lending business we used our U.S. bank platforms where we have abundant liquidity and excess to additional liquidity to finance longer term assets. Lastly we strengthened our liquidity position and reduced our refinancing risk by using some of the incremental liquidity to pay down commercial paper of an average of $25 billion from last year to our current outstanding of just under $17 for this quarter end. So as for the liquidity numbers, let me explain that we hold liquidity in three groupings. We hold liquidity at the parent company level for the repayment of debt as it comes due along with the consolidated liquidity needs of the firm. We hold liquidity in our banks and subsidiaries which support much of our lending activity. We hold liquidity in our non-bank subsidiaries for example our U.K. and Asian broker dealers for sales and trade activities. You can find the most recent information on these on page 75 of our 10K. Total liquidity for all three groups is $124 billion at quarter end and averaged $123 billion for the quarter, upping the average of $85 billion 2007, an increase of 45%. Parent company liquidity averaged $71 billion, up from $49 billion average last year. Bank and non-bank subsidiaries averaged $52 up from $36 billion last year. So far in the second quarter our liquidity continues to be very strong. Averaged total liquidity has been $125 billion and averaged parent company liquidity has been $77 billion. As you know we aggressively reduced our balance sheet last quarter. Our discipline in maintaining an appropriately sized balance sheet in today’s environment along with our strong capital position has brought our gross leverage ratio down to 27.4 times from 32.6 and our adjusted leverage ratio down to 16 from 17.6. This combination of our strong capital, high liquidity and reduced leverage positioned us to take advantage of near term market opportunities. Total average trading and non-trading [VAR] increased to $103 million from $98 million last quarter primarily driven by increased volatility levels. Average trading value at risk increased to $97 million from $89 million. While position levels remained essentially the same the increase from trading value at risk came from emerging markets, foreign exchange, spread widely in the mortgage markets and the reclassification of our subsidiary bank liquidity portfolio into the trading portfolio. These were formerly categorized in non-trading [VAR]. Risk management remains a top focus and we have fortified a strong culture. In addition to bringing back Ken deRegt as Chief Risk Officer reporting to John Mack, we made several changes to our Risk Management organization mainly adding increased market knowledge and trading expertise to complement our risk models and scenario analysis. We continue to balance opportunistic risk taking with risk reduction in residential and commercial mortgages and leverage finance. Now turning to page 8 of the Supplement in our Global Wealth Management business, revenues of $1.6 billion climbed 10% from last quarter reflecting a lack of new issues affecting the investment banking revenues, a general market slow down during the quarter which drove down commissions and principal trading results. Non-interest expenses decreased 4% from last quarter. An increase in compensation costs that included a severance charge was offset by a decrease in non-compensation expenses which include certain sub advisory fees now being reported as a reduction in net revenues due to contract modifications. PBT of $254 million decreased 33% from last quarter and the PBT margin decreased to 16%. Over half of the decrease was driven by lower revenues. The balance was the result of severance expenses incurred in the quarter, seasonally higher benefit expenses partially offset the lower non-comp expenses. ROA for the business was a healthy 42%. On page 9 you can see the productivity metrics. Net new assets of $11.4 billion represented our eighth consecutive quarter of positive client in flows. Access to the $1 million plus household segment decreased 6% from last quarter to $191 billion primarily due to market movements and is 71% of our total client base. Total client assets decreased 5% from last quarter largely reflecting market levels. Average FA production decreased to $761,000 as the result of lower revenues reflecting in part the absence of new issues and an increase in the average number of FA’s versus last quarter. FA headcount was essentially flat with the end of last quarter. Average assets per FA at $85 million were down in line with market depreciation, partially offset by the increase in net new assets. Our bank deposit, however, grew to $33.4 billion as clients moved more of their assets to cash in response to the more volatile markets. Let me turn to our asset management business which has been delivering strong results in recent quarters. There is no doubt our asset management business was negatively impacted by the turmoil in the market this quarter especially in comparison to the strong results we delivered last year. But this shouldn’t overshadow the good progress we’ve made executing our multi-year growth plan. We have grown assets under management 27% from two years ago. We are successfully building out a private equity infrastructure in alternative businesses with emphasis in alternative strategies up more than 147% from two years ago. We have also continued the expansion of our International footprint by hiring local sales teams, opening local offices and enhancing our alliances. As you can see from page 10 of the Supplement, our asset management business reported a pre-tax loss of $161 million. Our revenues this quarter were down significantly from the strong numbers we reported in 2007 driven almost entirely by the current challenging market environment. The sharpest declines were in the two principal transaction lines, trading and investments. The trading lines includes $187 million in losses from securities issued by Structured Investment Vehicles (SIV) held by Asset Management. Total SIV exposure in our money funds is now $3.6 billion, down from $8.2 billion at the end of last quarter. The bulk of this decrease came from securities maturing. The remainder came from asset sales and approximately $200 million was taken onto our balance sheet. Exposures relating to SIV on our balance sheet was $588 million at the end of the quarter. 