<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended February 29, 1996
-----------------
Commission file number 1-9085
------
MORGAN STANLEY GROUP INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2838811
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1585 Broadway, New York, New York 10036
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 761-4000
--------------
------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
As of March 31, 1996, there were 152,937,649 shares of Common Stock,
$1 par value, outstanding.
Page 1
<PAGE> 2
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Financial Condition at
February 29, 1996 (Unaudited) and November 30, 1995.
Condensed Consolidated Statement of Income (Unaudited) for the
Three Months Ended February 29, 1996 and January 31, 1995.
Condensed Consolidated Statement of Cash Flows (Unaudited) for the
Three Months Ended February 29, 1996 and January 31, 1995.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
Page 2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MORGAN STANLEY GROUP INC.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(IN MILLIONS)
<TABLE>
<CAPTION>
Assets
February 29,
1996 November 30,
(Unaudited) 1995
------------ ------------
<S> <C> <C>
Cash and interest-bearing equivalents $ 2,866 $ 2,471
Cash and securities deposited with clearing
organizations or segregated under federal
and other regulations (securities at market
value of $1,167 at February 29, 1996 and $859
at November 30, 1995) 1,755 1,339
Financial instruments owned:
U.S. government and agency securities 10,465 12,480
Other sovereign government obligations 13,618 13,792
Corporate and other debt 10,998 10,690
Corporate equities 15,262 13,185
Derivative contracts 7,909 8,043
Physical commodities 441 410
Securities purchased under agreements to resell 56,967 45,886
Securities borrowed 30,303 27,069
Receivables:
Customers 6,217 3,413
Brokers, dealers and clearing organizations 4,548 1,475
Interest and dividends 1,053 1,082
Fees and other 641 506
Property, equipment and leasehold improvements,
at cost, net of accumulated depreciation and
amortization of $501 at February 29, 1996 and $462
at November 30, 1995 1,300 1,286
Other assets 1,063 626
------------- -----------
Total assets $ 165,406 $ 143,753
============= ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
Page 3
<PAGE> 4
MORGAN STANLEY GROUP INC.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
- ------------------------------------
February 29,
1996 November 30,
(Unaudited) 1995
-------------- -------------
<S> <C> <C>
Short-term borrowings $ 12,931 $ 11,703
Financial instruments sold, not yet purchased:
U.S. government and agency securities 8,756 6,459
Other sovereign government obligations 8,291 8,972
Corporate and other debt 1,116 1,076
Corporate equities 7,962 3,585
Derivative contracts 6,526 7,537
Physical commodities 20 71
Securities sold under agreements to repurchase 75,088 60,738
Securities loaned 8,023 9,340
Payables:
Customers 13,609 13,818
Brokers, dealers and clearing organizations 2,114 1,974
Interest and dividends 951 1,019
Other liabilities and accrued expenses 865 595
Accrued compensation and benefits 840 1,192
Long-term borrowings 12,292 9,635
-------------- -------------
159,384 137,714
-------------- -------------
Capital Units 865 865
-------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock 817 818
Common stock, $1.00 par value; authorized
300,000,000 shares; issued 164,389,850
shares at February 29, 1996 and 162,838,920
shares at November 30, 1995 164 163
Paid-in capital 645 730
Retained earnings 4,039 3,815
Cumulative translation adjustments (10) (9)
-------------- -------------
Subtotal 5,655 5,517
Less:
Note receivable related to sale of
preferred stock to ESOP 87 89
Common stock held in treasury, at cost
(10,558,016 shares at February 29, 1996 and
7,635,174 shares at November 30, 1995) 411 254
-------------- -------------
Total stockholders' equity 5,157 5,174
-------------- -------------
Total liabilities and stockholders' equity $ 165,406 $ 143,753
============== =============
</TABLE>
See Notes to Condensded Consolidated Financial Statements.
Page 4
<PAGE> 5
MORGAN STANLEY GROUP INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
February 29, January 31,
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Investment banking $ 399 $ 258
Principal transactions:
Trading 704 249
Investments (7) 24
Commissions 154 114
Interest and dividends 1,933 1,606
Asset management and administration 122 85
Other 3 1
------------ ------------
Total revenues 3,308 2,337
Interest expense 1,859 1,547
------------ ------------
Net revenues 1,449 790
------------ ------------
Expenses excluding interest:
Compensation and benefits 705 373
Occupancy and equipment 86 82
Brokerage, clearing and exchange
fees 66 57
Communications 33 34
Business development 37 44
Professional services 42 43
Other 40 40
Relocation charge - 59
------------ ------------
Total expenses excluding
interest 1,009 732
------------ ------------
Income before income taxes 440 58
Provision for income taxes 167 19
------------ ------------
Net income $ 273 $ 39
============ ============
Earnings applicable to common shares (1) $ 257 $ 23
============ ============
Average common and common equivalent
shares outstanding (1) 156,549,243 155,068,008
============ ============
Primary earnings per share $ 1.64 $ 0.15
============ ============
Fully diluted earnings per share $ 1.57 $ 0.15
============ ============
</TABLE>
(1) Amounts shown are used to calculate primary earnings per share.
See Notes to Condensded Consolidated Financial Statements.
Page 5
<PAGE> 6
MORGAN STANLEY GROUP INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
Three Months Ended
February 29, January 31,
1996 1995
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 273 $ 39
Adjustments to reconcile net income
to net cash used for operating activities:
Non-cash charges included in net income 42 84
Changes in assets and liabilities:
Cash and securities deposited with
clearing organizations or segregated
under federal and other regulations (416) (869)
Financial instruments owned, net of
financial instruments sold, not yet
purchased 4,878 (3,619)
Securities borrowed, net of securities
loaned (4,551) (253)
Receivables and other assets (6,074) (1,078)
Payables and other liabilities (239) (2,477)
-------- --------
Net cash used for operating activities (6,087) (8,173)
Cash flows from investing activities:
Net payments for:
Property, equipment and leasehold
improvements (47) (101)
-------- --------
Net cash used for investing activities (47) (101)
Cash flows from financing activities:
Net proceeds related to short-term borrowings 1,213 3,279
Securities sold under agreements to
repurchase, net of securities
purchased under agreements to resell 3,269 4,828
Proceeds from:
Issuance of common stock 39 6
Issuance of long-term borrowings 2,814 206
Payments for:
Purchase of Miller Anderson & Sherrerd, LLP, net
of cash acquired (200) --
Repurchases of common stock (350) (44)
Repayments of long-term borrowings (207) (420)
Cash dividends (49) (37)
-------- --------
Net cash provided by financing activities 6,529 7,818
-------- --------
Net increase (decrease) in cash and interest-bearing equivalents 395 (456)
Cash and interest-bearing equivalents, at
beginning of period 2,471 2,966
-------- --------
Cash and interest-bearing equivalents, at
end of period $ 2,866 $ 2,510
======== ========
</TABLE>
See Notes to Condensded Consolidated Financial Statements.
