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 for a period of seven days. 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 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 of additional risks and uncertainties that may affect the future results of Morgan Stanley, please see Morgan Stanley's annual report on Form 10-K for the year ended December 31st, 2009 annual report on Form 10-K, Morgan Stanley's quarterly reports on Form 10-Q, and Morgan Stanley’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 the Morgan Stanley's annual report on Form 10-K, Morgan Stanley’s quarterly reports on Form 10-Q, and Morgan Stanley's current reports on Form 8-K, which are available on Morgan Stanley's Website, www.morganstanley.com. Any recording, rebroadcast or other use of this presentation in whole or in part without the prior written consent of Morgan Stanley is strictly prohibited. This presentation is copyrighted and proprietary to Morgan Stanley. At this time, I would like to turn the program over to the President and Chief Executive Officer, James Gorman for today’s conference call.

Thank you operator, and good morning and thank you everyone for joining us. I am going to make some brief opening remarks before turning the call over to Ruth. As you all know, the second quarter was a very difficult environment for the businesses we operate in, and within the quarter, the second half was more challenging than the first half. The macro environment was characterized by uncertainties regarding global growth, concerns on European sovereign credit risks, and in the United States the impact of financial regulatory reform. Volumes in client activity across businesses were light, reflecting both institutional and retail investors’ lack of conviction. Notwithstanding this market environment, we continue to make progress on the execution of our strategy. We remain committed to deliberate and disciplined execution specifically. In institutional securities, we are continuing to build our world-class client franchise and there is evidence of clear progress as Ruth will provide in detail in a moment. Despite the broad impact of eroding risk appetite, several franchise businesses performed well including investment banking, prime brokerage, cash equity trading and commodities. We continue to broaden our footprint and build on our competitive strength and capabilities. Our increased client focus is gaining traction through the reinvigorated senior relationship management effort as well as our focused and coordinated sales coverage. On May 1st, we closed on our joint venture operations with MUFG and are now running combined Japanese securities businesses. We have already seen tractions from our partnership. Last week for example, Nippon Telegraph and Telephone Corporation hired us to advice on a $3.2 billion purchase of Dimension Data, the biggest deal so far for the joint venture. In Global Wealth Management, we continue to integrate Smith Barney and made progress against the very detailed plan with the backdrop of a weak retail investor market. Retail investors have been risk averse in the current environment with high volatility and lot of returns in the equity markets. We believe this will continue in the immediate term. We expect margins to remain subdued through the year, and while we maintain our long-term pretax margin target of over 20%, the exact timing will obviously reflect market conditions. In Asset Management, the sale of our retail asset management business to Invesco closed on June 1st. Greg Fleming is building a long-term plan for this business and has made key senior highs to his management team this quarter. Obviously we would take into account the implications of the bulk rule as we move forward. We are investing our control, risk and finance functions as we build our infrastructure consistent with our desire to be a world-class financial holding company. While we have made progress this quarter, we still have significant work to do to achieve our long-term goals. In the short term however, earnings are likely to be choppy given the market environment. Finally, with the recent hiring of Frank Barron as our new Chief Legal Officer who starts later this summer, the new senior leadership team is in place and collectively focused on disciplined execution against those stated goals. Now, I am going to turn it over to Ruth to review our second quarter results. Ruth?