100% of the remaining SIV’s in our money funds were sponsored by commercial banks that are provided public support for their SIV programs or have brought them on to their balance sheets. We anticipate the maturing securities in our asset management will continue to reduce position through the second quarter. The investments line includes gains and losses from our merchant banking business which includes the real estate, private equity and infrastructure businesses as well as any gains and losses in our core asset management businesses which were redefined as traditional equity and [inaudible] fund and alternatives. Merchant banking investment revenue declined $395 million primarily driven by real estate losses in the first quarter versus gains in the fourth quarter. Core asset management investments reflected a net loss in the quarter down $142 million from gains posted in the previous quarter. Loss in the first quarter were primarily from equity and alternatives products fee investments in those markets that saw the sharpest declines. Asset management fees decreased 14% largely driven by lower performance fees in our alternatives business and low core management fees primarily driven by equity market declines. Non-interest expenses of $704 million were down 27% from last quarter driven by lower compensation related to the first compensation plans as well as decrease in professional services and marketing costs. On page 11 of the Supplement you can see the flow data will be continued to show positive flows in our non-U.S., U.S. institutional and America’s intermediary channels. We had strong in flows in our alternative products distributed through the non-U.S. and U.S. institutional channels. As James Gorman told you in January we have yet to turn the corner in net positive flows in our retail mutual funds space. This continues to be a major focus of the management team going forward and we have made some key management changes in this business including the naming a CEO Van Kampan who will also have interim responsibility for Morgan Stanley’s retail funds. In terms of new offerings, we launched an additional 15-year products discloser, 9 in alternatives, 4 in equity and 2 in fixed income. We have significantly expanded our product offerings over the past few years and the new products we have launched since 2006 contributed $3.2 billion of in flows for the quarter which includes flows in new merchant banking products. On page 3 of the Supplement you can see the regional revenue disclosure for the firm. This quarter 54% of our revenues are international with 39% from Europe, the Middle East and Africa, 15% from Asia and 46% has come from the Americas. International expansion remains one of our most promising opportunities and we are aggressively pursuing new markets where wealth is developing rapidly and there are opportunities for us to bring global capabilities to a local level. Now to wrap up a few words on the outlook. There are two key issues underpinning the current crisis in the markets. One is de-leveraging. This is liability driven focused on the position of liquidity but is forcing portfolio liquidation and price deterioration. The other is de-risking. Reluctance to extend risk capital. The former is being addressed in market actions, the second will take some time to resolve itself. As a result markets remain challenged with distribution models still frozen in some cases. Pressure will remain until markets begin to heal and the increasing level of uncertainties taken out of the system. We have been consistent in our views on the market that it will take some time, at least several more quarters, for credit markets and liquidity to return to more normal levels of activity. We still believe that the structures and securitization markets will remain challenged if not impaired for an extended period. Away from these markets, however, there continue to be opportunities in other areas of fixed income including interest rate, foreign exchange and commodity products within emerging markets. The commodities business continues to build upon its leading market presence as we saw in agricultural this quarter and we see more opportunities in moving upstream and extending and expanding our global footprint. Emerging markets remain a top area of investment and focus with growth prospects particularly in Asia and Latin America. The investment banking pipeline continues to be healthy and many of our clients are engaged in strategic conversations. The current market environment may delay monetizing the pipeline, however. Volatility in the equity market and trading volumes remain high which [increases] the strength of our flow businesses, a key operating strength of our franchise. This creates opportunities for our clients and for our cash derivative sub prime brokerage businesses. Real estate and private equity investment revenues will be under pressure near term, however this market presents and will present many investment opportunities. Although there has been a slow down in revenues, the retail investor has remained engaged so far. We believe that our more productive sales force, increased deposits and growing international businesses will lessen the impact if retail investors pull back because of the difficult markets. Although we acknowledge the bearish view in the macro environment, there are several positives that are worth noting. Valuations have declined and buyers will re-enter the market at some point. Corporate fundamentals are still in good shape with robust cash levels and relatively low leverage. From a technical perspective sentiment has been particularly bearish. However there has been some evidence of non-credit players buying into the credit asset class. The financial community has been vigilant in recognizing asset impairment and this is a necessary step for financials to move towards reparation. The de-levering process is clearly underway and this ultimately should result in a less volatile market driven more by fundamentals. There is a litany of alternative policy proposals on the table as rate cuts alone are not enough and we are seeing aggressive central bank actions. So we do not see near term cyclical challenges changing our view of long-term secular growth opportunities. We continue to focus on leveraging Morgan Stanley’s global scale franchise and integration across all our businesses. We are optimistic on the breadth and scope of our client franchise with our strong capital base and liquidity and our ability to continue investing in the opportunities that are presenting we will grow our share of the markets. Thank you. Now we will be happy to take questions.

