While it was tempting to address some of the issues as they arose, frankly, our view is that addressing every rumor is counterproductive. When Ruth walks you through the numbers, it should be apparent that the biggest challenge we faced of late is subdued client activity. In fact, overall, we were modestly profitable in the quarter.Our firm and our system had derisked, both strategic and financially, which provides the type of stability needed in all times but particularly in challenging markets. Clearly, we're in a very dynamic environment and our journey is not done. But the U.S. financial system in general and Morgan Stanley in particular has made far more progress than it is being given credit. On the topic of the financial system, a few quick words. The regulatory landscape continues to evolve. We're managing our business with an eye towards Basel III and the SIFI buffer. We're already above the 7% Basel III base requirement for Tier 1 common and are confident about our ability to reach required levels in the appropriate time horizon. On the liquidity front, while we are significantly above proposed LCR ratios, we believe the regulators are doing the right thing for the system and the economy by taking another look at the calibration for those requirements. In regards to Volcker, it's far too early to determine the impact on our business model and the industry. We understand the regulators are trying to strike the right balance of preventing prop trading by depositor institutions, but at the same time allowing for market making in liquid markets. As we have repeatedly said, we have, over the past 3 years, taken the steps Volcker was designed to address. We have shut down our pure prop trading desk, we've spun our front point, we have announced plans to spin off PDT and we have meaningfully reduced the capital levels we intend to invest in support of the merchant bank.
It is critical that the Volcker Rule does not restrict activities necessary for market making in liquid markets. We and the rest of the industry have an opportunity now to weigh in on these issues during the upcoming comment period.Let's turn to the environment. Market conditions are challenging. We're constantly reassessing whether we are experiencing something that is secular or cyclical and under what conditions we would act to shrink or change businesses, product lines our overall balance sheet and our level of risk-weighted assets. I want to be very clear about something. We will continue to make whatever decisions are necessary if we indeed determine we are experiencing a secular change. We're not myopically focused on SIs, only on the returns we generate for shareholders. We will optimize our business mix and our balance sheet to generate returns that you should expect from us. We're all very focused on expenses. Ruth will walk you through an update of our cost-cutting program, and I want to briefly address compensation as it's clearly an important lever to drive returns. We will be balanced and remain focused on protecting our important franchises and paying those employees who are delivering differential value. At the same time, we're fully cognizant of the challenging environment and the need to deliver acceptable returns for our shareholders. That is the balance we intend to find at year end. If you take away one thought from my comments today, it should be this. We will make the necessary business decisions that need to be made to ensure that all the changes that have taken place at Morgan Stanley since the financial crisis, including reduced leverage, the shift in our business mix towards more stable revenue streams, the MUFG conversion and strategic alliance, the more than doubled liquidity and the elimination or spin off of our prop trading businesses among others, all of these deliver the long-term shareholder value and performance investors expect. Read the rest of this transcript for free on seekingalpha.com