The following slides will likely look familiar to those of who you have joined us for this call in prior quarters. Our approach to funding, capital and liquidity management has not changed, and we remain committed to preserving the durability of our balance sheet consistent with the framework we've discussed on prior calls.

As such, we'll discuss the remaining slides briefly to allow more time for your questions. Beginning with Slide 14, Morgan Stanley invests in durable funding to provide ample stability and flexibility in all markets.

We continue to focus on balance sheet durability and believe that ephemeral sources of funding such as commercial paper are not appropriate for banks. Slide 15 illustrates the asset liability funding model that we've shown you before, aligning more liquid assets with shorter term liabilities and less liquid assets with longer term liabilities.

Please turn to Slide 16, which shows our long-term debt maturity profile. We continue to issue globally across multiple channels in order to support a diversified investor base. I'll now turn the call over to Tom Wipf to discuss secured funding..

Slide 17; as we've discussed with you before, our four pillars of secured funding ensured durability and stability in our secured funding book. First, WAM provides appropriate time based on asset fundability. Second, roll down targets limit total liabilities maturing in any given period and give us a smooth maturity profile.

Third, concentration targets increase investor diversification and limit reliance on any single investor. And finally, we've build spare capacity as an additional risk mitigate against sudden shocks in the market that could reduce rollover weights. Please turn to Slide 18.

Our approach to secured funding is consistent with our approach to long-term debt. We follow asset-based model to obtain the appropriate term consistent with the fundability of the underlying assets in the secured market.

Our assets are reviewed daily according to our rules-based fundability criteria and are re-categorized real-time based on their liquidity characteristics in the prevailing market environment. We look at assets down to [Q-suite] (ph) level in four categories of fundability; Super Green, Green, Amber and Red.

Those categories indicate the availability of secured funding for that asset class. The fully-loaded cost of this funding is allocated to the businesses at an asset and a desk level. There has been some industry discussion about minimum haircut requirements as regulators consider changes to the wholesale funding markets.

As you might expect, we're very supportive of the application of market-wide haircuts and believe that the safety and soundness that they will provide to the system more than offset any potential drag on market liquidity. Turning to Slide 19; pillar one, longer WAM provides appropriate flexibility to manage the liquidity horizon of assets.

In aggregate the WAM of the entire secured funding book excluding Super Green assets continues to exceed our target of 120 days. This accomplished two key goals. First, it increases the durability of funding. And second, it reduces the liquidity reserve requirements needed as a contingency for loss of secured funding.

On Slide 20, we highlight a recent study by the federal reserve bank of New York on weighted average maturity in the U.S. secured funding markets. Although overall WAM has increased broadly across the industry improvement is widely dispersed across dealers with 25% of the population having a WAM of 26 days or less.

Morgan Stanley is a leader with WAM of greater than 120 days which puts us well above the 75th percentile in the study. We believe that having appropriate WAM is an essential requirement for durable funding.

Turning to Slide 21; pillar two and pillar three, monthly maturity targets and investor concentration targets both of which reduced refinancing risk. Pillar two establishes a monthly maturity target which gives us a smooth maturity profile within the secured book thereby reducing roll over risk.

Pillar three sets investor concentration targets to increase investor diversification limiting reliance on any single investor. The highlight or focus on pillar three, at the bottom of the slide we've broken out the number of term investors in the secured book. We have a significant and diverse pool of investors with strong geographic diversification.

Turning to Slide 22, pillar four, spear capacity. Spear capacity eliminates the need to access markets for the first 30 days of a stress event and reduces our needs for the 60 days thereafter. It also provides ample flexibility to accommodate surges and market based client demand during periods of greater activity.

Spear capacity represents total secured funding liabilities in excess of our inventory. In other words, our spear capacity has created excess contractual term funding, which allows us to have a durable funding profile in both stressed and favorable market environments.

Besides our spear capacity using a number of conservative assumptions about theoretically what could occur in a stress environment. These assumptions are not Morgan Stanley specific and are more diverse than market conditions during observed stress periods.

We collateralized spear capacity liability of super green assets, but we can contractually substitute them with less liquid assets. Now, I'll turn the call back to David to discuss liquidity..

Turning to Slide 23, the net outcome of all we've talked about is durable liquidity. We divide our liquidity reserve into two buckets, bank and non-bank.

Our bank liquidity declined in the second quarter of 2014 primarily driven by the deployment of excess cash from deposits into our loans, which is consistent with the bank's strategy we have discussed previously. Please turn to Slide 24. We continue to focus on liquidity at both the parent and legal entity level.