Thank you James. For the quarter ended June 30th, Morgan Stanley generated income from continuing operations of $1.4 billion, with diluted earnings per share of $0.80 and an ROE of 12.2%. Our results this quarter reflect the global breadth of our franchise, early progress with our sales force sales as well as the benefit of strategic initiatives against the backdrop of very difficult markets as James noted. In addition, results reflected the impact from the widening of credit spreads on firm-issued structured notes commonly referred to as DVA as well as one discrete tax benefit. Specifically, our second quarter revenues were $8 billion, down 12% sequentially. The impact from DVA was roughly $750 million or $0.27 per share. Our non-interest expenses were $6.3 billion, down 4% from last quarter on lower compensation and the compensation ratio was 49%. Compensation expense included a charge of $361 million related to the UK government’s payroll tax on 2009 discretionary bonuses. Non-compensation expenses were $2.4 billion, up 11% from last quarter primarily due to higher legal costs and technology investment spend. The impact of the tax benefit was $345 million or $0.20 per share, reflecting the re-measurement of tax reserve based on the status of federal and state examination. Excluding the benefit, the effective tax rate would have been 33.5%. Including discontinued operations, our diluted EPS was $1.09 and ROE was 17.4%. Discontinued operations included an after-tax gain of $514 million related to the sale of substantially all of our retail asset management business including Van Kampen. Turning to our book value on page three of the supplement, book value at the end of the quarter was $29.65 per share, up 7% sequentially. This increase in addition to earnings included $0.51 per share related to an after-tax gain of approximately $717 million on the sale of the firm’s non-controlling interest in its Japanese institutional securities business recorded in other comprehensive income. Turning to balance sheet data on the same page, total assets were $809 billion at June 30th, slightly lower than the $820 billion at March 31. Our capital ratio continued to demonstrate the strength of our balance sheet. Although our calculations are not final, we believe our Tier 1 capital ratio under Basel I will be 16.4% and our Tier 1 common ratio will be 9.2%. In addition, as noted in the 8-K we filed this morning, we will be directly redeeming rather than remarketing the trust preferred securities underlying the mandatory convertible equity units with CIC. This will add $5.6 billion to Tier 1 common in August. I will now briefly review our business units. For institutional securities, revenues were $4.5 billion, down from the first quarter on difficult markets across sales and trading businesses, while investment banking industry volumes remained subdued. Revenues included approximately $750 million of positive DVA as mentioned earlier. Non-interest expenses were $2.9 billion in the quarter, down 11% sequentially on slower compensation. Excluding DVA, the compensation ratio was 43.6%, up from the first quarter and included a charge of $354 million for the UK bonus tax. The business reported a pretax profit of $1.6 billion. With respect to investment banking, revenues were $885 million, essentially unchanged from last quarter. For the first half of 2010, Morgan Stanley ranked first in global IPOs, second in announced and completed global M&A and third in global equity. Advisory revenues of $288 million decreased 12% from last quarter. We were the advisor for four of the top five M&A transactions announced in the quarter, which highlights the global breadth of our franchise. These included, in the US, a $22 billion acquisition of Qwest Communications by CenturyLink; in the UK, the $13.7 billion buyout of BSkyB by News Corp; and in Russia, we were the sole advisor to (inaudible) and it’s a $11 billion restructuring of its subsidiary holdings. Equity underwriting revenues were $269 million, up slightly from last quarter. Significant transactions included National Grid’s $5 billion rights offering and Samsung’s Life Insurance $4.4 billion IPO. Fixed income underwriting revenues increased 11% sequentially to $328 million on significantly higher loan syndication fees. Overall, our investment banking pipelines remain healthy across regions and products, but the issue is moving transactions through the pipeline and into announcement especially for M&A. We are more positive about expected IPO activity in the back half of the year, with large offerings from Asia and the US and we are the book runner on seven of the 10 largest IPOs in the US file backlog. Turning to equity sales and trading, equity sales and trading reported solid revenues of $1.4 billion that included DVA gains of $129 million. Cash equity revenue grew up from the first quarter, reflecting both commissions and trading revenue. Prime brokerage revenues were also higher as we continue to deepen relationships with our existing clients while selectively increasing our client base. Average client balances continue to grow, up 5% sequentially. Derivatives reported modestly lower but solid revenues against a backdrop of market uncertainty with particular strength in the flow business. Fixed income sales and trading revenues of $2.3 billion included DVA gains of $602 million. During the quarter, we continued to execute on improving distribution and footprint