Page 6
<PAGE> 7
MORGAN STANLEY GROUP INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
Supplemental disclosure of non-cash financing activities:
In connection with the Company's acquisition of Miller Anderson & Sherrerd,
LLP, the Company issued approximately $66 million of notes payable, as well as
2,012,264 shares of common stock having a fair value on the date of
acquisition, January 3, 1996, of approximately $83 million.
Page 7
<PAGE> 8
MORGAN STANLEY GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
On February 28, 1995, the Board of Directors approved a change in the Company's
fiscal year-end from January 31 to November 30. The change became effective for
the fiscal period ended November 30, 1995, and, accordingly, this report
includes the results for the first quarter ended February 29, 1996. As a result
of this change, the fourth quarter of fiscal 1994, which ended on January 31,
1995, is the comparable quarterly period.
The information furnished in this quarterly report has been prepared pursuant to
the Securities and Exchange Commission's rules and regulations. The Condensed
Consolidated Financial Statements reflect all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management, necessary
for the fair statement of the results for the interim period and should be read
in connection with the Annual Report on Form 10-K for the fiscal period ended
November 30, 1995 (file no. 1-9085)("Form 10-K"). The nature of the business of
Morgan Stanley Group Inc. and its domestic and foreign subsidiaries
(collectively, the "Company") is such that the results of any interim period may
not be indicative of the results for the full year. Prior period financial
statements have been reclassified, where appropriate, to conform to the fiscal
1996 presentation.
Financial instruments, including derivatives, used in the Company's trading
activities are recorded at fair value, and unrealized gains and losses are
reflected in trading revenues. Interest revenue and expense arising from
financial instruments used in trading activities are reflected in the Condensed
Consolidated Statement of Income as interest income or expense. The fair values
of the trading positions generally are based on listed market prices. If listed
market prices are not available or if liquidating the Company's positions would
reasonably be expected to impact market prices, fair value is determined based
on other relevant factors, including dealer price quotations and price
quotations for similar instruments traded in different markets, including
markets located in different geographic areas. Fair values for certain
derivatives contracts are derived from pricing models which consider current
market and contractual prices for the underlying financial instruments or
commodities, as well as time value and yield curve or volatility factors
underlying the positions. Purchases and sales of financial instruments are
recorded in the accounts on trade date. Unrealized gains and losses arising
from the Company's dealings in over-the-counter ("OTC") financial instruments,
including derivative contracts related to financial instruments and commodities,
are presented in the accompanying Condensed Consolidated Statement of Financial
Condition on a net-by-counterparty basis consistent with Financial Accounting
Standards Board ("FASB") Interpretation No. 39, "Offsetting of Amounts Related
to Certain Contracts". Reverse repurchase and repurchase agreements are
presented net-by-counterparty where net presentation is consistent with FASB
Interpretation No. 41, "Offsetting of Amounts Related to Certain Repurchase and
Reverse Repurchase Agreements."
The Company also enters into various financial instrument related derivative
contracts, such as interest rate swaps, currency swaps and forward contracts, as
an end user to manage the interest rate and currency exposure arising from
certain borrowings. Net revenues from derivatives used in the Company's own
asset and liability management are recognized ratably over the term of the
contract as an adjustment to interest expense.
Equity securities purchased in connection with merchant banking and other
principal investment activities are initially carried in the Condensed
Consolidated Financial Statements at their original cost; the carrying value of
such investments is adjusted upward only when changes in the underlying fair
values are readily ascertainable, generally as evidenced by substantial
transactions occurring in the marketplace which directly affect their value.
Downward adjustments relating to such equity securities are made in the event
that the Company determines that the eventual realizable value is less than the
carrying value. Loans made in connection with such activities are carried at
unpaid principal balances plus accrued interest less reserves, if deemed
necessary, for estimated losses.
Page 8
<PAGE> 9
Included in the Company's Condensed Consolidated Statement of Financial
Condition at February 29, 1996 and November 30, 1995 are $865 million of Capital
Units issued by the Company and Morgan Stanley Finance plc., a U.K. subsidiary
("MS plc"). A Capital Unit consists of (a) a Subordinated Debenture of MS plc
in the principal amount of $25 guaranteed by the Company and having maturities
from 2013 to 2015, and (b) a related Purchase Contract issued by the Company,
which may be accelerated by the Company beginning approximately one year after
the issuance of each Capital Unit, requiring the holder to purchase one
Depository Share representing ownership of a 1/8 interest in the Company's
Cumulative Preferred Stock.
Earnings per share is based on the weighted average number of common shares and
share equivalents outstanding and gives effect to preferred stock dividend
requirements. Common share data for all periods presented have been
retroactively adjusted to reflect a two-for-one common stock split, effected in
the form of a 100% stock dividend, declared on January 4, 1996 and payable on
January 26, 1996 to holders of record on January 16, 1996.
2. Long-Term Borrowings
Long-term borrowings at February 29, 1996 scheduled to mature within one year
aggregate $2,398 million.
During the three month period ended February 29, 1996, the Company issued senior
notes and subordinated debt aggregating $2,884 million, including non-U.S.
dollar currency notes aggregating $451 million, primarily pursuant to its public
debt shelf registration statements. The weighted average coupon interest rate
of these notes at February 29, 1996 was 5.2%; the Company has entered into
certain transactions to obtain floating interest rates based on either
short-term LIBOR or repurchase agreement rates for Treasury securities.