Our approach at the legal entity level is consistent with the increased focus across the industry on subsidiary liquidity. As you may recall we run our liquidity stress test at the legal entity level first supporting a bottoms-up approach. This ensures efficient liquidity at each legal entity while also maintaining ample reserves at the parent.

Turning to Slide 25, our pro forma Basel LCR remains well in excess of 100%.

Our strong liquidity coverage ratio is an outcome of our prudent approach to liquidity risk management including the extension of the weighted average maturity of secured funding, the size and quality of our liquidity reserve, the composition of our funding stack and the size and composition of our unfunded lending portfolio.

Slide 26 provides detail on our deposit base and its LCR characteristics. Our Bank Deposit Program or BDP represents a 109 billion of our total firm deposits. The BDP deposits are sourced from firm's wealth management clients and represent the working capital in client accounts.

These deposits are stable over economic cycles and observed periods of stress and we view them as a source of durable funding.

The slide provides detail on the nature of our BDP deposits, 100% are interest-bearing, approximately 75% are insures, which enhances the stability of the deposits in times of market or idiosyncratic stress, and 80% qualify as LCR liquidity value.

We will receive approximately 20 billion of additional deposits from Citi our former JV partner by July 2015 with similar characteristics to the BDP deposits we already have on our balance sheet. Given the nature of these deposits we would also expect them to grow roughly inline with total client assets over time.

Please turn to Slide 27; our final topic, capital management. We continue to have strong capital ratios as measured under Basel three. Our pro forma Basel three common equity tier one ratio under the fully faced in advanced approach was approximately 12.1% at June 30th, reflecting our best estimate under the final Federal Reserve rules.

Our strong capital ratios are supported by a high quality capital stack which is illustrated on slide 28. We are focused on optimizing our capital stack and issued approximately 1.7 billion of preferred stock in 2013 and 1.8 billion in the first half of 2014.

We have approximately 4.9 billion of trust preferred securities outstanding and view them as valuable tier one and tier two capital, which phase out over an extended period of time. With regards to subordinated debt, we have issued 4 billion since the beginning of 2013 and believe it represents valuable Tier two capital.

On slide 29 we have provided our various capital and leverage ratios under the relevant regulatory regimes. We continue to have strong risk based capital ratios and are on a clear path to an SLR of greater than 5% in 2015. Thank you. And we'll now take your questions..

(Operator Instructions) Your first question comes from the line of James Strecker with Wells Fargo..

Good morning, everyone. Thanks for having the call. Just a quick question, I didn't see an update on the 2014 funding plan, obviously you all made a lot of progress in the first half.

By our math, it actually looks like (indiscernible) essentially be done, obviously there is an opportunity to be opportunistic, but in spreads where they are, but just kind of want to get your thoughts there..

Yes. The second half of 2014 should look similar to the first half of 2014 in size. This outlook is that unsecured debt outstanding should be approximately unchanged overall on the year. And this is a revision from the last time we spoke; it reflects the dynamic nature of our balance sheet..

Okay. Thanks for that color. And then maybe just kind of going down the stack a little bit to Tier one and Tier two needs. You guys still haven't -- very modestly needs to be fair, but still maybe a billion more in Tier one and maybe 2 billion in Tier two to hit 150-200 bips of Basel III RWAs respectively.

Is that the right way to look at it? I know you talked about getting SLR compliant next year , but is there any desire to maybe accelerate that preferred issuance to get there a little bit sooner?.

I think it's premature to say what an ultimate optimal amount is. Over the past one and a half years we have been optimizing our capital stack with respective preferred subject. As we mentioned, we did the 1.8 billion of preferred earlier this year.

And that really reflects us pulling forward the full year plan based on the outsized demand that we received. So we'll continue to assess opportunities we preferred over time. With respect to subject, the same thing, we will just continue to look at optimizing this over time..

Okay, great. Thanks for that, David. Maybe one for Ruth if I could, the situation in Ukraine and Russia continues to get a little bit more unsettling day-by-day.

Is that having any negative drag on what's been a pretty strong performance in EMEA recently?.

No. It ends up the pick up in activities that we saw in Europe has been quite broad-based. And when we look at the investment banking pipeline, it continues to be strong. The trends that drove the M&A pick up are compelling.

We've talked about them quite a bit, the upsize in deal size which really placed our sweet spot more cross-border activity, more corporate engagement, corporate activity.