within interest rates, FX, and emerging markets. Within our Interest Rate, Credit & Currency business, IRCC, revenues were affected by challenging trading conditions in May and June and declined significantly from the first quarter. Rates in credit were adversely affected by the difficult trading environment characterized by the absence of clear trends while FX revenues were higher on increased client flow. In commodities, despite range bound but choppy market conditions, revenues improved from the first quarter on an increased and structured transactions. Other sales and trading revenues of negative $101 million were primarily driven by Value-at-Risk losses in our corporate lending business as credit spreads widened across various sectors. Net mark-to-market losses in the quarter were approximately $277 million. Turning to Value-at-Risk on pages three and six of the supplements, total average trading and non-trading VaR decreased to $164 million from $169 million in the first quarter. Average trading VaR decreased to $139 million from $143 million, primarily driven by reduced risk in emerging markets foreign exchange exposure. Average non-trading VaR increased to $67 million from $62 million, primarily driven by the inclusion of our investment in Invesco. With respect to our Global Wealth Management business summarized on page 8 of the supplement, revenues of $3.1 billion were essentially flat from last quarter due to the impact of declining equity markets and as retail investors became increasingly cautious given macroeconomic concerns especially post the Flash Crash in early May. Non-interest expenses were 2.9 billion and included approximately 106 million in integration costs. Excluding integration costs, expenses were relatively flat from last quarter. The compensation ratio was 64%, driven by the formulaic [ph] grid payout, and profit before tax was 207 million for a PBT margin of 7%. On page nine of the supplement, you can see the quarterly productivity measures for the business. Total client assets decreased 6% sequentially to 1.5 trillion on market depreciation and asset outflows. The disclosure around retail asset flows has been expanded this quarter to include the international businesses and exclude certain legacy Smith Barney middle-market activities. Total retail net new assets both US and non-US were negative 5.5 billion, reflecting the quarter's market volatility compounded by April tax payments. The number of FAs remain relatively unchanged at 18,087, and turnover within our top two quintiles remained at historical lows. Deposits in our bank deposit programs were 110 billion, of which 52 billion is held by Morgan Stanley Bank. The bank deposit program represents the majority of the 61 billion in firm-wide deposits at quarter-end across Global Wealth Management and Institutional Securities. Now turning to Asset Management on page 10 of our supplement. Net revenues were 410 million, down 37% from the first quarter. Core asset management generated revenues of 300 million, down 28% sequentially, due to negative marks on seed investments and lower performance fees. Merchant Banking revenues of 110 million declined almost entirely due to the absence of principle investment gains from consolidated NASRA funds in the first quarter. Non-interest expenses for Asset Management were up 3% from last quarter on higher compensation expenses that included certain international tax equalization payments. Excluding non-controlling interests, the segment's pretax loss attributable to Morgan Stanley was 83 million. As summarized on page 11 of the supplement, total AUM decreased 4% to 251 billion, primarily due to the market impact on the equities. Net asset flows were 1.2 billion during the quarter, and nearly 70% of our equity and fixed income strategies continued to outperform their respective benchmarks on a three, five and 10-year basis. Finally, regarding our outlook; the global economic environment continues to be our key concern. The second quarter was one of volatility without direction, driven by a broad set of economic, political and seemingly random events shaking investor confidence. As you know, these included the European sovereign debt crisis, US regulatory reform, global growth concerns, and finally, the flash crash. Although the economy remains fragile, we believe fears of a double-dip recession are overstated, and that belief is based in part on the constant dialogue we are having with our global corporate clients. With liquidity levels high and valuations depressed across markets, an absence of further negative events should pave the way for a return to more historically normal client activity. However, we are not expecting a rapid rebound in client volumes or equity market pricing because of the time it will take to restore confidence across the board and particularly with individual investors. Nevertheless, we remain cautiously optimistic because we are using this time to build our pipelines and strengthen relationships, thereby continuing to increase market share. On the regulatory front, we have been of the view that resolving regulatory reform is critical to restoring confidence and stability to the markets and are pleased that the bill was passed and will be signed by the President. As James said at the outset, we are focused on execution and believe we are well positioned for the challenges and the opportunities ahead. Thank you and now we will take your questions.

