Morgan Stanley est Q4 2007

--Morgan Stanley became a lead palyer in underwriting subprime-mortgage securiteis after acquiring Saxon Capitla Inc. for $706 mil --it has taken a 3.7 bil hit in the first two months of Q4, from Sept to Oct --at of the end of Q3, Auguest 31, US sub-prime direct exposure on the balance sheet was 12.3 bil, where 11.4 was sub-prime mortage related, incluidng loans, totatl rate-of-return swaps, ABS from ABS bonds, namely sub-prime residuals, of ABS CDS, CDS. The remaining 900 mill was in the most senior tarnches of CDOs, which are collateralized by ABS, ABS CDOs. net exposure is 10.4 bil. --We define net exposure balances as a potential loss to the firm in a 100% loss default scenario, with zero recovery. Some positive amounts indicate the maximum loss in a default scenario on long positions, a negative amount indicate the maximum gain in a default scenario on short positions. --At the end of the third quarter, our net exposure was $10.4 billion, and we recorded approximately $100 million in profits against fixed-income revenues. Of this, $1.6 billion in profits were recorded on our US sub-prime exposures that netted against a $1.5 billion loss on our ABS CDO-related exposures. Of course, since the end of our third quarter in August, the fair value of these exposures has declined due to the sharp decrease in the BBB ABX price indices, dropping between 35 and 50% in September and October, combined with the negative news on sub-prime mortgage remittances. --The result in declines in valuation as of October 31, 2007, are as follows. Our total US sub-prime related direct exposures on the balance sheet were $9.3 billion, representing $6 billion in net exposure, a reduction from the $10.4 billion we mentioned earlier. The total decline in revenues for the two months ended October 31, 2007, was $3.7 billion, of which $2.9 billion is against the total ABS CDO-related exposures. This write-off assumes a cumulative loss of 11 to 19%, with 50% severity and implies a 40 to 50% default rate of 2005 and 2006 vintages. --super senior exposure 8.3 bil --net exposure decreases from 10.4 to 6 bil, 4.4 bil loss, plus heding 0.7 bil -> revenue loss 3.7 bil