Maturities in the aggregate of these notes for the fiscal years ending November
30 are as follows: 1998, $1,173 million; 1999, $1,312 million; 2001, $330
million; and thereafter, $69 million. As of February 29, 1996, the aggregate
outstanding principal amount of the Company's Senior Indebtedness (as defined in
the aforementioned registration statements) was approximately $21.5 billion.
From March 1, 1996 to March 31, 1996, additional senior notes aggregating $874
million were issued primarily pursuant to the Company's public debt shelf
registration statements. These notes have maturities from 1997 to 2011.
Page 9
<PAGE> 10
3. Derivative Contracts and Other Commitments and Contingencies
In the normal course of business, the Company enters into a variety of
derivative contracts related to financial instruments and commodities. The
Company uses swap agreements in its trading activities and in managing its
interest rate exposure. The Company also uses forward and option contracts,
futures and swaps in its trading activities; these financial instruments also
are used to hedge the U.S. dollar cost of certain foreign currency exposures. In
addition, financial futures and forward contracts are actively traded by the
Company and are used to hedge proprietary inventory. The Company also enters
into delayed delivery, when-issued, and warrant and option contracts involving
securities. These instruments generally represent future commitments to swap
interest payment streams, exchange currencies or purchase or sell other
financial instruments on specific terms at specified future dates. Many of
these products have maturities that do not extend beyond one year; swaps and
options and warrants on equities typically have longer maturities. For further
discussion of these matters, refer to "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Derivative Financial
Instruments", and Note 5 to the Consolidated Financial Statements, included in
the Form 10-K.
These derivative instruments involve varying degrees of off-balance sheet market
risk. Future changes in interest rates, foreign currency exchange rates or the
fair values of the financial instruments, commodities or indices underlying
these contracts ultimately may result in cash settlements exceeding fair
value amounts recognized in the Condensed Consolidated Statement of Financial
Condition, which, as described in Note 1, are recorded at fair value,
representing the cost of replacing those instruments.
The Company's exposure to credit risk with respect to these derivative
instruments at any point in time is represented by the fair value of the
contracts reported as assets. These amounts are presented on a
net-by-counterparty basis consistent with FASB Interpretation No. 39, but are
not reported net of collateral, which the Company obtains with respect to
certain of these transactions to reduce its exposure to credit losses.
The credit quality of the Company's trading-related derivatives at February 29,
1996 and November 30, 1995 is summarized in the tables below, showing the fair
value of the related assets by counterparty credit rating. The actual credit
ratings are determined by external rating agencies or by equivalent ratings used
by the Company's Credit Department:
Page 10
<PAGE> 11
<TABLE>
<CAPTION>
February 29, 1996
- ---------------------------------------------------------------------------------------------
Collater-
alized Other
Non- Non-
Invest- Invest-
ment ment
(Dollars in millions) AAA AA A BBB Grade Grade Total
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest rate
and currency
swaps and options
(including caps,
floors and swap
options) $ 545 $1,368 $ 937 $411 $ - $188 3,449
Foreign exchange
forward contracts
and options 568 634 457 53 - 13 1,725
Mortgage-backed
securities forward
contracts, swaps
and options 40 59 124 13 - 15 251
Other fixed income
securities contracts
(including options) 14 28 16 33 - 8 99
Equity securities
contracts
(including equity
swaps, warrants
and options) 656 144 288 122 273 10 1,493
Commodity forwards,
options and swaps 104 227 188 196 - 177 892
------- ------- ------- ----- ----- ----- -------
Total $1,927 $2,460 $2,010 $828 $273 $411 $7,909
======= ======= ======= ===== ===== ===== =======
Percent of total 24% 31% 25% 11% 4% 5% 100%
======= ======= ======= ===== ===== ===== =======
</TABLE>
Page 11
<PAGE> 12
<TABLE>
<CAPTION>
November 30, 1995
- ---------------------------------------------------------------------------------------------
Collater-
alized Other
Non- Non-
Invest- Invest-
ment ment
(Dollars in millions) AAA AA A BBB Grade Grade Total
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest rate
and currency
swaps and options
(including caps,
floors and swap
options) $ 660 $1,269 $1,148 $535 $ 88 $141 $3,841
Foreign exchange
forward contracts
and options 548 531 674 83 - 27 1,863
Mortgage-backed
securities forward
contracts, swaps
and options 23 31 36 7 12 14 123
Other fixed income
securities contracts
(including options) 25 33 33 42 - 4 137
Equity securities
contracts
(including equity
swaps, warrants
and options) 612 98 232 143 178 159 1,422
Commodity forwards,
options and swaps 103 129 152 126 - 147 657
------- ------- ------- ----- ----- ----- -------
Total $1,971 $2,091 $2,275 $936 $278 $492 $8,043
======= ======= ======= ===== ===== ===== =======
Percent of total 25% 26% 28% 12% 3% 6% 100%
======= ======= ======= ===== ===== ===== =======
</TABLE>
A substantial portion of the Company's securities and commodities transactions
are collateralized and are executed with and on behalf of commercial banks and
other institutional investors, including other brokers and dealers. Positions
taken and commitments made by the Company, including positions taken and
underwriting and financing commitments made in connection with its merchant
banking and other principal investment activities, often involve substantial
amounts and significant exposure to individual issuers and businesses,
including non-investment grade issuers. The Company seeks to limit
concentration risk created in its businesses through a variety of separate but
complementary financial, position and credit exposure reporting systems,
including the use of trading limits based in part upon the Company's review of
the financial condition and credit ratings of its counterparties.
See also "Business -- Risk Management" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Risk Management"
in the Form 10-K for discussions of the Company's risk management policies and
procedures.
The Company had approximately $2.5 billion of letters of credit outstanding at
February 29, 1996 to satisfy various collateral requirements.
The Company and its subsidiaries have been named as defendants in certain legal
actions and have been involved in certain investigations and proceedings in the
ordinary course of business. It is the opinion of management, based on current
knowledge and after consultation with counsel, that the outcome of such matters
will not have a material adverse effect on the Company's Condensed Consolidated
Financial Statements contained herein.