(Operator instructions). And the first question will come from Guy Moszkowski with Bank of America.

Good morning, Guy.

Good morning. You talked about the reg reform and I was hoping that maybe you could give us a sense of what you are – for what you are seeing as the major areas of impact for Morgan Stanley, and what might be some of the key adjustments that you are looking at to your cost structure, to business models, to how you use capital based on what we know so far?

Certainly. I think the main point is that we are pleased that the bill is being signed because we are of the belief that clarity should help restore confidence in the market, and this is an important bill, an important step forward. And there is obviously a lot to be done as regulators engage in the studies and rulemakings. You know, specifically to your question, I think the two provisions that are most relevant for Morgan Stanley are derivatives and the Volcker Rule. On the Volcker provision, there is clearly a reasonable timeline for phase-in, four to 12 years. And our approach is to take that time and have a very thoughtful, measured approach to the portfolio. Similarly on derivatives, there is still a lot to be determined. I think the early read for us is that elements of the proposed reform should be positive. First, we don't have derivatives in our bank, as I think you know, so we should be able to move certain derivatives such as rates, FX and risk management into the – the risk management swaps into the bank. And then second, with the move to a more central clearing, I think the most important issue for clients will be they will be getting greater transparency and liquidity, which is a positive. As we're looking at the clearinghouse and the implications, the credit of the clearinghouse clearly is important, the cost of which will be borne by the industry and although that cost is still unclear, it is important because that is where the clients will be focused. But for us, I think the benefit is there will be heightened premium on client service, the quality of research and coverage, which should benefit us. So I think it is a pretty high level to go into detail on. More than that, it is early days, and we are being deliberate in our approach.

Yeah, fair enough, thanks. And now just if I can ask you a couple of questions more about the financials that you have presented. With respect to the institutional business, the compensation to revenue if – ratio, if we back out the UK tax and the DVA from the numerator and the denominator, was around 34%, and it was down from about 41 in the first quarter. What should we be thinking about as we model the rest of the year?

I think two things. First, the firm-wide charge was 361 million. And as we had previously indicated, it was substantially borne by employees globally. As we look forward, to answer your question about accrual for the year, it is difficult to forecast and would depend on a number of factors, including financial performance, the competitive market environment, and regulatory oversight. So I think first quarter it was around the 41% range, and I think you can look at the first half.

So kind of average the first half ex the special effects and maybe think about that as a run-rate? Would that be a reasonable approach, or would that be underestimating the expense?

Yeah, no, I think that is fair again with the proviso that we are always subject to the market environment regulatory issues, but that is a fair approach.

And then just on the other expenses, the non-personnel expenses, those seem to ratchet up quite a bit. It certainly seems like given a big chunk of that is in professional services. It is probably legal. But is that sort of one-time costs of review given the need to review business practices and the like, or should we be thinking that those higher levels of non-personnel expenses might persist for a while?

I think there are really three components to it. You have touched on one of them, which is legal. We also, as I think James noted, have – are investing in IT to ensure that we have the proper infrastructure and analytical tools. And then there is also, there tends to be, as we've looked over the last several years, a little bit of a seasonal pattern. The second quarter is typically higher than the first quarter. But we continue to be very focused on expenses and trying to make sure that we are being disciplined in holding expenses as best we can.

So in terms of the legal component, should we think that it kind of persists, or does some of that abate?

You know, I think that broadly unfortunately I think the environment in which we are all operating industry-wide is one in which legal costs will likely be higher than over the most recent cycle. But that is more of a sense from [ph] what we are seeing broadly than trying to provide any level of certainty, but it seems to be – yeah, seems reasonable.