Please stand by while we wait for the question-and-answer portion of the conference to come in. Our first question comes from the line of Guy Moszkowski with Merrill Lynch.

Good morning. I was wondering if you could just give us a little bit more color on the sub-prime analysis on page 15. You alluded in the press release to a $1.2 billion charge I think that you broke it down a little bit more in your comments and I just want to try and relate your comments and the comment about the $1.2 billion specifically to the items in the table on page 15.

Sure. As you know, the financial supplement schedule represents all of our U.S. sub-prime net exposure. So we are continually managing down our net exposure to the areas where we incurred our greatest losses in 2007. That is through a combination of disposition and write downs. So you see a decline in the net exposure. If you look at our super senior the CVO mez line and the AVS bond positions there was a $2 billion decline there, right? However, within that coordinated sub-prime position we are supporting client business. The combination of those two resulted in the aggregate exposure remaining at $1.8 billion but within the prop trading element which is part of that you do see the reduction of super senior CVO mez where we did take the write downs and residuals. So jut to clarify that. When we spoke about mortgage proprietary trading losses of $1.2 billion where do you see those, right? Well you see the write down within the sub-prime, which I disclosed, and then we took additional write downs in our AltA positions which were about $600 million.

Okay. I think I get that now. And then the reduction in the CDS hedge sort of short from 5.1 to 3.3 over the course of the quarter?

The reduction in that really is when we reduced that as we reduced the positions itself, obviously as a function of dispositions either write downs or sales. We’re looking for further opportunities in this space to manage position. The message I want to give about that infamous trade is we have actually got in a situation now where we are managing it very efficiently under shorts of working against it going.

Okay. It sounds like the topic waste cleanup is considering a page and I guess that is a key. And to that you said that organizationally you had broken out the mortgage prop trading group. Is that something that is going to be kind of an ongoing business or essentially is that a work out group?

I think at the moment our priority is to work out those positions and that is the way I would look at that activity.

Fair enough. Are you seeing asset growth in the institutional business that at all material as the result of seizure of collateral from prime mortgage or repo clients?

No.

So whatever you see you are able to dispose of quickly?

Yes.

You mentioned de-leveraging several times during the call including right at the outset and clearly your firm although not all of your competitors did, at least not on a gross leverage basis. It sounds like listening to some of the other conference calls the last couple of days essentially the FED’s creation of their new facility has taken at least some of the pressure to de-leverage off. Would you agree with that or do you not really feel that makes a difference?

I think it has taken some of the pressure off. But we’re looking specifically at Morgan Stanley how we want to manage our balance sheet and how liquid we want to keep it. So I think what the FED has done has been incredibly proactive and helpful for the market but it doesn’t get away from the way we are looking at our business and how we want to sail close to shore and manage for opportunities. That is the way I’m looking at it. I did hear some of those comments as well but it doesn’t change the three tenets that we’ve given you for this environment, Guy.

That’s entirely fair. If I can just ask a last one. You talk about de-leveraging and then you also talked about de-risking which seemed to be a more tenacious problem. Is the de-risking something that would be closer to resolution do you think if there were more fiscal policy type adjustments as opposed to what we’ve seen just principally been on the monetary front?

