MS: Morgan Stanley to Acquire Residential Mortgage Servicer and Originator Saxon Capital (SAX) for $706 Million

Morgan Stanley (NYSE: MS) announced today that it has reached a definitive agreement to acquire Saxon Capital, Inc. (NYSE: SAX), a premier servicer and originator of residential mortgages, for $706 million, or $14.10 per share in cash for Saxon stock. Pending customary regulatory and shareholder approvals, the acquisition is expected to be completed by the end of 2006.

The transaction supports Morgan Stanley's strategy of building a global, vertically integrated residential mortgage business. Saxon adds a premier servicing operation with a scalable U.S. origination platform to Morgan Stanley's substantial existing residential mortgage franchise.

"The acquisition of Saxon is another important step in our long-term strategy of broadening the Firm's global franchise in the critical residential mortgage business, which represents the single largest segment of the global debt market," said Anthony Tufariello, Global Head of the Securitized Products Group. "Saxon builds on our existing origination and securitization capabilities by providing us with an extremely strong servicing platform. This is an important part of the residential mortgage business, and the addition of Saxon will further enhance our risk management of mortgage portfolios. This deal also provides Morgan Stanley with new origination capabilities in the non-prime market, which we can build upon to provide access to high-quality product flow across all market cycles."

The acquisition of Saxon will complement the other initiatives that Morgan Stanley has undertaken to strengthen its mortgage franchise in the U.S., Europe and Asia over the past eight months. In June, the Firm hired Wes Iseley and Arvin Wijay, two experienced executives who successfully built one of the leading mortgage originators in the U.S., to help grow Morgan Stanley's own world-class mortgage origination platform. It also recently hired industry veteran David Spector, who will help build out the Firm's European mortgage franchise, as well as Aaron Goodman, who will help develop a best-in-class mortgage origination and capital markets technology platform.

Morgan Stanley also recently acquired two mortgage businesses in Europe as the Firm builds its residential mortgage platform there. In December 2005, the Firm purchased Advantage Home Loans, a U.K. based mortgage packager, which is providing Morgan Stanley with accelerated access to direct distribution and serving as a key platform within the Firm's broader U.K. residential business. In June 2006, the Firm's Securitized Products Group acquired an Italian mortgage bank and servicer.

Richard A. Kraemer, Saxon's Chairman of the Board, said, "Saxon is very pleased to be joining forces with Morgan Stanley, which is a leader in the securitization of residential mortgages. Morgan Stanley's scale, access to funding and strong mortgage franchise will all help to enhance Saxon's business, particularly as we see increased competition in a consolidating market. Our board and management strongly believe that this acquisition is in the best long-term interests of our shareholders, clients and employees."

Mr. Tufariello said, "The addition of Saxon to Morgan Stanley's global mortgage franchise will help us to capture the full economic value inherent in this business, and put the Firm in a better position to leverage our competitive advantages in trading, risk transfer, credit and structuring as well as our deep expertise in hedging mortgage credit risk. This acquisition facilitates our goal of achieving vertical integration in the residential mortgage business, with ownership and control of the entire value chain, from origination to capital markets execution to active risk management."

Saxon Capital was ranked the nation's 14th-largest non-prime servicer by managed assets in 2005, and services approximately $26 billion of non-prime residential mortgage loans. Saxon also purchases, originates and securitizes non-prime residential mortgages; its mortgage loan portfolio totaled $6.5 billion at March 31, 2006. Headquartered in Glen Allen, Virginia, Saxon Capital has additional primary facilities in Fort Worth, Texas and Foothill Ranch, California.

Morgan Stanley was the lead adviser on the transaction and was also advised by Milestone Merchant Partners, LLC.

Morgan Stanley is a global financial services firm and a market leader in securities, investment management and credit services. With more than 600 offices in 30 countries, Morgan Stanley connects people, ideas, and capital to help clients achieve their financial aspirations.