So at this point what we are really seeing is a focus by corporate clients to proceed with deals that are strategically compelling and the velocity of deals have picked up by which I mean the assessment phase moving through pipeline to completion we see on the back of that financing activity that's coming.

We are also separately us healthy and actually increasing financing pipeline. So at this point I have not seen any spill over, clearly, backdrop is always important. But at this point it's continuing to be quite healthy..

Okay, great. Thanks, everyone..

Thank you..

Your next question comes from the line of Robert Smalley with UBS..

Hi, thanks very much. A couple of quick questions on funding side, I'm looking at slide 20 when we -- importance of durability. And you are talking about the WAM being greater than 120 days versus 78 as if that study pointed out.

How much does Morgan Stanley pay up for that extension? Do you feel like you are paying up for that? And given where rates are and that we have a lot of real compression around rates, would that change in a rising rate environment when we might get a steeper front-end?.

So first it will just cost -- certainly a significant cost, but durability of funding is our first principle and durability is not cheap. So you can clearly see that the numbers as you go out the curve, well, for us the question isn't about cost.

Morgan Stanley and some of our peers have chosen to invest to achieve that durability and some others haven't. When we think about a rising rate environment our focus is going to be across the assets that we fund. So although we look at that overall, our main goal is it continues to be durability..

Okay.

Could you give us some idea of the relative cost of that if you run that?.

Not at this point. I think what we like to do is we could focus across the four pillars, goal being durability and again you can see the numbers even if you look at the curve out from one day out to 120 days or greater..

Okay. That makes sense. And in terms of your acceptance in this part of the marketplace, I know certainly -- obviously we have seen spreads come in across all fixed income classes. How was the perception among the counter party credit community, they are usually the last ones to change their mind about things.

And when you look at how your haircut in terms of counter party risk, is it coming back to the way that you yourselves haircut other similar type of firms?.

We look at our haircuts based on the assets. That's been a focus we have for a long time. But certainly we have been within the market for many years..

Okay. One last question, I was going through some notes the other day and several quarters ago you've talked about a goal of deposits plus shareholders equity equaling 50% of the funding stack. You are getting there pretty quickly.

Is that still a goal? Or is that something that you would look to exceed over time?.

Yes..

That was my problem for asking two questions at the same time. So that's still a goal and so that's kind of a medium-term goal in the next year or two. And then after that you will look opportunistically to go past the 50%..

Yes. There are additional opportunities for growth in the deposit base. Deposits that can be measured as a percent of total client assets; and as you mentioned in the prepared comments, as those grow, deposits could grow as well..

Okay. Thanks very much..

(Operator Instructions) Your next question comes from the line of (indiscernible) with Citigroup..

Thanks again for hosting the call. Just a question on Slide 23, the liquidity reserve mix; the interest-bearing deposits with banks is down to 11% from 20% while securities available for sale increased from 26% to 34% from the last six months or so.

I was just curious to see if you are at the right mix there or how we should think about this going forward?.

We will always be focused on ultra high quality assets in our liquidity pool. And there were times when we believe that it's a better investment to put it in overnight deposit at a bank. The other times we think it's more appropriate to put it in something more like a treasury security.

In this case I think what we are seeing is a transfer of fewer deposits at banks and increased holdings of treasury securities..

Okay. And just one other question, thanks for the extra detail on the equity sales and trading. And just the growth there, I was curious if you could talk a little bit about the areas maybe with the biggest improvements.

And then additionally is this a mix of getting closer with client relationships or these other banks pulling back it is where you are seeing the growth there?.

It's really a little of both, where we run the franchise, they often talk about our nine box strategy. We focus across product, the three boxes being cash derivatives and prime brokerage. And then across region Americas, EMEA and Asia, and within each box we look to go very deep with clients.

And then very importantly, we talk about adjacencies across the various boxes. So the deeper we go with clients in TB, our view is the deeper we would expect to see them going across cash derivatives and globally with us.

And it's really that attention at a quite granular level with our clients on the back of all the investments that we've made in the franchise that has enabled us to have a leading position. And we do think that we are benefiting on the margin from some players downsizing in certain areas that they have been in.

but fundamentally the strength has been a very consistent one for many years and that does build on the back of what has been a lot of investments in the equity franchise..

Okay. Thank you again..

Thank you..

(Operator Instructions) Your next question comes from the line of David Trone with Prudential..

Hi.

On the SLR ratio, what's the bridged, again, if you could remind us in getting above the 5% mark and the timing on that?.