I think it is fair enough. And then final question I will ask you is just on asset management. It is still losing money. The outflow is abated, but we are still seeing them across the sort of core long-term product categories. Greg Fleming has been in place for I guess a couple of quarters now. I was just wondering whether you have some direction that you can give us in terms of how the strategy might be adjusted?

He has only been in place a couple of months, and he’s doing a thorough review of the asset management business and is going to be articulating his strategy for the business, for the Board. But the objectives remain the same and very straightforward delivering superior performance for our clients, returning the business to strong and consistent profitability and reigniting a best-in-class investment culture. Looking at the expense structure to ensure that we are able to deliver profitability is a key element of the overall analysis.

Hi, it’s James, just to add to that. As you know, we laid out at a couple of investor meetings a long-term strategy for investment management. The first piece was the combination of our various funds businesses which we did, the second was to exit the retail space which we have done, the third is the buildout of the institutional and money market funds business, which Greg is actively working on and a number of the highs he has made it in the last four weeks is support of that. The fourth is to look at the structure associated with the various hedge fund stakes that we have and the fifth is to calibrate the amount of capital we want to put into our merchant banking activities, which we are doing overtime. So, there is a lot more news to come from Greg on that.

Great, thanks. We will be looking forward to it. Appreciate it.

Thanks.

The next question will be from Howard Chen with Credit Suisse.

Good morning.

Good morning.

I was just hoping if you could give us a broader update on the institutional buildout, how many of those 400 plus hands on deck you hired are now in place and producing in your minds, and what’s sort of the hiring outlook from here?

Most of what was articulated last year, we have been executing upon, we are going to continue to add selectively where it makes sense, there are quite a number of people who want to be on this platform, and we are always pleased to add great talents. So, I think the key element is we brought the men at sales of trading, it’s around the globe, integrating them. We have seen some success I think reflected in the market share, improvement this past quarter, and it is very much integrating the new people who are coming in with the strength of the teams that we have and with Colm Kelleher and Paul Taubman’s leadership, what we are really focused on is disciplined execution marrying the new people along with our broad team of – into programs like our senior relationship management program, which we have talked about overtime, which enables us to deliver more of the firm globally and across products to our clients that’s certainly a combination of the new people with the existing team with the management disciplines that I think you are seeing reflected in some of the market share gains.

Okay, thanks. That’s helpful. And then, you should think here it is capital, you have said in the past the unallocated capital is just that, you know, rather than excess capital. I guess with that being said, your capital are strong, the composition will improve with the CIC conversion this quarter, does anything change in your view on how you think about that unallocated capital as potentially excess capital?

We call it unallocated capital and now we are calling it parent capital because our view very much has been that the regulatory environment will continue to evolve, Basel 2.5 obviously coming in, and now we have a date of end of 2011 and then Basel 3 at some point thereafter and the assumption has been that we will continue to build capital that will be allocated to the businesses as we have greater clarity coming out from Basel. And so, that’s one important element that we continue to view capital and the fact that we do have this excess unallocated parent, whatever you want to call it, is providing the base to elegantly move into Basel 2.5 and then beyond. And so, as we are thinking about various capital management opportunities, dividends, share repurchase etcetera, at this point, I still would say it’s premature, we want to see ongoing progress in the earnings, we want to see a more durable economic recovery, but do take your point that we have built out that capital base.

Okay, thanks, makes sense. And then, Ruth, just quick one on the numbers, I know, I realize you consider this part of the core trading revenues, but hoping you could provide us with the impact of CVA this quarter?

CVA will be, that will be detailed out in the Q.

Okay, great. And then final one, I think James alluded to it last quarter, but just what’s the state of the CICC stake cell?

We don’t comment on live transactions or situations, and we will give everyone the update as soon as we can.

Okay, thanks so much.

Thank you.

The next question will be from Mike Carrier with Deutsche Bank.