Page 12
<PAGE> 13
4. Preferred Stock
Preferred stock is composed of the following issues. Each issue of preferred
stock ranks in parity with all other preferred stock.
<TABLE>
<CAPTION>
Shares Outstanding at Balance at
------------------------- -------------------------
February 29, November 30, February 29, November 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
(in millions)
<S> <C> <C> <C> <C>
ESOP Convertible
Preferred Stock,
liquidation preference
$35.88 3,745,901 3,758,133 $ 134 $ 135
9.36% Cumulative
Preferred Stock,
stated value $25 5,500,000 5,500,000 138 138
7-3/8% Cumulative
Preferred Stock,
stated value $200 1,000,000 1,000,000 200 200
8.88% Cumulative
Preferred Stock,
stated value $200 975,000 975,000 195 195
8-3/4% Cumulative
Preferred Stock,
stated value $200 750,000 750,000 150 150
------- -------
Total $ 817 $ 818
======= =======
</TABLE>
5. Stockholders' Equity
Morgan Stanley & Co. Incorporated ("MS & Co.") is a registered broker-dealer
and a registered futures commission merchant and, accordingly, is subject to
the minimum net capital requirements of the Securities and Exchange Commission,
the New York Stock Exchange and the Commodity Futures Trading Commission.
MS&Co. has consistently operated in excess of these requirements with aggregate
net capital, as defined, totaling $824 million at February 29, 1996, which
exceeded the amount required by $588 million. Morgan Stanley & Co.
International Limited ("MSIL"), a London-based broker-dealer subsidiary, is
subject to capital requirements of the Securities and Futures Authority, and
Morgan Stanley Japan Limited ("MSJL"), a Tokyo-based broker-dealer, is subject
to the capital requirements of the Japanese Ministry of Finance. MSIL and MSJL
have consistently operated in excess of their respective regulatory capital
requirements.
Certain other U.S. and non-U.S. subsidiaries are subject to various securities,
commodities and banking regulations, and capital adequacy requirements
promulgated by the regulatory and exchange authorities of the countries in
which they operate. These subsidiaries have consistently operated in excess of
their applicable local capital adequacy requirements.
6. Miller Anderson & Sherrerd, LLP ("MAS")
During the first quarter of fiscal 1996, the Company completed its acquisition
of MAS, a Philadelphia-based investment manager, for approximately $350
million. The goodwill associated with this transaction is being amortized on a
straight-line basis over 25 years. The Company's first quarter fiscal 1996
results include the results of MAS since January 3, 1996, the date of
acquisition.
Page 13
<PAGE> 14
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS *
Results of Operations
The Company's business, particularly its involvement in primary and secondary
markets for all types of financial products, including derivatives, is subject
to substantial positive and negative fluctuations due to a variety of factors
that cannot be predicted with great certainty, including variations in the fair
value of securities and other financial products, the volatility and liquidity
of trading markets, and the level of market activity. As a result, net income
and revenues in any particular period may not be representative of full-year
results and may vary significantly from year to year and from quarter to
quarter. In addition, results of operations in the past have been and in the
future may continue to be materially affected by many factors of a national and
international nature, including economic and market conditions; the
availability of capital; the level and volatility of interest rates; currency
values and other market indices; the availability of credit; inflation; and
legislative and regulatory developments, as well as the size, number and timing
of transactions or assignments (including realization of returns from the
Company's principal and merchant banking investments). In addition, such
factors also may have an impact on the Company's ability to achieve its
strategic objectives, including (without limitation) profitable global
expansion. The Company's results of operations also may be materially affected
by competitive factors, including new entrants into the Company's traditional
business activities and its ability to attract and retain highly skilled
individuals and by the ability to cost-effectively develop and maintain the
technology necessary to support its trading, clearing and risk management
systems.
The favorable market conditions which developed during 1995 continued
throughout the first quarter of fiscal 1996 and resulted in record levels of
net revenues and earnings for the Company. Continued expectations of lower
interest rates, positive corporate earnings and a stable level of inflation, as
well as record levels of cash inflows from mutual funds into the markets,
resulted in higher customer trading volumes and increased market volatility in
the equity, bond and commodities markets. The Company's performance in the
first quarter of fiscal 1996 reflected the balanced mix of its global
businesses coupled with these favorable market conditions. All three of the
Company's core businesses - investment banking, asset management and sales and
trading - generated higher profits than the comparable prior year period.
The Company continued to focus on global expansion and cost-containment
initiatives during the first quarter of fiscal 1996. In January 1996, the
Company completed its purchase of Miller Anderson & Sherrerd, LLP ("MAS"), an
institutional investment management firm, consistent with the Company's
long-term strategic goal of expanding recurring fee-based businesses. The
Company's financial results for the remainder of fiscal 1996 will reflect
whether the favorable market conditions referred to above continue to exist as
well as the effectiveness of the Company's cost-control initiatives, resource
allocations and risk management processes.
- -------------------
* Except for the historical information contained herein, this Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements that could be affected by the risks and
uncertainties involved in the Company's business, including (without
limitation) the risks and uncertainties set forth herein and in the
Company's Annual Report on Form 10-K for the fiscal period ended November
30, 1995 (Part I, Item 1 and Part II, Item 7).
Page 14
<PAGE> 15
For a description of the Company's business, including its trading in cash
instruments and derivative products, its merchant banking and other principal
investment activities, and its high-yield underwriting and trading policies,
and their respective risks, and the Company's risk management policies and
procedures, see Part I, Item I, of the Company's Annual Report on Form 10-K for
the fiscal period ended November 30, 1995 ("Form 10-K").
In February 1995, the Board of Directors approved a change in the Company's
fiscal year-end from January 31 to November 30, effective for the fiscal period
ended November 30, 1995. The discussion which follows compares the results of
operations for the three months ended February 29, 1996 to the fourth quarter
of fiscal 1994 (November 1, 1994 to January 31, 1995).
Three Months Ended February 29, 1996 Compared with Three Months Ended January
31, 1995 (Amounts for the three months ended January 31, 1995 are given in
parentheses).