I think it would take a number of proposals to do that. What you really need is the confidence of people to extend risk capital again and that is going to take some time. However we get there is going to be a subject of a lot of these proposals we are looking at. The first part of that I do believe which is balance sheet disclosure is largely done. The second part of that is raising capital through various methods and then through other proposals.

Okay. The final question I want to ask you is on book value. This is just accounting but it really didn’t go up anywhere near your earnings and obviously you didn’t buyback shares.

I think that is it. We got the dividend. We didn’t buy back shares and that is the main thing but we can rationalize that to you later.

That would be helpful. Thank you.

The next question comes from the line of Meredith Whitney with CIBC World Markets. Go ahead.

Hi. I have a couple of questions in terms of you guys have been great and consistent about giving a protracted outlook on difficult markets. But in terms of the events that have happened in the last couple of weeks, does it change your near term outlook for any type of asset dispositions particularly with the Fannie Freddie announcement this morning…does that accelerate any type of near term asset disposition plan?

The way I look at it is we have been very consistent for mortgage [inaudible] and our view in these markets the proposals are starting to unfold. Obviously the acceleration of events last week accelerated much quicker than we ever thought they would but we have been looking at situations of maintaining capital, having a liquid balance sheet, maintaining liquidity and so on. So we may get opportunities to do things quicker, but I think our strategy itself has been more thought out and formulated.

Okay. And then just a quick follow-up. With respect to…you guys had talked about disposing Gold Fish and with respect to outlook on good will and then could you remind us if there is any good will associated with Saxon?

Well Goldfish I don’t know about because it is part of a separate company. Saxon we have as you know good will at the operating level which is consolidated at firm level where it is not deemed to be material.

Okay. I apologize. The only good will I could pull up on you guys was related to Goldfish and of course that is discovered. Thanks.

The next question comes from the line of Roger Freeman of Lehman Brothers. Go ahead please.

Hi good morning. I just wanted to come back to a couple of questions that Guy had. Could you just help me reconcile again on the $1.2 billion dollars of mortgage related write downs? How much in there is sub-prime? There is 700 of gross but what is the number there because the other pieces you talked about is there is 600 of all that and then there is 600 related to counter-party exposure. Could you just tie up all of that please?

It is specifically related to sub-prime at 7 and the 1.2. If you look at the numbers we have 500 was a write down mez, the CVO mez, 400 was a write down…in fact 400 was a write down on the residuals, right? The bonds. And we wrote down 600 and then we had some hedges offsetting those. That is how you get to the 1.2.

But the hedges look…they all offset. The net is zero change on the PNL for the quarter, right? Specifically related to the sub-prime?

Specifically related to the positions which are reflected on schedule. Now let me explain, when we gave that we had to show all our direct sub-prime exposures including what was on trading desk. The bulk of that was what was happening in the mortgage proprietary area. That’s why you gain the skew on the numbers, right? So if you think about it, strip off the AltA which is not on the schedule itself but it is part of the $1.2 billion, so what you are saying is the net of that is what relates to the sub-prime.

Okay so the 600 then relates to counter-party write down. Is that separate?

We also need to support select declined positions on the schedule and secondly what you have is dispositions in there as well. Within the dispositions, by the way, anecdotally on some of the positions we unwound we actually had some write offs which is why you have some noise on the movement.

Okay. I guess just also on elaborating. Is it fair to assume that you are looking in this environment right now continuing to de-lever the balance sheet?

I think it is fair to say that we want to maintain a liquid balance sheet and be prudent which is what we are being.

Okay. Inside of prime brokerage can you talk to any tightening of margin requirements that you have been putting through to clients? Has that been material?

I think what we have been doing is optimizing pricing within our prime brokerage business. Our balance is relatively unchanged from last quarter but our revenues have been up. I think that is what has been happening. I think we have managed that business very well. We keep a very clear eye on our free capital within the area. So that is really all I want to say about prime brokerage.

Okay. In [50 some] sales and trading obviously a very strong quarter you talked on the call about both favorable positioning and strong client flows. How would you characterize that sequential delta if you had to skew flows versus…

You know this is the $60,000 question and having grown up in fixed income we have had debates about that forever. The way I’ve always answered that question is we take positions based on edge we have, which is our client franchise, right? I think you should look at this is clearly a monetization of our client franchise. Some day’s position may be more. Other days it may be the [inaudible]. There is no doubt that the offer has been increased but I think to actually try and do some percentage of splitting the two doesn’t make any sense. We are trading clearly with information and with open information based on our client flows.