Thanks. Hi Ruth, just on the trading, you gave some pretty good color on the breakdown across the different products, both equities and fixed income. Just that the equity number really stands out, I think relative to peers this quarter, so anything from a market share gain that you can point to, anything whether it’s US, Europe or Asia? And then, I guess on the fixed income side, you kind of, I think that was more in line, but anything from a client versus product progress that you are seeing?

So, on the equity side, we do think that we had market share gains in cash equities, we are pleased with a lot of the client activity on the derivatives side, and as I noted, on prime brokerage, we were similarly – view that the results reflected ongoing progress that was going deeper with existing clients and selectively broadening out our client base as we said, but from the level of activity that we have been seeing and that is globally, it really does go I think to the strategy that we have delineated, we would also say we still think it is early days.

I would just add that in the last several months as John Mack believe, myself and other senior management have been travelling around the world, we have consistently heard or refrained from clients that they would like to do more business with Morgan Stanley, and I think what you see in some of the results, it’s the support that we are getting from the clients and the strength of the brand of the franchise. Obviously a lot more to be done, but the (inaudible) has been supported so far.

Okay. And then maybe another one for you James, just on the wealth management business, you kind of headed towards in terms of, you know, obviously retail environment pretty challenging across the Board. When you guys detail the longer-term goals in terms of the pretax margins, can you give us a sense, you know, I think like the end of this year, beginning of next year, the integration going on and converting like three platforms to one wealth management, just how much of the margin improvement can be related to what management could control versus what’s going to be more markets flows interest rates going forward?

Well, a couple of things. Firstly, obviously you can’t control the markets. If assets got priced by say at the end of each quarter and your fee revenues are based on asset prices, the interest rate spreads are what they are given where interest rates are at this point in the cycle. So, actually flows, client flows probably have the least impact on the numbers. What has the most impact are asset prices interest rate numbers and secondary activity driven by primary activity, so there is a new issue calendar. What I am focused on and what the team is focused on is making sure that we get the steps from the integration done, which we are doing, let the sales force remain stable throughout that which it is, and that the clients see a continuous improvement in the quality of service and offering that they are getting from Morgan Stanley, which I believe they are and will increasingly do overtime. So, well, we are controlling, I think the team is doing very good job controlling. What we can’t control, we wish the world was better, the retail investment will not disappear forever, that I am pretty sure, I have been doing this for a long time, and our team is very focused on providing you innovative products and to the buildout of the banking strategy led by CC sub [ph].

Okay, thanks a lot.

Thank you.

The next question will come from Mike Mayo with CLSA.

Good morning Mike.

On the wealth management, it seems like your target for profit margins in net new assets could be at risk for this year and next year given $5 billion [ph] at close this quarter client assets down, you got a core margin at 10% versus your target of 15%, and then the FAs went down and noticed FAs went up with some of your peers. So, what’s an update on the strategic plan and the execution of that in wealth management?

I think as James said at the outset, it is very much market-dependent. We did see post Flash Crash retail setback from the market. I was actually striking as you ended the first quarter, we ended the first quarter going into the first half of the second quarter notwithstanding the political and economic turmoil broadly, we still saw strength in retail and it really started to change post Flash Crash, it’s going to take time to come back. And so, I think it is fair to assume that some of those targets get pushed out, it’s very much market-dependent. To James point that we can only control, we can control, we are continuing to execute on the integration and invest in the integration, but it will take some time and it’s market-dependent.

Yes, I just had two quick things. The FA numbers were actually remarkably stable (inaudible), and I think they were plus or minus, I don’t even know the exact number, but we have got it in the supplement, plus or minus less than 100. So, it’s remarkably stable. The plus, clearly you want to have positive plus and driving the business organically will get that. The impact of, I wouldn’t be overly concerned about the impact of the $5 billion that flows at about 80 basis points, so it’s probably $40 million per year in revenue or $10 million a quarter. So, that’s not very consequential, much more consequential is the market environment where assets are various and peers and where deposit spreads are.

