Investment banking

Morgan Stanley > Stock Research > New York AG Probe > Assurance of Discontinuance > Research and Investment banking

Morgan Stanley and New York: Research and Investment Banking

C. Morgan Stanley Research Analysts Performed Investment Banking Functions

30. Morgan Stanley research analysts performed a number of investment banking-related functions. They identified potential IPO and merger and acquisition transaction candidates for the firm, and participated in road shows and other efforts to sell Morgan Stanley-underwritten IPOs and secondary offerings to institutional investors. At times, analysts also had discussions about business strategy with investment banking clients directly, and one senior analyst was described as a relationship manager with certain banking clients. (Exhibit 30 at MS0083109.)

31.Morgan Stanley kept a record of each analyst's contribution to investment banking revenues. Each year, a "Revenue Share Analysis" was prepared that listed every investment banking transaction in which each analyst had participated, the revenues from each transaction, a rating on a scale of 1 to 5 (5 being "critical" to the deal) of the analyst's contribution to the transaction, and a calculation of the analyst's "share" of the credit for the revenues secured from the transaction. The Revenue Share Analysis also recorded investment gains on Morgan Stanley investments in companies covered by the analyst. (Exhibit 31.)

32. One senior analyst's involvement in investment banking activities was such that several investment banks at the firm regarded the analysts as tantamount to an investment banker. One banker wrote that the analysts was the most committed and focused investment banker with whom he had ever worked. (exhibit 32.) Another wrote that the analyst was a "commercial animal" who would do anything appropriate to win underwriting mandates. (Exhibit 32.) The analyst's supervisor wrote in 1999 that the analyst's focus was primarily on banking and that, notwithstanding the growing demand for the analyst's time on investment banking matters, the analysts needed to devote more attention to institutional investors and the firm's institutional sales force. (Exhibit 29 at MS0083192.)

33. The analyst's own self-evaluation prominently mentioned the analyst's assistance to investment banking in selecting and generating investment banking business and large fees, stating: "Bottom line, my highest and best use is to help MSDW win the best internet IPO mandates (and to ensure that we have the appropriate analysts and bankers to serve the companies well)..." (Exhibit 33 at MS0083161, emphasis in original) It also prominently listed the deals and revenues from the analyst's investment-banking connected efforts:

Internet Investment Banking, a record Year with $205MM+ YTD Revenue, [20+] pending Financings, Co-Coverage (leverage) in 85% of cases, 6 of 6 Tech IBD Revenue Generating Clients, Internet Category was #1 Revenue Generator in Tech IBD ($505MM YTD Tech Revenue)... (Emphasis in original.)

OK, the numbers (see Attachment A): Forty investment banking transactions ($143MM in fees) . . ..

It's notable that 96% of the $205MM in revenue were derived from clients new to the firm since 1995! Exceptions were America Online, Compaq, Hearst and Sotheby's. And, I have been very involved in this business. (Emphasis added.) (Exhibit 33 at MS0083162-63.)