Revenues net of interest expense (net revenues) were $1,449 million ($790
million) and net income totaled $273 million ($39 million), primarily
reflecting record levels of principal transaction trading revenues and
increased investment banking revenues, partially offset by higher
incentive-based compensation.
Investment banking revenues increased to $399 million ($258 million) reflecting
among other things strong results from fixed income underwriting activity. Low
treasury yields continued to attract issuers to the capital markets,
particularly in longer-term maturities as issuers sought to lock into low debt
service levels. Revenues from high yield activity increased, benefiting from
higher levels of activity within the telecommunications sector following the
passage of a major reform bill in Congress. Revenues from merger, acquisition
and restructuring activities remained strong as transaction volumes continued
at high levels. Equity underwriting revenues increased as compared to the
fourth quarter of fiscal 1994, including an increase in convertible financing
activity. Primary revenues generated from fixed income derivative products
also increased, resulting from the overall higher level of underwriting volume
for structured products.
Secondary revenues (combined principal trading, commissions and net interest
revenues) increased to $932 million ($422 million). Principal transaction
revenues from trading activities, including derivatives, were $704 million
($249 million) representing the highest quarterly level of trading revenue
achieved by the Company. Equity trading revenues were substantially higher,
driven by strong secondary revenues across all business product lines. Equity
cash products were positively affected by record levels of cash inflows into
equity-related mutual funds, which resulted in increased trading volumes and
customer demand, and equity derivatives benefited from increased market
volatility in the equity markets, particularly in the United States. Fixed
income trading revenues from both cash and derivative products were also
substantially higher, benefiting from a favorable market environment as
interest rates continued to decline in the United States and much of Europe and
volatile conditions persisted in the global markets. Revenues from the
Company's global emerging markets activities produced substantially higher
results as more favorable economic conditions prevailed throughout the quarter,
particularly in Latin America and Eastern Europe. Revenues from commodities
trading rose significantly, benefiting from increased volatility in natural gas
and energy products as a result of severe winter weather conditions and reduced
inventory levels. Foreign exchange trading revenues also increased, largely
due to higher market volatility in the major currencies.
Principal transaction investment losses aggregating $7 million ($24 million
gain) were recognized in the first quarter of fiscal 1996, primarily in
connection with the writedown of certain merchant banking equity securities,
partially offset by certain real estate investment gains.
Commission revenues increased to $154 million ($114 million), principally
reflecting heightened customer demand for equity cash products and increased
trading volumes in the global markets for over-the-counter and listed equity
securities, particularly in the United States and the Far East.
Page 15
<PAGE> 16
Net interest and dividend revenues increased to $74 million ($59 million).
Interest and dividend revenues rose to $1,933 million ($1,606 million), and
interest and dividend expense increased to $1,859 million ($1,547 million),
principally reflecting growth in interest-bearing assets and liabilities.
Interest and dividend revenues and expense are a function of the level and mix
of total assets, including financial instruments owned and resale and
repurchase agreements, and the prevailing level, term structure and volatility
of interest rates. Interest and dividend revenues and expense should be viewed
in the broader context of principal trading and investment banking results.
Decisions relating to principal transactions in securities are based on an
overall review of aggregate revenues and costs associated with each transaction
or series of transactions. This review includes an assessment of the potential
gain or loss associated with a trade, the interest income or expense associated
with financing or hedging the Company's positions, and potential underwriting,
commission or other revenues associated with related primary or secondary
market sales.
Asset management and administration revenues, which include fees for asset
management and non-interest revenues earned from correspondent clearing and
custody services, increased to $122 million ($85 million), primarily reflecting
contributions from MAS as well as increased revenues from international equity
and emerging market funds management. Revenues from MAS have been included in
the Company's consolidated results of operations since January 3, 1996, the
date of acquisition. Customer assets under management increased to $93 billion
($49 billion), including $36 billion associated with the acquisition of MAS as
well as continued inflows of new assets and appreciation in the value of
existing customer portfolios. Customer assets under administration increased
to $121 billion ($90 billion), primarily reflecting additional assets placed
under custody with the Company, as well as appreciation in the value of
customer portfolios.
Total expenses excluding interest increased to $1,009 million ($732 million).
Within that total, compensation and benefits expense increased $332 million to
$705 million ($373 million), principally reflecting increased levels of
incentive compensation based on record levels of revenues and earnings.
Non-compensation expenses, excluding brokerage, clearing and exchange fees and
fiscal 1994's $59 million relocation charge, decreased $5 million to $238
million. Brokerage, clearing and exchange fees increased $9 million to $66
million, reflecting increased securities volumes, particularly in the U.S. and
Europe. Occupancy and equipment expenses increased $4 million, primarily
related to increased costs associated with the Company's move to 1585 Broadway,
as well as occupancy costs of MAS. Business development expenses decreased $7
million, reflecting lower travel and entertainment, conferences, and
advertising costs as the cost control initiatives implemented at the end of
fiscal 1994 continued to favorably impact discretionary spending.
Page 16
<PAGE> 17
Liquidity and Capital Resources
The Company's total assets increased from $143.8 billion at November 30, 1995
to $165.4 billion at February 29, 1996, reflecting growth in resale agreements
and receivable balances from broker-dealers and customers, primarily
attributable to higher transaction volumes during the quarter. A substantial
portion of the Company's total assets consists of highly liquid marketable
securities and short-term receivables arising principally from securities
transactions. The highly liquid nature of these assets provides the Company
with flexibility in financing and managing its business. Balance sheet
leverage ratios are often reviewed by counterparties and creditors in order to
evaluate a securities firm's overall financial risk. Details of ending assets,
month-end average assets and leverage ratios for the three months ended
February 29, 1996 and for fiscal 1995 are as follows:
<TABLE>
<CAPTION>
Average
Assets for
the Three Average
Months Assets
Assets at Ended Assets at for
February 29, February 29, November 30, Fiscal
(Dollars in Millions) 1996 1996 1995 1995
- ------------------------------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Cash, deposits and receivables $ 17,080 $ 14,253 $ 10,286 $ 12,690
Financial instruments owned 58,693 63,181 58,600 52,387
Securities purchased under
agreements to resell and
securities borrowed 87,270 82,825 72,955 66,539
Property, equipment and
leasehold improvements
and other assets 2,363 2,199 1,912 1,725
---------- -------------- ----------- ------------
Total assets $ 165,406 $ 162,458 $ 143,753 $ 133,341
========== ============== =========== ============
Leverage ratios:
Total assets/equity 32.1x 31.9x 27.8x 27.8x
Net assets (1)/equity 21.0x 21.3x 18.9x 18.6x
</TABLE>
(1) Net assets represent total assets less the lower of securities purchased
under agreements to resell or securities sold under agreements to
repurchase.