And one separate question, just going back to the trading, how much of your performance which exceeded peer would be due to the buildout of the traders or good risk positioning or there are one or two areas you would really highlight?

I think when you listen to the breadth of areas that we highlighted from cash equities to prime brokerage, commodities, FX, it really an execution on both the sales and trading front, and a lot of it is continuing to drive the dialogs deep into the clients, delivering more to the clients. And so, there was no silver bullet, it was basically detailed execution which is I think what I need and we will continue to deliver. But the breadth of it does I think underscore that there was a lot of execution that people in the building we are doing commodities was, I noted, had more focus on some of the structured transactions, which their clients are looking for, and so again, a real mix of execution within aggregate helped us improve our market share.

And last follow-up, you said the second half of the quarter was weaker than the first, what have you seen so far this quarter and what do you expect in the trading area?

So far, this quarter has been quite muted. I think that’s pretty much across the board institutional and retail investors and it’s hard to forecast where it goes from here, but it has been quite muted.

All right, thank you.

The next question will be from Roger Freeman with Barclays Capital.

Hi good morning.

Good morning.

Good morning. On the – just with respect to reg reform, kind of coming back to one of the earlier question I think hovered around the hiring that you did last fall, sort of in anticipation of ramping up sort of risk deployment in the trading businesses, or capital deployment. As you now look at those sort of the legislation that I guess has been signed right now, it really from those sort of more agency, a more of an agency business model, which on a relative basis you have been more of, I guess does your thinking say last fall to now with respect to sort of that buildout change at all with this legislation or is it all consistent?

We would say it’s very consistent. I think our view is given power of this brand and the strength of this franchise globally, we were understaffed for the opportunity in sales and trading and the strategic real focus has been on delivering the firm more broadly to our clients. It’s all about client facing activity and it’s about that around the globe. And so, what we really need in order to be able to deliver the firm is the breadth of the team. It’s not in any way a modification of what we are talking about in the fall, but highly consistent with the way we have been looking to increase our market share and in particular you see it in a number of the comments in our flow business that our clients engaging more robustly with us and therefore when we look at what even is a more tepid environment, I think what’s flown through is the ongoing strength of the client relationship, the client activity delivering for the client, enabling us to deliver some results.

Okay, now that’s helpful. And one other question is on reform, I mean, I know it’s sort of early days, but as you sort of think about your structure and with most of your derivatives, your swaps business being inside the broker dealer, I mean, is it fair to say that’s where most of your capital is well, right? So, if you think about losing any sort of guarantee from the parent company, you would look at your positioning as a counterparty to be quite solid, all right?

There are lot of prongs to your question.

Yes, I know.

I think the – it’s complicated in particular as it relates to where derivatives is going to go, and part of the difficulty in answering the question is in particular on derivatives, much of the cost in rule making still will be flushed out. I think with respect to derivatives not in the bank or in the bank, I did note that upfront, we do think that’s an opportunity to move certain of the derivatives into the bank and the rating and funding advantage that, that brings. But it’s still work in progress.

Yes, that was an interesting comment. You actually, for example, I guess like FX was probably in a broker dealer not in a bank, I mean, did you actually have to move it up into the bank, or is that a choice to me?

That’s very much a choice, and I am glad you actually asked it that way, because it’s one that we are going to take the time to assess what makes the best sense for our clients and for all, but we have the flexibility, we have the opportunity, and I think it creates an opportunity to the extent it makes sense, it’s more efficient, etcetera, we can move it, others will be needing to move certain things out of their banks.