We are looking to -- we've gone from 4.2% in the end of the first quarter to 4.6% at the end of the second quarter. The key driver for that was really an enumerator this quarter from earnings, the preferred issuance multiplied in fact with DTAs and the investment capacity deduction.

Then the balance of the driver, we expect to be above -- it will be above 5% in 2015. And we've a number of work streams that will really continue to move that ratio up above the 5% in 2015.

Obviously the numerator in earnings will continue to be an important contributor, but across the denominator the work streams include things like focusing on compression activity where that pace continues to be strong. We've accomplished a lot year-to-date. We've got a strong pipeline and ongoing engagement with banks on both sides of the Atlantic.

So we do think that compression will be one key opportunity, obviously the run down in risk-weighted assets that I noted, continues to help the denominator because much of that is in areas (indiscernible). And then, the net long CDS sold was added to the calculation of the ratio. And we're focused on again mitigating the impact of that addition.

So, across the spectrum we have work streams. Again to look at opportunities to reduce some of the elements of the SLR without impacting what we're doing from a client franchise. And with that said, we think there are ample opportunities. What that does is result in the 5% number in 2015, well ahead of the 2018 requirement..

Are we talking about early part of 2015 or ….

Yes. We've said in 2015 and I think the important point was the last point of my sentence which is the requirement is a 2018 requirement. We're well on our way, and we've got good set of work steams across the various components to achieve that requirement in 2015..

Got it.

And then the bank; is that above or -- the plan to be above the 6% mark similar?.

Yes..

Okay, going to..

I'm sorry. To be clear, yes, the bank is above the requirement now. We've ….

It's above the requirement? Okay..

Yes, above the requirement now. We capitalize the banks to support loan growth in the banks. And so, both with respect to capital and liquidity, we're in a very strong position with our banks.

And again, that's very much consistent with the notion that in 2009 when we created the joint venture with Citi we knew that at some point we'd contractually start receiving these deposits as we bought out the joint venture stake, and we wanted to build the infrastructure in all of the requirements to support very prudent consistent loan growth in appropriately capitalized set of entities.

So we have built that early along with credit risk management and all of the other processes required to support again prudent loan growth in the bank..

And lastly on the trending sale, the commodity business to Rosneft; is that going to be impacted by the new set of sanctions?.

Well, given all this going on from a deal perspective, this is obviously uncharted territory, but we do continue to work towards closing in the back half of the year, and it does remain subject to regulatory approval..

Is there a break-up fee?.

We're -- yes, we'll give the updates if there are. As I said we're working on closing towards the back half of the year, and there is regulatory approval and we'll give updates if there are updates -- when there are updates..

Great, thank you..

Your next question comes from the line of Pri de Silva with CreditSights..

Following up on David's question on the SLR, SLR seems to be the main primary capital constraint for Morgan Stanley as well as couple of your peers.

How do you think about the size of the balance sheet in terms of your capital management needs and the desire to return capital to shareholders?.

We moved to greater than 5% in 2015. It reflects the opportunities we have with both the numerator and the denominator. And as I said, one of the important points is that we're looking at the move to greater than 5%, again, with increasing returns of capital that are consistent with supporting our client franchise.

We're very strong with these capital measures. We have a clear path to achieve the SLR well ahead of the requirement. And we have ample capacity to put balance sheet and capital behind clients and client demand. And so, in our view when you break it down to the items that I've already delineated, we have ample opportunity.

To the extent it makes sense to have any changes in balance sheet whether higher or lower, that's really driven by client activity in our perspective on the opportunity set for the firm.

And one of the key elements that we really look to is delivering for clients as we're driving a higher ROE for the firm and the elements that we're focused on with respect to the SLR are substantial. They take us to this higher level, but again, the decisions on cash balance sheet will be driven by client activity and our perspective on that..

Thanks, Ruth, and that's helpful.

The last thing I have, which is a rather outbound question, how do you look at the FAA ALM risk in develop management business?.

We continue to run a traditional asset liability model in our banks, and I'm assuming you're really talking about the lending activities in the banks, and we have a large deposit base against that.

We'll appropriately size our AFS portfolio, we've discussed in the past, both to invest our excess cash from the growing deposit base as well as looking at the fixed rate characteristics of it against the various interest rate characteristics of the lending portfolio will be very prudent and it's a very traditional model..

Okay, thank you..

And there seem to be no further questions at this time. Celeste Brown We really appreciate you joining us on our Friday morning during the summer, and look forward to speaking to you all of you very soon..