The Company's Finance and Risk Committee, which includes senior officers from
each of the major capital commitment areas, among other things, establishes the
overall funding and capital policies of the Company, reviews the Company's
performance relative to these policies, allocates capital among business
activities of the Company, monitors the availability of sources of financing,
reviews the foreign exchange risk of the Company, and oversees the liquidity
and interest rate sensitivity of the Company's asset and liability position.
The primary goal of the Company's funding and liquidity activities is to ensure
the stability of the Company's funding base and provide adequate financing
sources over a wide range of potential credit ratings and market environments.
The Company actively manages its consolidated capital position based upon,
among other things, business opportunities, capital availability and rates of
return together with internal capital policies, regulatory requirements and
rating agency guidelines and, therefore, may in the future expand or contract
its capital base to address the changing needs of its businesses. The Company
returns internally generated equity capital which is in excess of the needs of
its businesses through common stock repurchases and dividends.
Page 17
<PAGE> 18
The Company funds its balance sheet on a global basis. The Company's funding
needs are satisfied from capital, including equity and long-term debt;
medium-term notes; internally generated funds; repurchase agreements; U.S.,
Canadian, French and Euro commercial paper; German Schuldschein loans;
securities lending; buy/sell agreements; municipal re-investments; master
notes; deposits; and committed and uncommitted lines of credit. All repurchase
transactions and a portion of the Company's bank borrowings are made on a
collateralized basis.
The Company maintains borrowing relationships with a broad range of banks,
financial institutions, counterparties and others from which it draws funds in
a variety of currencies. The volume of the Company's borrowings generally
fluctuates in response to changes in the amount of resale transactions
outstanding, the level of the Company's securities inventories and overall
market conditions. Availability and cost of financing to the Company can vary
depending upon market conditions, the volume of certain trading activities, the
Company's credit ratings and the overall availability of credit to the
securities industry.
The Company's reliance on external sources to finance a significant portion of
its day-to-day operations makes access to global sources of financing
important. The cost of such financing is generally dependent on the Company's
short-term and long-term debt ratings. In addition, the Company's debt ratings
have a significant impact on certain trading revenues, particularly in those
businesses where longer term counterparty performance is critical, such as
over-the-counter derivative transactions. The Company's short-term and
long-term senior debt ratings as of February 29, 1996 are as follows:
<TABLE>
<CAPTION>
Agency Short-Term Rating Long-Term Rating
- -------------------------------- ----------------- ----------------
<S> <C> <C>
Moody's Investors Service P1 A1
Standard & Poor's A1+ A+
IBCA A1+ AA-
Thomson BankWatch TBW1 AA
Dominion Bond Rating Service (1) R1 (Middle) n/a
</TABLE>
(1) Dominion Bond Rating Service rates the Company's Canadian commercial paper
program.
As the Company continues its global expansion and as revenues are increasingly
derived from various currencies, foreign currency management is a key element
of the Company's financial policies. The Company benefits from operating in a
number of different currencies because weakness in any particular currency is
often offset by strength in another currency. The Company closely monitors its
exposure to fluctuations in currencies and, where cost-justified, adopts
strategies to reduce the impact of these fluctuations on the Company's
financial performance. These strategies include engaging in various hedging
activities to manage income and cash flows denominated in foreign currencies
and using foreign currency borrowings, when appropriate, to finance investments
outside the U.S.
During the three month period ended February 29, 1996, the Company issued
senior notes and subordinated debt aggregating $2,884 million, including
non-U.S. dollar currency notes aggregating $451 million. These notes have
maturities from 1997 to 2011 and a weighted average coupon interest rate of
5.2%. As of February 29, 1996, the aggregate outstanding principal amount of
the Company's Senior Indebtedness (as defined in the Company's public debt
shelf registration statements) was approximately $21.5 billion.
Between March 1, 1996 and March 31, 1996, additional senior notes aggregating
$874 million were issued. These notes have maturities from 1997 to 2011.
The Company maintains a senior revolving credit facility with a group of banks.
Under the terms of the credit agreement, the banks are committed to provide up
to $2.5 billion for up to 364 days. Any loans outstanding on the commitment
termination date will mature on the first anniversary of the commitment
termination date. As of February 29, 1996 the Company had $500 million
outstanding under this facility.
Page 18
<PAGE> 19
The Company also maintains a master collateral facility that enables Morgan
Stanley & Co. Incorporated ("MS&Co."), the Company's U.S. broker-dealer
subsidiary, to pledge certain collateral to secure loan arrangements, letters
of credit and other financial accommodations. As part of this facility, MS&Co.
also maintains a secured committed credit agreement with a group of banks that
are parties to the master collateral facility under which such banks are
committed to provide up to $1.25 billion for up to 364 days. Any loans
outstanding on the commitment termination date will mature on the first
anniversary of the commitment termination date.
In December, 1995, the Company established a revolving committed financing
facility that enables Morgan Stanley & Co. International Limited ("MSIL"), the
Company's U.K. broker-dealer subsidiary, to secure committed funding from a
syndicate of banks by providing a broad range of collateral under repurchase
agreements. Such banks are committed to provide up to an aggregate of $1.25
billion available in twelve major currencies for up to 364 days. Any amounts
outstanding on the commitment termination date may, at MSIL's option, be
extended to mature on or before the first anniversary of the commitment
termination date.
There were no borrowings outstanding under either of the two foregoing secured
bank facilities at February 29, 1996; however, the Company anticipates
utilizing these facilities for short-term funding from time to time.