Okay, great. And then just on the wealth management business, one question there, just quickly, the outflow, I know they are very small, but I guess if you kind of look at across the industry, it seems that flows were positive, it looks like the middle flows are positive, and swaps are positive, you know, what sort of those outflow is any sort of asset class that it came out of it and where it wouldn’t have just sort of moved into other products within your platform. And then the second part of that is on the advisor front, again that may just be sort of kind of coming anecdotally, but it seems like there’s been a lot more press releases of firms announcing hires of teams from other firms, both you and others, and I don’t know if that’s the timing thing because of when they run out, but is there any pickup in sort of competitive hiring? I know your stats say know, but –

So, on the outflows, I think when we look at the data, it does seem we have been seeing quite a bit of anecdotal industry-wide data about outflows, but I will comment specifically on ours that we have had outflows. We expect some of it due to the April 15th tax season and it certainly seems to be exacerbated as I said in particular post Flash Crash. With respect to hiring of teams, not really seeing much more activity on that front, I mean, there is some movement as there always is, but clearly not much.

Okay, great. Thanks.

The next question will be from Mark Lane with William Blair & Company.

Hi Mark.

Good morning. I just wanted to follow up more specifically on some of the integration targets within global wealth management. When you announced the deal, when you closed it, you laid out this very specific target of achieving $1.1 billion of cost savings within the first 18 months following the close. So, can you give us a little bit more specific update on where you are in achieving that specific target, because it’s hard to see if you are really achieving much when you just look at the numbers?

The targets and the analytics around the cost etcetera remained unchanged. They were still expecting the cost of $1.1 billion by the end of integration, and the other metrics that we shared with you about the number of FAs ranging between 17,500, 18 plus, PBT margin at steady state 20% is still there. I think the complexity is that the market has been quite challenging, and when we look at the retail reaction this quarter to market events, it’s quite pronounced. And so, we are pushing out the target and the guidance that it is very much market dependent because we will need to see a couple of quarters of stability we think before we see retail investors returning in a meaningful way, and therefore pushing it out until we can start providing some confidence around that stability.

But at least that one specific target, the $1.1 billion, and that target is done at the end of this year, I mean you have that pretty good idea where you are relative to that target. I mean, is a recognition pro rata over the past 12 to 18 months or are you still expecting a lot disproportionate amount in the second half or any insight there?

The full-year 2010 spend on integration we think will be in the range of guidance provided earlier this year, $450 million to $500 million. We are expecting $450 million to $500 million this year, and the total cost synergies will be, cost will be about $1.1 billion when we finish integration. It is extending the time and completing the integration that is really at issue here.

So, that’s not a valid target here, that’s what you are saying?

The $1.1 billion, it remains a valid target. The question is the timing. And so, this year $450 million to $500 million and then beyond.

Okay, thanks.

The final question will come from James Mitchell with Buckingham Research.

Good morning.

Hi. Most of my questions have been asked and answered, but maybe just a quick follow-up on the merchant banking business. With the changes going on in the Volcker Rule, do you still see that as a sort of a core business in your asset management business, or do you envision sort of shrinking that overtime and obviously your investments in the products will shrink, but you still see that as a core product going forward?

It’s James here, Jim. Yes, the short answer is it is a core business for us. Merchant banking includes everything from a nation private equity business to global fund to a real estate investing special situations, our infrastructure funds, mezzanine debt funds, it’s very broad group of businesses. Obviously in view of the Volcker Rule, we would be looking at the percent of capital we have put into those businesses, and within each of the separate pieces of them, but frankly what is driving I think around this is less about the regulatory reform and more about what we need to do as a firm and which parts of the business we really think we can excel in. So, it’s more of a strategic view. Obviously we will comply with whatever the ultimate rule-making is around the percentage capital we can put into.

Right. But with less getting the gain, do you guys worry from a competitive standpoint that say the real estate business, it might be tough to attract funds, or do you think that because some of your major competitors are in similar footing, not all, but some that’s manageable.

Firstly, I think all the institutions that are bank holding companies will be under the same regulations and secondly, I think it’s way too premature to predict whether you can attract funds or not. My experience is being if you have good performance, you attract funds.

Right. Okay, thanks. Fair enough.

Thank you.

There are no further questions at this time. Ladies and gentlemen, that concludes the conference call for today. Thank you for your participation.