Be sure to read the case narrative before attempting to answer the case analysis questions.

All information required to answer the case questions can be found in the case narrative.

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Founded as an investment bank in 1935, Morgan Stanley has a long history and a strong brand identity, ranking among Wall Streets elite. The company also has a number of securities industry firsts to its credit, including the first computer model for financial analysis, the introduction of automated processing for securities trading, and the creation of innovative new types of securities.

In 1997 Morgan Stanley merged with Dean Witter, combining that companys strong retail brokerage services with its own investment banking and institutional securities operations. Today the combined firm is global, with about 54,000 employees in more than 600 offices in 30 countries, and client assets under management totaling more than $622 billion.

Morgan Stanley is highly regarded for its financial advice and market execution, offering clients a wide range of services through four business segments: Institutional Securities (investment banking, institutional sales and trading, research), Individual Investor Group (investor advisory services, wealth management, individual investor services),Investment Management (global asset management products and services for individual and institutional investors), and Credit Services (Discover-branded cards and other consumer finance products and services). The firm continues to be on the cutting edge in its use of technology.

Morgan Stanley has evolved in step with the securities industry. It came into existence when the Glass-Steagel Act prohibited banks from investment banking activities. Until recently it focused mostly on investment banking and institutional security sales. As the bull market ended and the number of companies issuing equity and debt fell, Morgan Stanley took steps to solidify its client relationships with institutions and expanded its services to the individual investor when it acquired Dean Witter. This made the firm more competitive with retail powerhouses like Merrill Lynch and other brokerage firms. It has also been an early adopter of technology that improves operating efficiency and accuracy, critical in todays fast-paced security markets.

During the high-flying 1990s, Morgan Stanley and its Wall Street peers enjoyed a period of fast growth and increasing profitability as the stock market soared and corporate financing activity flourished. As the new century started, however, the 10-year bull market ended, bringing very different and volatile economic conditions. Few companies wanted to issue securities, merger activity fell off sharply, and individual investors retreated to the sidelines as stock prices tumbled.

Along with many other financial institutions, Morgan Stanley reduced its staff and closed offices in response to lower revenues from the financial markets. The Institutional Securities unit focused its resources on building stronger relationships with top clients. It developed its own systems to automate its NASDAQ and options trading, which offered clients improved execution at lower cost. The Individual Investor Group began emphasizing fee-based accounts rather than transactional arrangements.

As the markets improved, Morgan Stanley focused on building up relationships one client at a time. Whether working with large corporations looking to raise financing or individual investors saving for college or retirement, Morgan Stanley evaluates clients needs, develops financial plans, and implements strategies to reach objectives. Current chairman and chief executive officer John J. Mack states, We have the right team, the right assets, and the right business mix in place. Now we must maintain a relentless focus on one priorityperformanceWe will tear down any barriers that impede our ability to create a cohesive one firm culture in which every employee acts and feels like an owner of the firm. It is clear that Morgan Stanley has every intention of maintaining its position at the forefront of the securities industry.

Understanding and defining your personal investment objectives are the first steps to building a portfolio that meets your needs. Corporate clients might want to earn income on temporary cash surpluses or invest pension or employee 401(k) funds for capital appreciation. As an individual investor, your financial goals will be driven by your age and lifestyle. At first, your goals will be growth-orientedmay be to start a regular investment program with automatic monthly withdrawals, to save for a new car or your first home, to begin saving for retirement. Later you may want your investments to generate income.

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Question

What has Morgan Stanley changed to adapt to the changing climate in the securities industry?