Morgan Stanley joined the roster of investment banks reporting record profits, and announced that it would spin off its Discover card division.

The firm today reported record income from continuing operations for the fourth quarter and the full year 2006. It also announced that the board of directors has approved the spin-off of its Discover card division in order to enhance shareholder value.

Morgan Stanley said that it achieved record income from continuing operations for the fiscal year ended November 30, 2006 of US$7.5 billion, a 44% increase from a year ago. Record net revenues of US$33.9 billion were 26% higher than last year.

Income from continuing operations for the fourth quarter was a record US$2.2 billion, an increase of 26% from the fourth quarter of 2005. Net revenues were US$8.6 billion, 24% above last year’s fourth quarter.

Net income (including discontinued operations) for the year was a record US$7.472 billion, a 51% increase from a year ago. For the quarter, net income was US$2.2 billion, compared with US$2.465 billion in the fourth quarter of 2005, which included an after-tax gain of approximately US$700 million related to the sale of the company’s aircraft leasing business.

The firm said that its Institutional Securities division delivered its best full-year results ever, with record net revenues of US$21.6 billion and record income before taxes of US$8.2 billion, up 72% from last year.

Record equity sales and trading revenues of US$6.3 billion this year were up 32% from 2005. This increase reflected the third consecutive year of record results in Prime Brokerage. Also, record fixed income sales and trading revenues and fixed income underwriting revenues were up 41% and 29%, respectively, from 2005. Record results across commodities, credit products and interest rate & currency products drove fixed income sales and trading revenues.

Global Wealth Management delivered its highest revenues in six years and demonstrated improvement in many areas, with financial advisor productivity and assets per global representative at all time highs in the fourth quarter, and assets in its bank deposit program exceeding US$13 billion.

Discover achieved its best full-year results ever, with net revenues of US$4.3 billion and income before taxes of US$1.6 billion, up 72% from last year.

John J. Mack, the firm’s chairman and CEO, said, “2006 was a year of outstanding performance and progress for Morgan Stanley. Capitalizing on a strong market environment, the people of Morgan Stanley achieved record fourth quarter results and the best full-year revenues and earnings in the firm’s history. In our securities business, we delivered powerful performance across our Institutional Securities franchise and made significant strides in our Asset Management and Global Wealth Management businesses. Discover also achieved record results this year and made substantial progress in executing critical growth initiatives.”

“Given the record results and significant momentum both in our securities business and our cards and payments business, we have concluded, after our most recent strategic review, that they can best execute their growth strategies as two stand-alone, well-capitalized companies with independent boards of directors focused on creating shareholder value,” Mack added. “The spin-off will allow Discover to continue building on its strong brand and significant scale. We also believe the spin-off will unlock considerable value for the shareholders of Morgan Stanley.”