Was the pulling in commodities from the negative last quarter to the pretty strong positive this quarter pretty meaningful to that?

No I think what I said to you last quarter, Roger, was if you remember we had poor trading. We eliminated the poor trading. We had very strong client flows coming through at structured positions and better trading this quarter. In fact, the investment coming through from new businesses we invested in such as agriculture.

Okay. Last question. I know this doesn’t get a lot of focus right now in terms of wealth management but looking at your clients by size the over $10 million category assets declined the most. I was wondering if there is anything you can speak to in terms of market trends there?

I don’t think there is a market trend. It is really a reaction to the market. If you look at the strength of our wealth management business, our retail business, it is really fueled by the capital market activities to a large extent. The capital markets have been subdued this quarter. That’s the way I look at it. I think the underlying core trend of our business and our strategic push of $1 million, $10 million, $10 million and above clients is very intact so I really wouldn’t read anything in this other than this is a good, ongoing good trend for that business after an exceptionally good fourth quarter.

Do you view these municipal issues as significant issues for the wealth management business in terms of the auction rate and any repositioning you might have to make there?

Not particularly.

The next question comes from the line of Glenn Schorr of UBS. Go ahead please.

Hi. First question is so if you look at the leverage came down, you paid a lot of attention to that and de-risking, but the assets are up and obviously you got the equity infusion, but you also mentioned near term opportunities. So I get all the moving parts. But in terms of overall size of balance sheet potential my gut it sounded like that could actually go up as you see chief opportunities in dislocated markets and then just overall controlling that leverage.

I think that is a fair point but let’s just clarify one thing. The balance sheet went up I think $40 billion which is a blip on a balance sheet our size, right? We do have a liquid balance sheet. You are absolutely right. We are staying close to the shore. But there is a world where we could opportunistically put up the balance sheet if the opportunities really present themselves on a risk adjustment basis and make sense. But that is not our intention. As I think I said before our intent was to really sail close to shore and really opportunistically on a risk adjustment return basis make adjustments to our balance sheet or liquidity.

That is fully helpful. On the commercial real estate front, pretty meaningful reduction. No impact in terms of marks? I’m just kind of curious on the kind of things we’re [sold] in the court and then of course how you are hedging I’m assuming through the CNBX…I’m not sure how else you can.

No, we have a number of hedges. We have a variety of hedges and it is not just the CNBX hedge. If you remember, last quarter when we looked commercial mortgage it was more viewed internationally. I think at that stage we were approximately, don’t shoot me, 70% or so international 65% of our hedges were in the U.S. What has happened is we have managed to reduce some of our international exposure which has continued to perform well through dispositions and so on. Our international exposure is down 48% on a much reduced amount and we feel better symmetrically aligned with the hedges. Look, we flagged the fourth quarter our number two issue that we wanted to manage. We managed it down from the third quarter and it is clear we have aggressively managed it down for this quarter. So I feel reasonably comfortable about that position.

Okay. That is good. The other expense line is up a lot, but lets just take it to a higher level. You mentioned the cost ratios in the beginning and thoughts on how it will improve going forward. In this revenue environment I’m assuming that it is more on the cost line than the revenue line but if you could just elaborate on what kind of things you are talking about and how meaningful you feel that to be?

Undertaking a thorough review we are ripping out costs as we go forward and obviously we have dealt comp to a large extent but on the non-comp side we are aggressively looking at those situations and I think you are going to have to assume I am going to be doing things about it. Sorry to be opaque.

No problem. Last one. Unencumbered liquidity buckets…what do they consist of?

Cash…near cash stock. I love the term unencumbered because you could actually add in addition to our $124 billion we had significant amounts of other unencumbered liquidity but our unencumbered or $124 billion is cash and quickly convertible into cash type instruments.

Good. Not [inaudible].

Its real. Its green.

Got ya. Thanks very much.

The next question comes from the line of Prashant Bhatia of Citigroup. Please go ahead.

Hi. Just in terms of the de-leveraging, do you have even a rough target of where you’d like to see the gross in that leverage get to?

