Buy Presentation: Morgan Stanley

1. Buy Presentation: Morgan Stanley Presentation Prepared By: Andrew Lightner, AmaliaDolley, Yuanlin Liu, Chelsea Vanegas, Alek Peters, Subin Lee, Alex Carpino, Dan Eichenberger, Kristen Klocko, Alex Weaver December 12, 2013

2. Investment Thesis Thesis Stock Price (5 Year) Morgan Stanley would be a great addition to the Ithaca College Investment Club’s portfolio due to its good reputation and performance in recent years. It is the only major bank that hasn’t paid a financial crisis – related fine. Furthermore, Morgan Stanley is currently becoming a less risky company due to its transition to wealth management. MS offers diversification to our portfolio because this company gives us exposure the asset management space of the financials sector. Revenue/EPS/Net Income

3. Sector Overview and Recent Trends • General economic outlook improving • Household net worth improving • Loan market improving • Housing market improving • Monetary policy is highly accommodative • Tapering on the horizon, should increase company’s interest income • Fiscal Policy could be a drag for the economy • Debt ceiling • Regulation outlook • Basel III • Dodd Frank Act • Volker Rule approved on Tuesday

4. Wealth & Asset Management Industry Trends • Large firms are growing through acquisitions or internal building • In June, Morgan Stanley purchased the 35% of Smith Barney it didn’t own • BNY Mellon acquired Talon Asset Management of Chicago • Envestnet acquired Prudential’s Wealth Management Solutions division • Smaller firms expanding through partnerships • Investment advice regulations drive business model changes (potential fiduciary rule) • Growth in efficiency in the RIA and EAM market • Wealth Management and advisor succession planning in the spotlight • Reassessment of international operations • Technology is changing the industry • Cloud-based trading • Enhances the client-advisor relationship

5. Recent Company News • Morgan Stanley Leads Japan M&A for First Time Since 1997 • Mergers and Acquisitions for Japan beating Nomura Holdings Inc. which last year lost the No. 1 position for the first time since 2007 • Morgan Stanley having a joint venture with Mitsubishi UFJ Financial Group • Strong foreign presence • Morgan Stanley Focuses on Wealth Management • Shifting away from trading and into risk management and brokerage (wealth management). • As of 2012 Morgan Stanley is 2nd in the US in Total client asset at 780 billion for wealth management firms • Wealth management now generates almost 45 percent of Morgan Stanley’s revenue, compared with 23 percent in 2007 • Despite a tough three months for Wall Street traders, Morgan Stanley's profits and revenue, driven by growth in its wealth management division, beat expectations for the third quarter. • The bank earned $906 million, up from a loss of just over $1 billion a year ago. • Morgan Stanley, Still Squeaky Clean • Nearly five years after the fall of Lehman Brothers, Morgan Stanley has earned some bragging rights. It's the only major bank that hasn't paid a federal fine related to the financial crisis. • Large banks on Wall Street have disclosed billions in potential additional legal expenses. However, Morgan Stanley filed with the SEC on Monday, the bank left blank what its additional legal expenses could be. Instead it said it didn't think the cost would be "material" to its business

6. Company Overview and Operations Company Overview Revenue Stream Breakdown Morgan Stanley, a financial holding company, provides various financial products and services to corporations, governments, financial institutions and individuals worldwide. Morgan Stanley is organized into three different operating segments: Institutional Securities Segment, Global Wealth Segment and Asset Management Segment. Morgan Stanley has a presence in more than 40 nations serving corporate, institutional, government, and individual clients. Revenue: Primarily generated through these three segments. Institutional Securities Segment, Global Wealth Segment, and Asset Management Growth Plan: To further expand the product suite, targeted at both retail and institutional clients. Morgan Stanley also plans to have a more coordinated and systematized approach to senior relationship. As existing and potential business partners of wealth management are often top clients of their Institutional businesses. Domestic vs. International Sales Revenue

7. Product Portfolio • Wealth Management- 51.4% revenue • Brokerage and investment advisory services to primarily high net worth individuals • Institutional Securities- 40.1% • Investment Banking, Prime Brokerage, Institutional Consulting • Equity and Fixed Income Trading • Asset Management- 8.5%