During the three month period ended February 29, 1996, the Company repurchased
approximately eight million shares of its common stock at an aggregate cost of
approximately $350 million. On March 27, 1996, the Board of Directors
authorized the purchase, in the open market or otherwise, subject to market
conditions and certain other factors, of an additional $150 million of the
Company's common stock. Common stock repurchases between March 1, 1996 and
March 31, 1996 aggregated $47 million; the unused portion of the Company's
stock repurchase authorization at such date was approximately $366 million.
Certain assets of the Company, such as real property, equipment, leasehold
improvements, certain equity investments made in connection with the Company's
merchant banking and other principal investment activities, and certain
high-yield debt securities, emerging market debt and collateralized mortgage
obligations and mortgage-related loan products, are not highly liquid. In
connection with its merchant banking and other principal investment activities,
the Company has equity investments (directly and indirectly through funds
managed by the Company) in privately or publicly held companies. As of February
29, 1996, the aggregate carrying value of the Company's equity investments
(including direct investments and partnership interests) in privately held
companies was $114 million, and its aggregate investment in publicly held
companies was $283 million.
In its capacity as an underwriter of and a market-maker in mortgage-backed
securities, collateralized mortgage obligations and related instruments, and a
market-maker in commercial, residential and real estate loan products, the
Company takes positions in market segments where liquidity can vary greatly
from time to time. The carrying value of such financial instruments traded in
markets currently experiencing lower levels of liquidity approximated $1,078
million at February 29, 1996.
Page 19
<PAGE> 20
In addition, at February 29, 1996, the aggregate value of high-yield debt
securities and emerging market loans and securitized instruments held in
inventory was $1,196 million (a substantial portion of which was subordinated
debt) with not more than 4%, 16% and 5% of all such securities, loans and
instruments attributable to any one issuer, industry or geographic region,
respectively. Non-investment grade securities generally involve greater risk
than investment grade securities due to the lower credit ratings of the
issuers, which typically have relatively high levels of indebtedness and are,
therefore, more sensitive to adverse economic conditions. In addition, the
market for non-investment grade securities and emerging markets loans and
securitized instruments has been, and may in the future be, characterized by
periods of volatility and illiquidity. The Company has in place credit and
other risk policies and procedures to control total inventory positions and
risk concentrations for non-investment grade securities and emerging market
loans and securitized instruments.
The Company may, from time to time, also provide financing or financing
commitments to companies in connection with its investment banking activities
that may subject the Company to increased credit and liquidity risks.
Subsequent to February 29, 1996, the Company had one loan of $160 million
outstanding in connection with the Company's high-yield underwriting
activities.
In the first quarter of fiscal 1996, the Company formed Morgan Stanley Bridge
Fund, LLC ("MSBF"), a bridge facility with $600 million in aggregate investment
capacity (including $150 million available from the Company), that will provide
financing, consisting primarily of subordinated loans or debt financing, to
clients that require commitments on a timely basis, generally in connection
with strategic and financial acquisitions, leveraged buyouts, recapitalizations
and other special situations. Such financing will generally be provided in
connection with the Company's investment banking and merchant banking
activities.
At February 29, 1996, financial instruments owned by the Company included
derivative products (generally in the form of futures, forwards, swaps, caps,
collars, floors, swap options and similar instruments which derive their value
from underlying interest rates, foreign exchange rates or commodity or equity
instruments and indices) related to financial instruments and commodities with
an aggregate net replacement cost of $7.9 billion. The net replacement cost of
all derivative products in a gain position represents the Company's maximum
exposure to derivatives related credit risk. Derivative products may have both
on- and off-balance sheet risk implications, depending on the nature of the
contract. It should be noted, however, that in many cases derivatives serve to
reduce, rather than increase, the Company's exposure to losses from market,
credit and other risks. The risks associated with the Company's derivative
activities, including market and credit risks, are managed on an integrated
basis with associated cash instruments in a manner consistent with the
Company's overall risk management policies and procedures. The Company manages
its exposure to derivative products through various means, which include
monitoring the creditworthiness of counterparties and credit limits on an
ongoing basis; entering into master netting agreements and collateral
arrangements with counterparties in appropriate circumstances; and limiting the
duration of exposure.
Page 20
<PAGE> 21
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
The following developments have occurred with respect to certain
matters previously reported in the Form 10-K.
State of West Virginia v Morgan Stanley & Co. Incorporated. On
February 26, 1996, the judge designated to consider the recusal motion
issued a report recommending that the motion be denied. On March 1,
1996, Morgan Stanley moved for leave to file objections to the report.
Hedged-Investments Litigation. In connection with the action
captioned Bruce W. Higley, D.D.S., M.S., P.A. Defined Benefit Annuity
Plan v Donahue, et al., on February 22, 1996, the Colorado Court of
Appeals reversed the denial of the motion to intervene, but affirmed
the orders of the trial court approving the settlement and the final
plan of allocation.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 11 - Statement Re: Computation of Earnings per
Share.
Exhibit 12 - Statement Re: Computation of Ratio
of Earnings to Fixed Charges and Preferred
Stock Dividends.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K
1. Form 8-K dated January 4, 1996, Items 5 and 7.
2. Form 8-K dated January 12, 1996, Item 7 only.
3. Form 8-K dated January 30, 1996, Item 7 only.
4. Form 8-K dated February 9, 1996, Item 7 only.
Page 21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MORGAN STANLEY GROUP INC.
-------------------------
Registrant
Date: April 12, 1996 /s/ Eileen K. Murray
--------------------------------
Eileen K. Murray
Chief Accounting Officer
and Controller
Date: April 12, 1996 /s/ Jonathan M. Clark
---------------------------------
Jonathan M. Clark
General Counsel and Secretary
Page 22
<PAGE> 23
EXHIBIT INDEX
Exhibit No. Description
---------- ------------
Exhibit 11 - Statement Re: Computation of
Earnings per Share.
Exhibit 12 - Statement Re: Computation of Ratio
of Earnings to Fixed Charges and Preferred
Stock Dividends.
Exhibit 27 - Financial Data Schedule.
<PAGE> 1
EXHIBIT 11
MORGAN STANLEY GROUP INC.
COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 29, JANUARY 31,
1996 1995 (1)
------------ -----------
<S> <C> <C>
PRIMARY:
Common stock and common stock equivalents:
Average common shares outstanding 153,833,405 151,457,434
Average common shares issuable
under employee benefit plans 2,715,838 3,610,574
------------ ------------
Total average common and common
equivalent shares outstanding 156,549,243 155,068,008
============ ============
Earnings:
Net income $ 273 $ 39
Less: Preferred stock dividend
requirements 16 16
------------ ------------
Earnings applicable to common shares $ 257 $ 23
============ ============
Primary earnings per share $ 1.64 $ 0.15
============ ============
FULLY DILUTED:
Common stock and common stock equivalents:
Average common shares outstanding 153,833,405 151,457,434
Average common shares issuable
under employee benefit plans 3,008,014 3,610,574
Common shares issuable upon conversion
of ESOP preferred stock 7,509,495 7,599,836
------------ ------------
Total average common and common
equivalent shares outstanding 164,350,914 162,667,844
============ ============
Earnings:
Net income $ 273 $ 39
Less: Preferred stock dividend
requirements 15 16
------------ ------------
Earnings applicable to common shares $ 258 $ 23
============ ============
Fully diluted earnings per share $ 1.57 $ 0.15
============ ============
</TABLE>
(1) All share and per share amounts have been retroactively adjusted to give
effect for a two-for-one common stock split, effected in the form of a 100%
stock dividend, which became effective on January 26, 1996.
<PAGE> 1
Exhibit 12
RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------- FISCAL PERIOD ENDED
FEBRUARY 29, JANUARY 31, NOVEMBER 30,
1996 1995 1995
------------ ----------- --------------------
<S> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES
Earnings:
Income before income taxes $440 $58 $883
Add: Fixed charges, net 1,870 1,558 5,538
------ ------ ------
Income before income taxes and
fixed charges, net $2,310 $1,616 $6,421
====== ====== ======
Fixed charges:
Total interest expense (1) $1,859 $1,555 $5,512
Interest factor in rents (2) 11 11 37
------ ------ ------
Total fixed charges $1,870 $1,566 $5,549
====== ====== ======
Ratio of earnings to fixed charges 1.2 1.0 1.2
RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
Earnings:
Income before income taxes $440 $58 $883
Add: Fixed charges, net 1,870 1,558 5,538
------ ------ ------
Income before income taxes and
fixed charges, net $2,310 $1,616 $6,421
====== ====== ======
Fixed charges:
Total interest expense (1) $1,859 $1,555 $5,512
Interest factor in rents (2) 11 11 37
Preferred stock dividends (3) 26 24 80
------ ------ ------
Total fixed charges and preferred
stock dividends $1,896 $1,590 $5,629
====== ====== ======
Ratio of earnings to fixed charges and
preferred stock dividends 1.2 1.0 1.1
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31, YEAR ENDED
-------------------------------------- DECEMBER 31,
1995 1994 1993 1991
------ ------ ----- -------------
<S> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES
Earnings:
Income before income taxes $594 $1,200 $793 $772
Add: Fixed charges, net 5,916 5,055 4,397 3,963
------ ------ ------ ------
Income before income taxes and
fixed charges, net $6,510 $6,255 $5,190 $4,735
====== ====== ====== ======
Fixed charges:
Total interest expense (1) $5,899 $5,020 $4,362 $3,946
Interest factor in rents (2) 41 35 35 38
------ ------ ------ ------
Total fixed charges $5,940 $5,055 $4,397 $3,984
====== ====== ====== ======
Ratio of earnings to fixed charges 1.1 1.2 1.2 1.2
RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
Earnings:
Income before income taxes $594 $1,200 $793 $772
Add: Fixed charges, net 5,916 5,055 4,397 3,963
------ ------ ------ ------
Income before income taxes and
fixed charges, net $6,510 $6,255 $5,190 $4,735
====== ====== ====== ======
Fixed charges:
Total interest expense (1) $5,899 $5,020 $4,362 $3,946
Interest factor in rents (2) 41 35 35 38
Preferred stock dividends (3) 97 85 82 47
------ ------ ------ ------
Total fixed charges and preferred
stock dividends $6,037 $5,140 $4,479 $4,031
====== ====== ====== ======
Ratio of earnings to fixed charges and
preferred stock dividends 1.1 1.2 1.2 1.2
</TABLE>
(1) Total interest expense for the three months ended
January 31, 1995, the fiscal period ended November 30, 1995,
the fiscal year ended January 31, 1995 and the year ended
December 31, 1991 includes capitalized interest.
(2) Interest factor in rents represents one-third of rent expense,
which is considered representative of the interest factor.
(3) The preferred stock dividend amounts represent pre-tax earnings
required to cover dividends on preferred stock.
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
MORGAN STANLEY GROUP INC.
FINANCIAL DATA SCHEDULE
(IN MILLIONS, EXCEPT SHARE DATA)
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Financial Condition at February 29, 1996
(Unaudited) and the Condensed Consolidated Statement of Income for the Three
Months Ended February 29, 1996 (Unaudited) and is qualified in its entirety by
reference to such condensed consolidated financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 4,621
<RECEIVABLES> 12,459
<SECURITIES-RESALE> 56,967
<SECURITIES-BORROWED> 30,303
<INSTRUMENTS-OWNED> 58,693
<PP&E> 1,300
<TOTAL-ASSETS> 165,406
<SHORT-TERM> 12,931
<PAYABLES> 17,539
<REPOS-SOLD> 75,088
<SECURITIES-LOANED> 8,023
<INSTRUMENTS-SOLD> 32,671
<LONG-TERM> 12,292
0
817
<COMMON> 164
<OTHER-SE> 4,176
<TOTAL-LIABILITY-AND-EQUITY> 165,406
<TRADING-REVENUE> 704
<INTEREST-DIVIDENDS> 1,933
<COMMISSIONS> 154
<INVESTMENT-BANKING-REVENUES> 399
<FEE-REVENUE> 122
<INTEREST-EXPENSE> 1,859
<COMPENSATION> 705
<INCOME-PRETAX> 440
<INCOME-PRE-EXTRAORDINARY> 440
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 273
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 1.57
</TABLE>