No. It’s very simple. We just want to be judicious in the way we are reacting in this market. Yes we want to be able to have opportunities to take advantage if it makes sense on a risk adjusted basis.

Okay. And then it looks like the CVO mez position that you were able to sell, does that mean you are starting to see a vulture bid in that market?

Not really. I would love to think that is the case but no we just managed to get dispositions done, some sales done for various reasons. But as I said I think the management of that position now is…I don’t want to shock you but we now actually have a positive convexity on that position so there you are…as we have the ability to manage it back up.

Okay. Then on leveraged lending, the commitments were down $5 billion on non-investment grade?

Right.

But it doesn’t look like anything was funded. So you just rolled forward what happened between the last quarter and this period end?

Yeah. What actually happened was if you look at it we reduced our commitments to $4.5 billion which is down from $12.2. $900 million of the deals withdrawed and $6.8 billion were closed. Of the deals closed roughly $3 billion were reduced through syndication activity and commitment decreases.

Okay. Also, in wealth management on the bank sweep you are up to $33 billion now. How much is left there that you can bring into bank?

I don’t know. A lot of that is a function of the markets. Fear will bring more cash. I think that was its optimal target. I kind of think we probably from a scale point of view given normalized markets or thereabouts.

Okay so that is just in flow from clients. There is no transfer taking from money funds taking place?

That’s correct.

And then on the auction risk securities, can you quantify what is being held? How much your clients actually hold in those securities?

Roughly it is $20 billion.

Okay. Thank you.

The next question comes from the line of Bill Tanona with Goldman Sachs. Go ahead please.

Good afternoon guys. The European results looking at the revenues they were down sharply on a sequential basis. I know the have been largely outperforming but just wanted to know what ultimately was driving that type of a decline? Were there any type of write offs there or was that just a….

I don’t know what schedule you’re looking at Bill because actually our European results were pretty big. Specifically…

Asian results.

Oh Asian results. I thought you said European.

I did. I mistakenly said Europe.

I just think that the market has been subdued. Banking was a big factor last quarter for us and you’ve just seen activity levels down but we don’t think it is a trend. In fact if anything we continue to throw more resources into Asia. We appointed a new CEO of our Asian business, Owen Thomas, and it is a major focus area for us. I don’t think there is any trend there. I think it is just a blip from a change from one quarter to another. Banking really is the main driver.

Okay so none of the write downs you guys had reported were in that segment this quarter? It was all client driven. And then I guess moving over to the IB pipeline you more or less hinted that this environment was pretty tough in terms of deals getting executed but I don’t recall you giving any type of pipeline disclosures. Do you have those available?

The overall investment banking pipeline seems to be down about 35% from this time last year but we are obviously increasing market share in that so our pipeline itself remains healthy. And strategics are coming in so I think it is very early in the year to know how that is going to play out but we don’t feel uncomfortable about our investment banking pipeline.

Okay. And then lastly I guess going back to the deposit program I guess there is obviously a lot of concern in the marketplace as people kind of build these businesses out particularly in this environment with hedging prices going down. Can you give us a sense as to what you are adding to the portfolio there on the loan side as you are building out that deposit base?

You mean in GWM?

Yes.

The retail business. You know we just do high end mortgage business on a very heavily LTD basis. We have no issues there at all and it continues as part of our capital management program.

The next question comes from the line of Michael Hect of Banc of America. Please go ahead.

Hey Colm how are you?

Well Michael. How are you?

Pretty good thanks. Question there has been some talk and focus on the repo finance market and obviously the FED’s new facility takes some of risk there off the table. Could you just talk a little bit about any risks or challenges you guys are seeing in the repo area and then give us the duration of your repo maturities today? It seems like when I look at your balance sheet over the last few years you guys have been reducing your reliance on repo, much lower than a lot of your peers?

That’s fair. I mean if we just talk about liquidity first, we’ve spoken about our liquidity itself but one of the tenets of our liquidity is to look at the term nature of our financing books. So we have extended like the others. The average tenure on that financing is 34 days. The collateral is free liquid. So away from that, that is Morgan Stanley. In terms of the market, market for collateral seems to be normalizing. The FED has clearly helped. So you know it was something that was well within our stress scenarios.