8. Valuation Comparable

9. Operating Comparable

10. Sector Ratio Analysis Valuation Ratios Financial Strength Profitability Efficiency Price to Book Morgan Stanley: 0.94 Sector: 1.61 Price to Cash flow Morgan Stanley: 3.20 Sector: 6.83 Tier 1 Capital Ratio Morgan Stanley: 15.30% Sector: 13.37% Assets Under Management (AUM) Morgan Stanley: $876.0B Sector: $829.05B Operating Margin (TTM) Morgan Stanley: 19.04% Sector: 22.56% Deposit Growth Morgan Stanley: 36.68% Sector: 11.75% Net Charge-Offs Morgan Stanley: 0.0% Sector: 0.51% Efficiency Ratio Morgan Stanley: 79.91% Sector: 73.90%

11. Competitors Goldman Sachs J.P. Morgan Strengths Goldman is flexible even if its structure has changed and it proved to do by being consistent in their management and employees that enabled it to outperform in recent years Several of the company’s primary U.S and European competitors have been forced to restructure, and this could give Goldman an opportunity to gain market share. Weaknesses All else equal, reduced leverage reduces returns to shareholders Goldman remains highly, leveraged, and the markdown of its securities inventory always has the possibility of taking a large bite out of the company’s capital position. A severe financial shock could still turn market sentiment against the company Strengths JPMorgan Chase did a remarkable job limiting its credit losses during the financial crisis. The Bank is now paying the price for misdeeds at Washington Mutual and Bear Stearns, despite its best efforts to avoid responsibility for its predecessors The bank and its management may have lost some cachet with investors and regulators, but customers are still flocking to JPMorgan Chase Weaknesses It’s difficult to quantify potential exposures (let alone losses) created by the firm’s derivatives activities, as evidenced by “London Whale” trades Future CEOs may not be as talented as Jamie Dimon, who himself may be struggling to effectively manage such as large, complex financial institution

12. Competitors Bank of America CitiGroup Strengths Bank of America has finally achieved a fortress balance sheet, ending 2012 with $24 billion in loan loss reserves, $19 billion set aside for reps and warranties, and $135 billion in tangible common equity. Mortgages will be a problem for some time, but most of Bank of America’s other businesses are slowly returning to health Weaknesses A financial institution of this size and complexity is inherently unmanageable -- it’s even possible that regulators might decide to break up the company. Cost-cutting programs are not often successful, and Bank of America is especially large It will take years for Bank of America to earn its cost of capital Strengths Citigroup is leveraged to the rise of Asia, Latin America, and other emerging markets, while its competitors will struggle with lackluster loan demand in the U.S. and Western Europe Citigroup is recapitalized and refocused under new management-- the perfect conditions for a successful turnaround Weaknesses Many emerging markets depend on the Chinese economy, which look more vulnerable with each passing day. Citi Holdings will be a drag on earnings for the foreseeable future, as many of its assets will be difficult to dispose of

13. SWOT Analysis Strengths Weaknesses Opportunities Threats Strong Global presence Large Investment in technological innovation improving its services and thus its market share (Alphawise) Becoming more risk averse by adopting a focus on wealth management and brokerage Strong Management under James Gorman (risk management focused) Not as prestigious as other big Wall Street firms Becoming more dependent on brokerage and asset management Not as competitive in brokerage as major competitors Expand products and services through technological investment Improve global reach through acquisitions and smaller joint ventures and partnerships Regulation: Commodities trading, Dodd Frank, potential fiduciary rule Overseas competition Target of Justice Department investigation over hiring practices in China

14. Analyst Recommendations • Analyst Recommendations and Fair Value Estimates • Consensus Rating • Buys: 47.1% • Holds: 41.2% • Sells: 11.8% • Credit Ratings • Bloomberg 1yr Default Likelihood 0.0977% • Moody's Rating: Baa2 • S&P Rating: A- • Top Holdings • Mitsubishi UFJ Financial Group • State Street Corp • China Investment Corporation • Blackrock

15. Recommendation • We recommend that the Ithaca College Investment Club purchase 40 shares of Morgan Stanley at around $30.12 per share which will comprisea little over 3% of our portfolio. MS will be our third stock in the financials sector and is recommended to beheld for 2-3 years. We will reevaluate in the case of a major economic downturn or serious change in the stock’s price.