That’s great. I’m sorry if I missed this, but did you give an update on where your level three assets stood at the end of the quarter versus last quarter? I think they were like $74 billion or 7% of total assets.

I did not. I’m very comfortable to. We are still at 7%.

7%. Okay so with assets up the asset numbers would just be up a little bit. That’s the way math works.

I mean again you’re not going to shoot me for $40 billion on a trillion plus balance sheet are you?

No. And then any big shifts in terms of the components of the change. I mean is it just more kind of a shift from level two to level three because of spread widening?

I’m still going through that process at the moment. But I would expect what you’ve got in a market like this is with lack of observability prices you will have more of that grid and you’ll probably have more of your hedges as a result of that being in level three.

Okay. That is fair enough. Can we come back to the results in equities which seems pretty strong and it seemed like in your remarks it was kind of across the board. PB record [inaudible] strategy had a good quarter, but any other color there? And then you said prime brokerage is a record. How about the balances? Were the balances up quarter for quarter?

Balances were flat. We had some pricing power as indeed the whole industry did. What I will say is there is no single story across all our business lines and actually our major business lines in equity we had very strong course. And a lot of that is investment paying off or investment derivatives and clearly in our delta one cash customer businesses we had increased activities. We had better bid offer and again that is the strength of our franchise or at least strong customer franchise.

Okay. And the comp rate shows this quarter of 49% or more like 47% excluding leverage. I guess despite the revenue declines year-over-year you are lower than the 48% a year ago. I mean how should we kind of think about that and I know the outlook will depend on how revenues come in, but just any thinking about how we should think about comp ratio for this year?

I think at the moment it is the old story. We are looking to give a [inaudible] accounting to our shareholders. We are looking to preserve the enterprise value but a major dynamic this year will be the competitive pressures.

Right. I guess headcount is down about 2%. Any thoughts on where we can expect that to trend for the rest of the year?

I think we’re looking at a lot of it is depending on what is going to happen in the markets and the degree of reparation in the markets particularly on the part of these distribution models. So we will be focused intently on this. We are looking very much at our divested allocation of resources and as soon as we get more clarity I will be able to give you more clarity on where we are going.

Okay that’s fair. Last question. Just on the asset management business the results there obviously impacted by the marks that you saw but if I look at the core fee traction rate, core fees or just the asset management fees down 14% quarter-over-quarter, and your assets fell about 3% and there is definitely a mixed shift towards money funds going on so I guess that is part of it. But it still seems a little bit out-sized. Is that just mixed of incentive fees versus core fees that are bulk reported within that bucket?

It is two. It is one, the market and the movement of the money funds. Two is performance fees clearly which we are not benefiting from in the investments we made. These things are short-term. We expect as I said we feel very comfortable about the underlying trend of our asset management business.

Is there seasonality this quarter Q1 versus Q4 where the incentive fees would typically be heavier in Q4?

Not particularly.

We have time for one more caller and that is from the line of Jeff Harte with Sandler O’Neil and Partners. Go ahead.

Good morning. When we think about the operating environment looking back at the last quarter and then looking forward in the first quarter there were great trading volumes across a whole bunch of different products in asset management. How should we think of the potential for that to continue going forward against the back drop of what seems to be a slowing economy and not a lot of investment banking activity models? It would seem some of those fundamental under layers would suggest some of the trading activity levels we’ve seen may not be normally sustainable.

Well I think there are a few dynamics at work. One is we clearly had liquidity coming through the system which would help. Two is you might not get the degree of trading volume but you are getting increasing participants in the market particularly in terms of equivocation of new markets and so on. Then finally I suspect there will be some reduction in competitors. We’ll have a gapped leader make ups that we can make in some of these markets or where we are a leader we can extend them. I’m not unduly concerned about that to be honest. I think the secular trends are towards growth of capital markets, increased activity and so on.

Can you talk a little bit about risk appetites that you are seeing in some international markets or also some domestic. I’m kind of used to seeing what is going on domestically where people are often risk adverse. To what extent is that spreading through other parts of the globe to you think?

I think in the credit market is pretty much a global phenomenon. I think away from that we are seeing good risk appetite in liquid products and the equity markets still seem to be pretty vibrant. I think that is the way I would characterize it.

Thank you very much.

Thank you very much everybody. I hope to see you all soon.

Ladies and gentlemen thank you for your participation in today’s conference. You may now disconnect.